Northamber Investors - NAR

Northamber Investors - NAR

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Stock Name Stock Symbol Market Stock Type Stock ISIN Stock Description
Northamber Plc NAR London Ordinary Share GB00B2Q99X01 ORD 1P
  Price Change Price Change % Stock Price Last Trade
0.00 0.0% 73.00 08:00:00
Open Price Low Price High Price Close Price Previous Close
73.00 73.00 73.00 73.00
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tokyojoe007: A few investors discussed this being a value play around 30p on Advfn, noted the Chadwick notifiable RNS (both in originally and reduced last week), and used the liquidity created by the ST tip to get partially out at a healthy return, in what is a v illiquid share. Me for one, that was before knowing about the tip or listening to the Graeme podcast, which I thought was well presented. Anyhow the bigger question is why the sustained rise, whilst Nar intent on doubling down, on their long held distribution focus - long may the share price continue upwards
rndm355: Graham here. I'm going to have to respectfully disagree with your assessment: - I said in the podcast that anyone who wanted to hold the share for the long term should treat the tip as short term noise, no need to sell into it if that's the case. - the podcast explained in some detail why I think the intrinsic value at Northamber is less than it first appears. - two very experienced and professional investors who know Northamber extremely well and who I know personally did use the share tip to sell Northamber shares (one of these had a publicly notifiable position, the other did not). On the other hand, I don't know of any professional investors who bought into the company on the back of the tip.
spob: his comments about selling into a ST tip were unprofessional imo selling should be related to either ... 'price v intrinsic value on offer' if you are an investor or 'trend reversal/stop loss' if you are a trend following trader anything else shows inexperience
spob: Simon Thompson Investors Chronicle Bargain shares for 2020 7 February 2020 Https:// Northamber Aim: Share price: 53p (6 Feb 2020) Bid-offer spread: 51-55p Market value: £14.5m Website: Founded four decades ago by late chairman David Phillips, Northamber(NAR) is widely recognised as the largest UK-owned trade-only distributor within the IT equipment industry. The business has more than 100 strategic alliances with the industry's leading manufacturers and distributes a comprehensive range of electronic products to provide solutions for the IT and communications needs of small and medium-sized enterprises (SMEs). Northamber is not directly involved with the ultimate users of the products it sells, rather it acts as a hub through which manufacturers provide products to resellers for sale to the ultimate end user. As a result it has to develop strategies with both suppliers and resellers to satisfy the needs of the ultimate users of the products. The strategy is to assess their requirements, source quality products and services from reliable brand-named manufacturers, and make them available to resellers at the best prices in the most efficient time frame. Moreover, with an ever-changing product range coming onto the market, the company needs to seek out fresh new products that will prove attractive to end users. The company operates from its head office in Chessington, Surrey which is home to more than 50 sales and customer support staff and teams working in purchasing, credit service, commercial web and marketing. The IT products are held in an 80,000 sq ft warehouse in Weybridge, which has more than 7,500 pallet bays and 13 loading bays, enabling Northamber to deliver 98.9 per cent of orders the next working day. However, it’s a cut-throat industry, one reason why Northamber has failed to report a profit in any one of the past seven financial years, racking up cumulative pre-tax losses of £6.4m on aggregate revenue of £433m since 30 June 2012. Given this dire performance, and the fact that 85 per cent of the 27.333m shares are held by the top five shareholders, it’s hardly surprising that the shares have underperformed, falling from a peak of 255p two decades ago. In fact, until last summer the share price was trading around its 2009 bear market low of 28p. Despite the chronic underperformance, and a poor operational track record, there are reasons to believe that the share price move since last summer’s lows is the real deal rather than another false dawn. Reasons for optimism Firstly, in the annual results released at the end of last year, acting chairman Geoff Walters made the important point that the planned exit from low-margin and commoditised products is starting to pay off. Gross margin increased from 8.4 per cent in the first half of the financial year to 8.8 per cent on 7 per cent higher six-monthly revenue of £26.1m in the second half. This has been helped by the expansion of audio-visual solutions products. Indeed, increasing profitable product ranges helped drive a reduction in the six-monthly pre-tax loss from £353,000 to £245,000. Also, one reason for the loss is that a supplier of a new product breached its contract with Northamber, which led to lost sales and contribution. Northamber swiftly took action against the supplier and a related party, which has resulted in an interim award judgement of £431,000 plus costs in its favour. Secondly, the company has a cash-rich balance sheet and one that has been boosted significantly following the £16.4m cash sale (post the 30 June 2019 financial year-end) of the aforementioned Weybridge facility. The property was purchased by Northamber for £6.35m in April 2012 and is valued in the company’s accounts at £6m. This means that Northamber’s cash pile will have soared more than fivefold to £19.8m when the sale completed, a significant sum in relation to the company’s market capitalisation of £14.5m and its last reported NAV of £16.6m. Admittedly, Northamber has agreed to pay rent of £175,000 to the vendor of the Weybridge property for the next two years as part of the sale agreement, but it has also recently acquired a 51,000 sq ft freehold warehouse on a two-acre site in Swindon for £3.2m and one that meets the company’s current requirements. It is much closer to its courier partner, too. I would flag up that Northamber holds one other unencumbered freehold property which has a book value of £1.8m and is conservatively valued in the accounts. The point being that even if you ignore the £5m value of these two unencumbered freehold properties, I reckon Northamber’s pro-forma current assets of £29.5m are four times higher than its last reported current liabilities of £7.4m, so the company’s working capital position is incredibly strong and offers investors the “margin of safety” that Ben Graham was looking for. Furthermore, net current assets of £22.1m are 1.5 times the company’s market capitalisation of £14.5m. Factor in the value of the freehold properties and I estimate a live NAV of £26.6m, or 97p a share. That’s almost double the current share price. Thirdly, with the benefits of a cash rich balance sheet, Northamber completed earlier this week the £2.1m acquisition of audio-visual distributor Audio Visual Materials (AVM), a company that reported a pre-tax profit of £300,000 in its 2018 financial year. Northamber’s directors feel the business will help expand its own audio visual segment and drive higher growth for IT and audio visual resellers in certain key areas including professional displays, video conferencing, and room booking systems. After taking into account the improvement in Northamber’s trading results, the contribution from AVM certainly supports a move back towards operating profitability for the enlarged entity. The bottom line Northamber is a debt free company which will have £14.5m of cash once the Swindon warehouse purchase completes, will own two unencumbered freehold properties that are conservatively worth £5m and perhaps significantly more on the open market, and is trading in line with cash even though the business is showing signs of improvement and earlier this week completed the AVM earnings’ accretive acquisition. Also, there is a possibility that Northamber could itself become a target after founder and 63 per cent shareholder Mr Phillips passed away in December at the age of 74. He is survived by his wife, son Alexander (who has a director role at the company) and daughter. Please note that although the shares are tightly held – excluding the top five shareholders there are only 4.1m shares in issue – it’s possible to trade in bargain sizes well in excess of the London Stock Exchange normal market size of 1,000 shares. Indeed, in the past month trades of up to 25,000 shares have passed through the market between the official bid-offer spread. Bargain buy.
tokyojoe007: Agree from a capital allocation perspective, though first time they have taken such an action since 2012, despite a similar discount to NAV throughout those 6 years, to purchase for cancellation (multiples of the amount 6-7 years ago) so soon after the new investor purchases a large stake, sounds interesting to me..... if they’re just about returning towards profitability, on top of the asset play, which is cash and properties, then might be an interesting next few years. Well aware people have been saying that for a decade, so no advice intended, GLA
rainmaker: Hi Glen, I think we probably share the same attitude with regard to CEOs that, unless we have evidence to the contrary or that person or organisation has shown themselves to be untrustworthy or unreliable, we should expect them to be competent and able and accept what they have to say at face value. I think there are too many cynical Investors trying to interpret everything a Company says.To paraphrase a famous Playright, a cynical Investor knows the price of everything but the value of nothing. I think there is high uncertainty here but of course that doesn't always equate to high risk-although numerous Investors would lump the two together and in those sorts of situations, therein lies opportunities. regards
profdoc: Thanks, Ben, Arthur and RM, for providing much food for thought. I think we all agree that this company has a lot of value, but have different degrees of faith in the prospect of Mr Phillips behaving with honour and treating all shareholders equally. Given the evidence that I gathered (see earlier post) and the comments from RM, I, for one, am prepared to trust him (as investors, we cannot distrust everyone – there lies paralysis). Putting to one side the integrity of the CEO we will still need to be concerned with the tendency of executives to love their business and continue in the same line of work. This can cloud their judgement with regard to ROCE – an optimism bias. Ideally we need capital reallocated to higher return areas. If it was me, I would see Northamber as Berkshire Hathaway in 1965. Stuck in an industry with poor economics. I would then allocate capital to value investing opportunities. What Northamber lacks in terms of industry prospects when compared with Titan it makes up for with an enormous gap between asset values and market capitalisation.
rainmaker: Ben, I hate to disagree with one of the Country's top Stock Market Value Investors twice in two days but that's exactly the way I see it :>) best wishes Rain
rainmaker: Hi Ben-I don't feel the same way about the CEO. I think he's done an outstanding job in managing the business by controlling costs tightly and debt risk in a market with over capacity, wafer thin margins and cut throat competition. IMHO he's already run the business with the aim of enhancing shareholder value and always been fair to shareholders with special dividends and share buybacks. Obviously his and shareholders interests are mutally compatible.I would be very surprised if he shafted shareholders and with him owning some 64% of shares how much would he really save by making a derisory offer.Would this be worth sacrificing his good reputation for? Northamber are competing against much larger players and as I see it, their only real advantage is the ability to move quickly and capitalise on opportunities as and when they occur.Perhaps Northamber will be a case of a rising tide lifting all boats and perhaps competitors will reluctant to continue to chase turnover for the sake of it in a period of economic expansion after several difficult years. With a Company like Titon you know that their future is bright but obviously the same cannot be said of Northamber. My impression of Northamber at current prices is that there is a definite opportunity and there is also a substantial margin of safety available as well.Given the Company's high stock turn,average debt collection period and low bad debt risk(at the height of the recession their bad debt figure was just 0.25%) and from memory, lack of stock provisions ,I would personally not discount it's value of inventory or accounts receivables.As a Value Investor, I'm always prepared and willing to err on the side of caution and take a very conservative measures of values but I just don't think it's needed.Unusually for a Value share I have no idea how the intrinsic value will be closed but there are numerous possibilities. AIMHO, DYOR eregards
rainmaker: Thanks FTG, agreed.I can't say I'm too tempted at current levels probably around 30p is when I give them Company some serious attention with a view to buying. I've seen similiar comments about Titon Holdings(TON)returning capital to shareholders through a special dividend.However Investors need to take into account these Companies working capital requirements ie what capital they need to finance their day to day operations without resorting to additional borrowing. I think Northamber's working capital requirement was circa £9mln. It's very easy to calculate a company's trade cycle, in effect the number of days it takes for their cash to go into trade payables, into stock, into account receivables and back into cash again. You just need to work out the number of days inventory add the number of days accounts receivable and subtract the number of accounts payable. Some businesses will actually have a negative conversion cycle so they receive payments before they spend on operating expenses. Some good examples are Amazon, Dell Computers, Newspaper Groups.Mallett's annual Masterpiece exhibition in which they hold a 23.75%stake, is another one as they receive payment from Exhibitors some 8 months before the vast majority of expenses are incurred ie when they stage the actual exhibition. regards
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