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I couldn’t resist buying shares in Northamber (LSE:NAR) at 50.4p. Its market capitalisation is 0.504p x 27.5m shares = £13.9m, but its cash holdings will be over £16m once it receives the money from selling its warehouse (announced in July). It has no debt. The only liability is £7.4m of payables which is more than covered by £9.5m in receivables and £3.3m in inventories.
On top of its cash it has an office building which has been granted planning permission for conversion to apartments. This might be worth north of £3m.
The downside with this company is its habit of losing money. Not so long ago it lost over £1m a year in its operating business of selling electronic products wholesale. In the last two years the managers have brought that down to an annual loss of around half a million.
While this is annoying, and calls into question the Board of Directors’ ability to assess strategic positioning and to compete effectively, when the cash pile is so much greater than the MCap Northamber could go on for a number of years with this level of losses and still the net current asset value will be greater than the current MCap.
Mr Market got fed up with Northamber a number of years ago (as I did – I was a shareholder from 2013 to 2016) when the founder, David Phillips, and his personally selected non-executive directors, defied logic and continued business in a highly commoditised industry, losing money hand over fist.
When I queried the rationale for persisting with the same old failed formula (it was always “one more push will do it”) I was accused at an AGM of being “an asset stripper”. I just didn’t see the sense of tying up shareholders’ money and watching it being frittered away.
Very sadly, David died last week. He was always welcoming to shareholders and encouraged a robust debate at the AGMs. The handful of shareholders who turned up could arrange themselves, together with the directors around the board table and engage in a long robust discussion with the Board. David will be greatly missed.
He dominated the company with 63% of the shares. He was a pioneer of electronic wholesale distribution in the UK having started Northamber in 1980. So dominant was he that he has been dubbed the “Godfather of tech distribution industry”. Many future leaders learned their trade under his tough tutelage.
In its first couple of decades Northamber grew into a large and profitable organisation raising turnover to £299m in 2001. But it ran into trouble about two decades ago when the large manufacturers, such as HP, insisted they wanted pan-European distributors and David insisted that staying UK focused was best. Competitors merged to be able to offer the service required by the manufacturers, and Northamber was left behind.
It was further hit by the arrival of powerful US companies into the UK electronic distribution market. Since then Northamber has struggled to make a profit. Turnover is now £50.3m.
David clearly liked running his creation even in when in his seventies. The strategic issue was that what had worked in the 1980s and 1990s – warehouses full of computer peripherals, etc., shipped to retailers, companies, schools, and so on – did not work so well in the internet age with unrelenting pressure on prices from dozens of competitors.
I’m hoping that the Board and the Phillips family will now take a hard look at corporate strategy and consider cutting all operations not generating more than an 8% return on capital employed. That may mean winding down, resulting a distribution of cash to shareholders. Or it may mean a core set of product lines being retained inside a very cash rich company and the possibility of large dividends in years to come.
(Earlier Newsletters on Northamber: 19th – 27th Nov 2014, 13 Dec 2014, 18th – 19th Mar 2015, 8th – 10th Sept 2015, 23rd Oct 2015, 2nd Nov 2015, 16th Dec 2015, 12th – 13th Sept 2015, 24th Oct 2016)
Net current asset value
| £’000s | June 2019 | June 2018 | June 2017 | June 2016 | ||||
| Inventories | 3.3 | 3.4 | 4.2 | 5.0 | ||||
| Receivables | 9.5 | 8.1 | 9.1 | 8.5 | ||||
| Cash | 3.4 | 5.1 | 5.0 | 5.5 |
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