Value Investing Ideas

This is NOT A RECOMMENDATION TO BUY. Information only. Really. Also, note that I wrote this awhile ago, when the market wasn’t offering such compelling ideas.

Bexil corporation is the easiest company in the world to value, and the hardest to talk yourself into buying.

Cash on hand: $43.71/share
debt: $0
income: $100K/quarter, net taxes (income from cash invested in treasuries)
other assets: none worth mentioning.
Share price: $23

Buy $44 in cash for $23

What gives?

They sold off their previous business (York Insurance Services Group, Inc) in 2006 for cash. Since then, they have been looking for a new company to buy. So far, bupkiss. Nothing. They just have the money sitting in treasuries and money market funds. From that they are deriving a bit of income, and paying the meager salaries. Essentially treading water, neither adding or diluting value.

Since the sale they have been stating that they want to buy a new business. Their criteria are Buffett-like:

• A proven track record with demonstrated earning power.
• A seasoned business with solid customer relations.
• Good return on equity, little or no debt.
• Solid management. Audited financials required.
• Particularly interested in a “spin-off” from a larger company

However, while Buffett has been snatching up companies, they have done nothing. Come on, already!

Bexil is largely owned (well 25%) by a parent company Winmill, which basically runs some funds, owns some subsidiaries. They seem to have let this languish for some time. The stock trades OTC, and has zero press or interest.

upside:

Scenerio 1: they decide to go out of business, and issue a 1 time dividend.
ROI: 83%

Scenerio 2: They buy an average company for what it is worth. Stock price adjusts to company’s value. ROI: 83%

Scenerio 3: They take advantage of the unique market we are in, and buy a company at a significant reduction. We get 2 multipliers here: the crazy stock price of Bexil itself ($44 for $24), and then the discount of the company bought (say 50% discount). ROI 160%+

Scenerio 4: Same as scenerio 3, except the company they buy has appreciation potential of 15-20% yearly. ROI: sky is the limit.

Downside:

1. They buy a bad company for too much money, frittering away the value. They would have to pay 2x what the company is worth for us to break even, > 2x for us to lose money. ROI: 0% to worse than 0%.

2. They issue or incur a lot of debt to buy a bigger company, reducing the enterprise value down to about the stock price. ROI: 0%.

Difficulties:
They only have $38M in cash, so they are restricted to micro-caps. This market is turning some good companies into microcaps, however. It’d be pretty exciting to buy an already extremely undervalued company for nearly half off that price.

Catalyst:

Buying a company, or issuing a special dividend. Winmill puts the pressure on them to realize value.

There is no way to know what they will do. They talk the Buffett talk. Will they walk it? Who knows. Work out what you think the probabilities of each the scenarios are above, and you can put an expected value on the stock (with large margin of error).

Value? Value trap? I dunno. I just thought it was interesting to share - pretty darn rare to ever be able to buy $44 for for $23. Schloss would be all over it. Buffett would pinch his nose and walk away (unless he could buy majority control). In this market I’m finding 10-20 baggers (more about those in future posts. Why put cash in a company that has done nothing with their cash in 2 years?