Thank you for the good insights as always. I have two (perhaps) dumb questions after reading:
1. What's the difference between SENEA and SENEB? Which one should I buy if I want to bet?
2. It seems clear that the stock price is disounted compared to NCAV, but what's the timing and catalyst to watch for the price to meet the value? Would it be better financials/EPS ahead, share buyback, or major insiders wanting to liquidate.. and what would be the possible timeline?
Their next earnings report is upcoming so I wonder whether turnaround is near..
Two great questions, actually cut a section about the first question which we probably shouldn't have. anyway...
1. SENEA has one-twentieth of vote. SENEB has one vote. The latter is 50% held by the board and executives. (Kind of an old-school setup there!)
SENEB trades at a 4.3% premium at Friday's close...can't tell you specifically which to buy, really depends on if you value the voting power at that level. Were I to buy, I'd buy the A's.
2. It's a tough question to answer. If you believe the 'screening' issue is contributing to the sell-off this year, then a big catalyst is that the LIFO reserve charge probably diminishes sharply this year. Their product costs are down this season, per the shareholder letter, and steel has moderated too. Wouldn't be stunned if they actually got a small LIFO credit in the GAAP results.
So even though 'adjusted' numbers may be down, given some Q4 weakness, the GAAP numbers may be more impressive. Definitely some possible help there.
They bought back a ton of shares the last two years, but that's on hold given working capital needs.
More broadly, with these kinds of cases (in my experience, anyway), it's usually just a matter of the fears going away. The market needs to go from "yeah, that's cheap, but those assets aren't really that valuable anyway/management is dumb/reasons 3,4,5 not to buy" to "this stock is cheap, the market isn't paying attention". I think, honestly, just decent results in FY24 can do the trick, with investors over time probably figuring out how substantial the LIFO issue is.
It's pretty much all inventory build driving that issue, and that inventory holds its value, so it's much less concerning than appearances suggest.
It's also worth noting that their balance sheet is pretty good as far as lenders are concerned. The covenants on the debt are based on FIFO accounting rather than LIFO, so they have plenty of cushion there (net leverage is actually under 2x EBITDA according to their lenders).
that goes back to the point here about how the stock 'screens'...there are a lot of things that at first glance indeed look concerning but actually don't reflect how the business is actually operating.
Thank you for the good insights as always. I have two (perhaps) dumb questions after reading:
1. What's the difference between SENEA and SENEB? Which one should I buy if I want to bet?
2. It seems clear that the stock price is disounted compared to NCAV, but what's the timing and catalyst to watch for the price to meet the value? Would it be better financials/EPS ahead, share buyback, or major insiders wanting to liquidate.. and what would be the possible timeline?
Their next earnings report is upcoming so I wonder whether turnaround is near..
Thanks!
Two great questions, actually cut a section about the first question which we probably shouldn't have. anyway...
1. SENEA has one-twentieth of vote. SENEB has one vote. The latter is 50% held by the board and executives. (Kind of an old-school setup there!)
SENEB trades at a 4.3% premium at Friday's close...can't tell you specifically which to buy, really depends on if you value the voting power at that level. Were I to buy, I'd buy the A's.
2. It's a tough question to answer. If you believe the 'screening' issue is contributing to the sell-off this year, then a big catalyst is that the LIFO reserve charge probably diminishes sharply this year. Their product costs are down this season, per the shareholder letter, and steel has moderated too. Wouldn't be stunned if they actually got a small LIFO credit in the GAAP results.
So even though 'adjusted' numbers may be down, given some Q4 weakness, the GAAP numbers may be more impressive. Definitely some possible help there.
They bought back a ton of shares the last two years, but that's on hold given working capital needs.
More broadly, with these kinds of cases (in my experience, anyway), it's usually just a matter of the fears going away. The market needs to go from "yeah, that's cheap, but those assets aren't really that valuable anyway/management is dumb/reasons 3,4,5 not to buy" to "this stock is cheap, the market isn't paying attention". I think, honestly, just decent results in FY24 can do the trick, with investors over time probably figuring out how substantial the LIFO issue is.
Thank you! Always lots of fun to think along with you on these business/invest ideas
The increase of Debt to Equity comparing to operating cash flow, is concerning, no?
It's pretty much all inventory build driving that issue, and that inventory holds its value, so it's much less concerning than appearances suggest.
It's also worth noting that their balance sheet is pretty good as far as lenders are concerned. The covenants on the debt are based on FIFO accounting rather than LIFO, so they have plenty of cushion there (net leverage is actually under 2x EBITDA according to their lenders).
that goes back to the point here about how the stock 'screens'...there are a lot of things that at first glance indeed look concerning but actually don't reflect how the business is actually operating.
Interesting, thank you for detailed answer! Indeed just by screening it’s an immediate pass yet maybe there is more to it.
yeah absolutely we think that's part of the opportunity here: the stock's 'correct' profile, for lack of a better term, seems hidden right now.