Friday, August 29, 2014
Powermatics: Potential hidden value in overlooked network products distributor. The distributor of networking products is a textbook deep value play, trading at 0.5x P/RNAV and offering a recurring 5.8% yield, based on a consistent dividend of 1¢ annually. Key to Powermatic’s valuation is its investment property – two adjoining six-storey freehold industrial buildings located at 7 & 9 Harrison Road. The properties are recorded at a book value of $18.7m, against a market valuation of $32.4m, more than Powermatic’s entire market cap of $31.2m. In addition, Powermatic holds the following key items on its balance sheet: - cash of $17.5m ($0.10/share) - financial assets of $7.1m ($0.04/share) - no debt and minimal liabilities From an asset-valuation standpoint, Powermatic could be worth an additional $0.14/share from current levels, implying ~78% upside. As a possible catalyst, if Powermatic decides to adopt fair value accounting for its investment property in its FY14 results, the group may be able to record a tidy one-off gain (~$13.7m) and lift its stated NAV from the current $0.26/share to ~$0.34/share. Key risks in the stock are: - Generally low trading liquidity - Potential business obsolescence, due to the increasing popularity of online purchases by end users, and substitution from system-on-chip products.