Northamber Share Discussion Threads

[jpeel60] 18/2/2020 12:10

In this latest podcast, Graham talks about the “Simon Thompson effect” on share prices, Northamber (#NAR), and the astonishing RNS from Tandem Group (#TND), where Graham is a shareholder.

[spob] 17/2/2020 22:55

Simon Thompson

Investors Chronicle

Bargain shares for 2020


7 February 2020




Northamber

Aim: Share price: 53p (6 Feb 2020)

Bid-offer spread: 51-55p

Market value: £14.5m

Website: northamber.com

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 dot.com 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.

[rndm355] 13/2/2020 12:25

Discussed here:

[spob] 07/2/2020 12:09

just need a few more clueless directors to either pop their cloggs or wake up and i'll be over the moon

Lol

[spob] 07/2/2020 12:07

hidden value here being recognised is very very good news to me this morning :)

[wynmck] 07/2/2020 11:42

yes ST...he estimates 97p nav

[cjohn] 07/2/2020 08:39

And I thought it must be some good news!

[eezymunny] 07/2/2020 08:23

I suspect included in Simon Thomson's 2020 Bargain Shares. Wonder if his NAV calc is anything like that Stocko chap. 130p/sh was it?

[cjohn] 23/12/2019 12:06

Oh dear.

I've been involved with maybe 15 companies with huge piles of net cash, in excess of the market cap, over the years.

Sadly, in the majority of cases, the cash has been wasted on value destroying acquisitions. In one case, 50% + ended up being robbed by management.

On the positive front, in one case, the management actually acquired something sensible.

The omens are not good here. This acquisition looks like they're digging themselves into a sector with v poor economic characteristics.

A shame they can't see it.

[scburbs] 18/12/2019 21:30

The company’s management in a rush to spend most of the money before there is a change of controlling shareholder? You would assume they know who is likely to inherit the shares.

Any sensible shareholder would wind this up so spend spend spend ...

[eezymunny] 18/12/2019 16:57

Chippenham Sleepy?

Meantime an acquisition that actually makes some money. Not much mind by the looks :)



They can't even get the company name right - I assume it's actually Audio Visual Material Limited.

[sleepy] 13/12/2019 18:54

Can anyone find a Westpoint Industrial Estate in Swindon?

[sleepy] 13/12/2019 16:18

Eezy - agreed but where in Swindon?

[eezymunny] 13/12/2019 15:15

This should leave them with c. £16m cash, freehold HQ building (£3m guesstimate), freehold warehouse £3.2m, and what, maybe a £5m excess of creditors vs debtors, and a pretty useless business which I'd value at £-1m!

Total £26m? Market cap here c. £14.5m

Totally bonkers.

[eezymunny] 13/12/2019 15:04

It's probably in Swindon sleepy :)

[sleepy] 13/12/2019 14:49

Where is Westpoint Industrial Estate in Swindon?

[cjohn] 13/12/2019 14:05

Arthur_Lame_Stocks
7 Dec '19 - 12:27 - 133 of 135
0 0 0
With the death of David Phillips the share price has actually gone up. There must be a few punters out there who believe the company will finally come to its senses and wind up and return the cash to shareholders.


Instead, they spend 3.2m on a freehold warehouse.

[rndm355] 10/12/2019 17:39

anybody going to AGM?

[spob] 08/12/2019 09:32

we can dream can't we

Lol

[arthur_lame_stocks] 07/12/2019 12:27

With the death of David Phillips the share price has actually gone up. There must be a few punters out there who believe the company will finally come to its senses and wind up and return the cash to shareholders.

[yamaha865] 07/12/2019 12:09

Graham Neery on Stockopedia thinks the asset value could be equivalent to about a £30m market cap

[spob] 06/12/2019 10:27

best thing here would be to wind up the company and return the funds to shareholders

[spob] 06/12/2019 10:26

So what happens to his shares

he owned 63% of Northamber

will they be sold i wonder

[sleepy] 06/12/2019 09:41

5 December 2019



Northamber PLC

("Northamber" or "the Company")



Statement regarding David Phillips



It is with great sadness that the Company has to announce that David Phillips, Chairman, passed away on 4 December following a short illness.



Deepest sympathies from all at Northamber have been conveyed to David's family.



Geoff Walters, Acting Chairman, said: "We were extremely saddened to learn of the passing of David. Everyone at the Company acknowledges the significant contribution David made to the development and leadership of the Company since he founded Northamber in 1980. Our thoughts are with David's family at this difficult time."

[hugepants] 06/12/2019 09:08

perking up a bit here