I have calculated the fair and present value of Aldila’s earnings power to be worth approximately $4.90 per share. I assumed as part of this calculation that Aldila will continue as a going concern. Determining the earnings power value involved calculating the equity holder free cash flows. To be clear, the earnings power value calculation has nothing to do with balance sheet asset values of the company.
One step I took in calculating the earnings power value was to investigate the average operating margin (operating earnings / sales) for the company during the period between 1997 and 2007. It’s important to take a full business cycle in calculating average operating margins because any given year could produce uncommon financial results. For example, during this 10 year period, the highest operating margins occurred in 2004 and 2005 and the lowest margins occurred in 1999, 2001 and 2002. The highest operating margin years over this period coincided with Aldila’s most successful product launch to date with their “NV” line of golf shafts. While shareholders can be hopeful for a repeat of the “NV” shaft success with the recently launched “VooDoo” shafts, for valuation purposes, you will want to use values that you feel reasonably sure will be sustainable in the future. I don’t feel reasonably sure that Aldila will duplicate the success of 2004 and 2005 on an annual basis, but I feel much more confident that they could reproduce the average results obtained during the entire 10 year period.
Fundamental changes to a business model need to be evaluated for significance. It's best to avoid using historical data that doesn’t take into account the recent fundamental business changes as the results can be misleading. Aldila has made some fairly recent changes over the past few years such as selling their joint venture interest in Carbon Fiber Technology LLC (CBT) as well as exiting the hockey stick manufacturing business. My opinion is that both of these changes will not significantly alter future operating margins from the average operating margins calculated during the 1997 - 2007 period. Firstly, external sales of CBT were insignificant contributions to Aldila’s total revenues. Secondly, Aldila has secured purchase agreements guaranteeing the amounts of carbon fiber available to them over the next 5 years. Thirdly, there has been a carbon fiber industry capacity expansion and if this trend continues, it becomes more likely that future supply will be available. Lastly, the hockey segment was a very small component of Aldila’s overall operations and shouldn’t significantly affect operating margins by much. Hockey shaft sales were under 3% of the Aldila’s total sales.
One other important aspect in my earnings power calculation is that I did not account for any growth in sales. I wanted to use a conservative view of Aldila’s earning power potential and not inflate the valuation with what would likely be inaccurate estimates of sales growth. In addition to being conservative, I also believe that this valuation is grounded in facts since I used the average operating performance that Aldila actually produced over the past 10 years.
One potential problem with my earnings power valuation is that Aldila has 3 major customers that account for nearly 65% of their total sales. This concentration of customer sales affords negotiating power to the customers that might have a negative impact on Aldila’s operating margins going forward. One way to deal with this is to more thoroughly investigate the relationships and contracts that exist between Aldila and the their top customers. Another approach is to play the “what if” game and calculate the valuation impact under a slew of different scenarios. In any event, I valued Aldila’s earning power with the top 3 customer relations intact but assumed no growth of sales.
In summary, Aldila is an interesting value play. The stock is trading at less than both book value and earnings power value, it has a trailing P/E ratio of less than 2.5 and it pays 60 cents per share dividend. If Aldila is able to at least replicate the operating success of the past decade into the future then Mr. Market is currently offering this stock at a discount to its intrinsic value.
DISCLOSURE: The author does not have a position in Aldila
Wednesday, July 16, 2008
Value In Action: Phoenix Canada Oil
We often hear that value investing is dead. The argument is as follows: you can't find bargains in the market anymore because it's so easy to get information nowadays that stock prices fully reflect the intrinsic values of the underlying companies.
From our research, this is not the case. As examples, we've discussed here and here how a diligent investor could have profited from both Melcor in the 90s and Hammond Power in 2005. But you will have to find companies trading at such discounts yourself. You won't hear analysts pushing these stocks, as their market caps are small and their industries aren't hot. But those are the kinds of stocks we like to invest in.
Another great example of a company that flew under the radar is Phoenix Canada Oil of 2005. It traded at a market cap of around $6.3 million as recently as June 2005. Its oil operations were losing a bit of money each year, but that's not really the source of our interest. A closer look at some of the larger balance sheet items reveals the following:
Cash + Marketable Securities..........9,000,000
Investments..............................................83,290
Total Assets.............................9,425,120
Total Liabilities.........................167,757
So this company was already trading at a discount to just its cash on hand! All told, this company was trading at about a 30% discount to its book value, with cash being the bulk of that book value!
But we're not done there. A closer look at the "Investments" line item reveals that 83,290 represents the cost of certain investments. Buried in the notes, the market value of these investments is revealed to be $1.8 million. Allowing for some taxes on the gains (which would occur if they decided to sell these investments), the discount now becomes about 40%.
The benefit of looking at some of these stocks in the past is that we can see what happened after! Well, six months later, the stock jumped to a market cap of more than $30 million, representing almost a 500% gain. It certainly overshot our estimates, but nevertheless an investor would have made a nice gain selling on the way up, had he recognized this disparity between the company's market value and its intrinsic value.
From our research, this is not the case. As examples, we've discussed here and here how a diligent investor could have profited from both Melcor in the 90s and Hammond Power in 2005. But you will have to find companies trading at such discounts yourself. You won't hear analysts pushing these stocks, as their market caps are small and their industries aren't hot. But those are the kinds of stocks we like to invest in.
Another great example of a company that flew under the radar is Phoenix Canada Oil of 2005. It traded at a market cap of around $6.3 million as recently as June 2005. Its oil operations were losing a bit of money each year, but that's not really the source of our interest. A closer look at some of the larger balance sheet items reveals the following:
Cash + Marketable Securities..........9,000,000
Investments..............................................83,290
Total Assets.............................9,425,120
Total Liabilities.........................167,757
So this company was already trading at a discount to just its cash on hand! All told, this company was trading at about a 30% discount to its book value, with cash being the bulk of that book value!
But we're not done there. A closer look at the "Investments" line item reveals that 83,290 represents the cost of certain investments. Buried in the notes, the market value of these investments is revealed to be $1.8 million. Allowing for some taxes on the gains (which would occur if they decided to sell these investments), the discount now becomes about 40%.
The benefit of looking at some of these stocks in the past is that we can see what happened after! Well, six months later, the stock jumped to a market cap of more than $30 million, representing almost a 500% gain. It certainly overshot our estimates, but nevertheless an investor would have made a nice gain selling on the way up, had he recognized this disparity between the company's market value and its intrinsic value.
Tuesday, July 15, 2008
Security Analysis: Chapters 12 and 13
Security Analysis by Ben Graham and David Dodd is a must read for anyone serious about value investing.In Chapters 12 and 13, Graham and Dodd discuss various special factors to be aware of when it comes to making a purchase as a fixed-income investment.
The authors suggest that investors in this type of security do not need to be experts in the business. If the investor is uncertain about the ability of the business as a going concern, he should simply demand higher interest coverage and higher residual value requirements (as discussed in Chapters 10 and 11), rather than attempt to analyze industry metrics he knows nothing about.
When calculating interest coverage, investors should be sure to include depreciation as a prior fixed charge. In order for the business to survive, it must maintain its capital assets, and as such it is not free to spend its maintenance requirements on interest charges. The authors scold the investment banking industry for skirting this issue, and discuss examples where bond issue prospectuses are on the verge of fraud as interest coverage is calculated without subtracting depreciation expenses.
Graham and Dodd are also unimpressed with the way junior debt interest coverage is calculated. As discussed in Chapters 8 and 9, interest coverage should be determined by using total debt as the denominator, and not junior debt in the denominator with a senior charge against the numerator. The following example illustrates the argument:
Operating Income.........................1,000
Senior Debt Interest........................400
Junior Debt Interest........................100
The authors argue that junior interest coverage should be calculated as follows: 1000 / (400 + 100) = 2. However, in order to dupe the public into buying this issue, many banks would subtract the senior charge from the operating income first, and then divide by the junior charge as follows: (1000 - 400) / 100 = 6. This suggests interest coverage for the junior debt is higher than that of the senior debt, which is ridiculous since the senior charge will always take precedent.
The authors argue that the finance industry also tends to make companies look like they're in stable industries even when they are not. Investors are cautioned and asked to think critically about the industries in which they are investing, and to once again consider the business as it is in times of depression, as discussed in Chapter 7, Part I, rather than accept at face value the statements of the investment banks.
Readers are also warned to include as fixed charges any preferred stock of subsidiaries, since these often act senior to the parent's bonds: before a subsidiary can pay its parent company, it has to pay its pref shares.
Graham and Dodd also caution investors to subtract income owed to minority interest from operating earnings in order to calculate earnings that can be used to pay debt interest. On most income statements, minority interest is subtracted only after debt interest charges.
Finally, in calculating debt to stock ratios (in order to determine if there is an adaquate residual value above the debt as a margin of safety), debt should include capitalized fixed charges (e.g. operating leases). This is done by discounting all future lease obligations to a present value.
Onto Chapter 14
Monday, July 14, 2008
Value In Action: Glendale
Occasionally, we have guest authors contribute to this blog. The following post was written by Stephen Stewart, C.A., M.B.A. (Richard Ivey School of Business).
Benjamin Graham frequently refers to ‘net-net’s in his writing as a prized investment opportunity. A ‘net-net’ is a company where the combined value of its current assets less all of its liabilities is greater than the market capitalization of the company. From a value investing standpoint, these companies are perceived to have minimal risk.
In today’s investing world it is hard to find companies that meet this criteria. If an investor screens stocks carefully some can be found. One such example is Glendale International (GIN-T), which is listed on the Toronto Stock Exchange. Glendale International is a holding company that owns two recreational vehicle (RV) businesses and has a large stake in a publicly listed technology firm, Firan Technology Group (FTG-T).
Using some basic value investing stock filter for a low BV/MV will quickly identify Glendale as a potential value investment. Some quick calculations on the May 31, 2008 statements indicate that the shares are trading substantially below the book value of equity (BV of equity of $35.5 million versus a market capitalization of $17.0 million). There is also a substantial amount of cash on the balance sheet, accounting for almost a third of the equity. Overall this looks like a promising candidate for a net-net. On the negative side, Glendale is losing money.
Buying into a net-net is founded on the belief that the value can be realized from the resources of the company. This is because net-nets are almost always companies that are failing to achieve an acceptable return on invested capital or are unprofitable altogether (as is the case with Glendale). Resource realization can take many forms: liquidation, sale of the assets or a change industry characteristic that will allow for a higher return on capital. This analysis will focus on the first two, under the assumption that an investor can create the conditions for a catalyst event to occur through shareholder activism, board influence or takeover.
Performing a net-net analysis requires a careful read of the financial statements and accompanying notes to understand the nature of the assets and liabilities of a company. Glendale is a perfect case of this. The goal of this process is to unlock value from the balance sheet.
The first issue that emerges from the financial statements is that the balance sheet is really a combination of two separate businesses, the 100% controlled RV business and the consolidated 43.6% interest in Firan. Firan is a publicly listed company with a market capitalization of $14.0 million. This interest could be distributed directly to shareholders or sold to a third party. This would allow for approximately $6.0 million in value realization. Doing this though means that Firan needs to be carved out from the balance sheet:
This leaves the Glendale portion of the business with total balance sheet liabilities of $4.0 million (the minority interest and deferred gain are not real liabilities). Cash totals $10.8 million. Non cash liquid assets (inventory and accounts receivable) total $16.6 million.
The remaining assets likely have little liquidation value with the exception of the Note Receivable. Per notes to financial statements this is a mortgage. Upon liquidation or sale, a value of $1.9 million could be realized from this financial instrument.
The ‘Investment’ is peculiar as it is an ownership interest of 11% in the management buy-out (MBO) company that owns 3,620,000 shares on Glendale (29% interest). The MBO currently owes Glendale $4.4 Million, which is secured by the shares of Glendale. For purposes of this analysis the loan will be treated as an asset and the shares will be included in the total outstanding (12,487,017). However of this amount Glendale effectively owns 398,200 of itself, thereby reducing the total to 12,088,817.
As a sale of the business will generate higher proceeds than liquidation, it is important to determine the liquidation value to establish a value floor.
To determine the liquidation value of current assets some industry knowledge is required. A read of the MD&A indicates that the RV business is in decline due to a myriad of factors. This reduces the amount we can expect to realize on inventory and receivables. To be conservative lets assume that receivables will be recoverable at 80% and inventory at 40%. This will provide $7.8 million in cash.
Liquidating a business will result in significant closure and severance costs, so a provision of $2.0 million will be added. This leaves us with a liquidation value of:
The stock is currently trading between $1.20 and $1.35. This would imply an upside on liquidation of over 50%. If the RV business could be sold in its entirety for more than $1.7 million then the gain would be higher.
Overall this is a good example of where a catalyst event can result in substantial gains on resource conversion.
Benjamin Graham frequently refers to ‘net-net’s in his writing as a prized investment opportunity. A ‘net-net’ is a company where the combined value of its current assets less all of its liabilities is greater than the market capitalization of the company. From a value investing standpoint, these companies are perceived to have minimal risk.
In today’s investing world it is hard to find companies that meet this criteria. If an investor screens stocks carefully some can be found. One such example is Glendale International (GIN-T), which is listed on the Toronto Stock Exchange. Glendale International is a holding company that owns two recreational vehicle (RV) businesses and has a large stake in a publicly listed technology firm, Firan Technology Group (FTG-T).
Using some basic value investing stock filter for a low BV/MV will quickly identify Glendale as a potential value investment. Some quick calculations on the May 31, 2008 statements indicate that the shares are trading substantially below the book value of equity (BV of equity of $35.5 million versus a market capitalization of $17.0 million). There is also a substantial amount of cash on the balance sheet, accounting for almost a third of the equity. Overall this looks like a promising candidate for a net-net. On the negative side, Glendale is losing money.
Buying into a net-net is founded on the belief that the value can be realized from the resources of the company. This is because net-nets are almost always companies that are failing to achieve an acceptable return on invested capital or are unprofitable altogether (as is the case with Glendale). Resource realization can take many forms: liquidation, sale of the assets or a change industry characteristic that will allow for a higher return on capital. This analysis will focus on the first two, under the assumption that an investor can create the conditions for a catalyst event to occur through shareholder activism, board influence or takeover.
Performing a net-net analysis requires a careful read of the financial statements and accompanying notes to understand the nature of the assets and liabilities of a company. Glendale is a perfect case of this. The goal of this process is to unlock value from the balance sheet.
The first issue that emerges from the financial statements is that the balance sheet is really a combination of two separate businesses, the 100% controlled RV business and the consolidated 43.6% interest in Firan. Firan is a publicly listed company with a market capitalization of $14.0 million. This interest could be distributed directly to shareholders or sold to a third party. This would allow for approximately $6.0 million in value realization. Doing this though means that Firan needs to be carved out from the balance sheet:
This leaves the Glendale portion of the business with total balance sheet liabilities of $4.0 million (the minority interest and deferred gain are not real liabilities). Cash totals $10.8 million. Non cash liquid assets (inventory and accounts receivable) total $16.6 million.
The remaining assets likely have little liquidation value with the exception of the Note Receivable. Per notes to financial statements this is a mortgage. Upon liquidation or sale, a value of $1.9 million could be realized from this financial instrument.
The ‘Investment’ is peculiar as it is an ownership interest of 11% in the management buy-out (MBO) company that owns 3,620,000 shares on Glendale (29% interest). The MBO currently owes Glendale $4.4 Million, which is secured by the shares of Glendale. For purposes of this analysis the loan will be treated as an asset and the shares will be included in the total outstanding (12,487,017). However of this amount Glendale effectively owns 398,200 of itself, thereby reducing the total to 12,088,817.
As a sale of the business will generate higher proceeds than liquidation, it is important to determine the liquidation value to establish a value floor.
To determine the liquidation value of current assets some industry knowledge is required. A read of the MD&A indicates that the RV business is in decline due to a myriad of factors. This reduces the amount we can expect to realize on inventory and receivables. To be conservative lets assume that receivables will be recoverable at 80% and inventory at 40%. This will provide $7.8 million in cash.
Liquidating a business will result in significant closure and severance costs, so a provision of $2.0 million will be added. This leaves us with a liquidation value of:
The stock is currently trading between $1.20 and $1.35. This would imply an upside on liquidation of over 50%. If the RV business could be sold in its entirety for more than $1.7 million then the gain would be higher.
Overall this is a good example of where a catalyst event can result in substantial gains on resource conversion.
Ritchie Brothers: Fully Priced
Ritchie brothers (NYSE: RBA) is a great company. Does that automatically make it a buy? Absolutely not. Great company or not, in order to qualify as a buy for us, a company must be trading at a discount to its intrinsic value.
In the last five years, the stock is up 500%, while earnings are up "only" 300%, suggesting a lot of the value in this company has been recognized recently. Obviously it's not sustainable for a company's stock price to constantly outperform its earnings, so in a situation like this you want to be sure the company still has a margin of safety despite its price run-up.
The company appears to have great earnings potential going forward, however. RBA is a global company currently claiming only a 3% market share of the world's commercial used truck and equipment market. Despite this, the company claims to be larger than the combined value of its 50 closest competitors, leaving it both the strength and the opportunity to grow!
Ritchie appears to be trying to take advantage of this opportunity, heavily investing in acquiring new auction sites. They appear to have existing relationships with both buyers and sellers of industrial equipment, which makes it tough for competition to turf them. They plan to grow EPS at 15% per year by gradually adding auction sites around the world.
With this in mind, my valuation of the shares comes to around $25, which is close to where it trades today.
However, there are some risks with RBA. This is a high fixed-cost business, requiring investment in personnel, offices and permanent auction sites. That means when sales aren't as high as forecasted (say in a downturn, or something unexpected happens), the company can't just scale down its costs accordingly, as it has fixed charges it has to maintain in order to remain effective. However, it has mitigated this effect to some extent by spreading itself out geographically.
But to increase shareholder value, management has plenty of room to improve its capital structure. Even though it has some $320 million in land and buildings at book value (most likely a conservative statement of their market value), they carry only $45 million in debt. Although this is the safest way to do business, they could easily triple debt levels and still have great interest coverage and high levels of equity in their properties. But this would allow them to take better advantage of cheaper capital and the tax shield offered by interest payments and thereby increase shareholder value above that which it trades today.
In the last five years, the stock is up 500%, while earnings are up "only" 300%, suggesting a lot of the value in this company has been recognized recently. Obviously it's not sustainable for a company's stock price to constantly outperform its earnings, so in a situation like this you want to be sure the company still has a margin of safety despite its price run-up.The company appears to have great earnings potential going forward, however. RBA is a global company currently claiming only a 3% market share of the world's commercial used truck and equipment market. Despite this, the company claims to be larger than the combined value of its 50 closest competitors, leaving it both the strength and the opportunity to grow!
Ritchie appears to be trying to take advantage of this opportunity, heavily investing in acquiring new auction sites. They appear to have existing relationships with both buyers and sellers of industrial equipment, which makes it tough for competition to turf them. They plan to grow EPS at 15% per year by gradually adding auction sites around the world.
With this in mind, my valuation of the shares comes to around $25, which is close to where it trades today.
However, there are some risks with RBA. This is a high fixed-cost business, requiring investment in personnel, offices and permanent auction sites. That means when sales aren't as high as forecasted (say in a downturn, or something unexpected happens), the company can't just scale down its costs accordingly, as it has fixed charges it has to maintain in order to remain effective. However, it has mitigated this effect to some extent by spreading itself out geographically.
But to increase shareholder value, management has plenty of room to improve its capital structure. Even though it has some $320 million in land and buildings at book value (most likely a conservative statement of their market value), they carry only $45 million in debt. Although this is the safest way to do business, they could easily triple debt levels and still have great interest coverage and high levels of equity in their properties. But this would allow them to take better advantage of cheaper capital and the tax shield offered by interest payments and thereby increase shareholder value above that which it trades today.
Sunday, July 13, 2008
Security Analysis: Chapters 10 and 11
Security Analysis
by Ben Graham and David Dodd is a must read for anyone serious about value investing.In these two chapters, Graham and Dodd complete the set of minimum requirements for fixed-income investments.
In Chapter 10, they explore various types of liens and discuss the relative merits of each. Although in Chapter 6, the authors made clear that in practice liens are worth little, in this chapter they delve into various types of liens and allow some exceptions where they believe investors do have backup protection in case the business can't make its obligations.
One special case where liens hold value is when a loan is secured against a specific property which has independent salable value. The authors use an analogy to a pawnbroker who loans money but does not care about the creditworthiness of his client, because he holds in his possession property worth in excess of the loan.
However, its very easy to fall victim to supposed security. In many cases, the value of the asset is tied directly to the business' earnings, even though it may not always be clear. The authors illustrate this with a typical real-estate example. Consider a house that is purchased for rental purposes with a loan secured against it. If rental rates decrease and no longer cover the required interest payments, the house has actually lost much of its value as a result of its decreased rental power. As such, the supposed security of the loan against the house is of little benefit to the lender, unless the value of the house to begin with was far greater than that of the loan.
In Chapter 11, Graham and Dodd add one more requirement to the test for whether a bond should be thrown out as a potential investment. The authors want to make sure there is value in the company above and beyond the value of the debt. This residual value acts as a margin of safety, for the larger it is, the more the fixed-income security is protected from a drop in the value of the company. The authors argue that the best measure of the residual value above the debt is the market value of the stock.
The authors are careful to mention that by no means is the market value of the stock used as a reliable measure of the instrinsic value of the company, but rather only as a rough index that there is substantial equity behind the bonds.
Book value is judged to be inadaquate as a measure of the value above the bonds, since the assets on the balance sheet may be over or understated, and therefore the market value of the stock is a better measure of the fair value of the equity of the company.
The authors go on to demonstrate examples of various bonds selling with adaquate interest coverages (average earnings over interest requirements) but where certain companies have stock values far in excess of others (and better bond yields as well!), and suggest that these companies are clearly better choices as debt investments.
Onto Chapter 12
Saturday, July 12, 2008
Value In Action: Hammond Power Solutions
Recently, a Globe and Mail article extolled the virtues of Hammond Power Solutions (TSE: HPS). The stock has a market cap of only $140 million, but caught The Globe's eye since the stock is up 12 times over since 2004. In April of 2008, Cormark Securities initiated coverage of this company, giving it a buy recommendation, and sending the stock price soaring over 10% that day on high volume.
But the stock went from $1 to $12 in the last four years, and the buy recommendation comes now? While the stock might still be a buy, it would seem most of the value in this stock has already been realized, since the stock has appreciated far more than have the earnings. But could someone really have seen this price appreciation coming? Maybe not all of it, but if we look at Hammond as it stood in 2004, we see evidence of an obscure stock trading at a large discount to its intrinsic value, which is something we don't see now!
On Dec 31st, 2004, HPS had a market cap under $13 million, yet it had a book value of $19 million. This alone doesn't tell you much, as the company could have a large amount of assets tied up in equipment which has a fair value far lower than book value, and/or could have large amounts of debt threatening its solvency.
But a closer look at the assets in 2004 reveals that the company's accounts receivable and inventory are enough to cover all of its liabilities. In addition, the company has capital assets of $11 million, a large part of which include land and buildings that the company has been carrying at book value for several years. Furthermore, the company has additional investments in stocks, loans and real estate which are not required for operations (one of which they sold for a gain in 2008).
In 2004, HPS traded at a P/E of less than 10. While it has a similar P/E today, you can no longer buy its assets at a discount. In fact, you would be paying almost 3 times book value if you bought the stock today. Does this mean you would be overpaying? Not necessarily, as the company may have relationships with customers, suppliers, technical know-how and real-estate that is understated by its book value. However, there is little in the way of a margin of safety at today's price. We prefer to buy companies when they are trading at clear discounts to their intrinsic values, like this company was in 2004.
But the stock went from $1 to $12 in the last four years, and the buy recommendation comes now? While the stock might still be a buy, it would seem most of the value in this stock has already been realized, since the stock has appreciated far more than have the earnings. But could someone really have seen this price appreciation coming? Maybe not all of it, but if we look at Hammond as it stood in 2004, we see evidence of an obscure stock trading at a large discount to its intrinsic value, which is something we don't see now!On Dec 31st, 2004, HPS had a market cap under $13 million, yet it had a book value of $19 million. This alone doesn't tell you much, as the company could have a large amount of assets tied up in equipment which has a fair value far lower than book value, and/or could have large amounts of debt threatening its solvency.
But a closer look at the assets in 2004 reveals that the company's accounts receivable and inventory are enough to cover all of its liabilities. In addition, the company has capital assets of $11 million, a large part of which include land and buildings that the company has been carrying at book value for several years. Furthermore, the company has additional investments in stocks, loans and real estate which are not required for operations (one of which they sold for a gain in 2008).
In 2004, HPS traded at a P/E of less than 10. While it has a similar P/E today, you can no longer buy its assets at a discount. In fact, you would be paying almost 3 times book value if you bought the stock today. Does this mean you would be overpaying? Not necessarily, as the company may have relationships with customers, suppliers, technical know-how and real-estate that is understated by its book value. However, there is little in the way of a margin of safety at today's price. We prefer to buy companies when they are trading at clear discounts to their intrinsic values, like this company was in 2004.
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