Monday, October 8, 2012

Northamber plc (LSE:NAR)

Quick summary of a potential micro-cap net-net investment for those interested....We've decided to pass on it for now, as we generally like to focus on better businesses with tailwinds instead of headwinds. But if you have any specific insights on the business, I would certainly be interested in hearing them ( With this big of a discount to net tangible assets and having the Chairman/major shareholder seemingly having his incentives pretty well aligned with other shareholders, it does look like something with at least some potential for those that can invest in very small companies.

Northamber plc engages in the distribution of information technology equipment in the United Kingdom. It supplies computer hardware, computer printers and peripheral products, computer telephony products, and other electronic transmission equipment. The company’s products include desktops and servers, portable computing devices, storage and memory products, monitors and projectors, printers and scanners, networking equipment, audio visual products, and personal computer build products, as well as software solutions.

This is a net-net, cigar butt play on a declining, but most likely still profitable (especially now that £600,000+ of rent a year is now owned property) business. The company is in a bit of a turnaround phase as it is looking to get rid of low margin offerings and focus on the better ones.

Management’s incentives are pretty well aligned with Chairman David Phillips owning over 60% of the shares and taking pay cuts during current, tough times. From the preliminary report for the year ended June 30, 2012:
“As chairman and with a substantial shareholding, I am conscious of the impact that my contractual salary could have on the finances of the company.  I have followed the principle of prior years and again waived a large portion of my contractual £180,000 p.a. service contract salary.  Against last year's salary taken of £90,000, for the year just ended it was further reduced to £15,000 and commensurate with our non-executive directors remuneration.”
They have managed the business pretty conservatively over the years and have bought back shares and paid a dividend, though the amounts have declined as profits have declined.

Recent events

The company purchased the property they have been leasing since 1999, but made a large purchase without first consulting shareholders (even though Chairman David Phillips owns 61.47%), so that purchase was not in compliance with UKLA listing rules (LR 10.5....needed a shareholder vote for an asset purchase that size of capital base). The company may face penalties as a result, though based on fines for other companies that didn’t comply with other things, I don’t expect this will be too significant.

Adjusted  6/30/2012 NAV:

Cash = 4,304,000
75% A/R = 10,994,250
50% Inventory = 3,366,500
50% of Old PP&E = 1,125,000
75% of New Owned Property = 5,100,000

Adjusted Assets = 24,889,750

Total Liabilities = 10,620,000

Adjusted Net Assets = 14,269,750

Shares Outstanding = 28,336,868

Adjusted NAV per share = 50.36p

Adjusted NAV/share after dividend pmt (record date is December 7, 2012) = 49.61p

If we assume they do get fined and the fine is £500,000 (which I think is conservative based on other fines), adjusted NAV moves to 47.8p after the dividend payment.

The current share price (as of 10/2/2012) is 35p.

Disclosure: Neither I nor any investment product I co-manage at Chanticleer Advisors or Chanticleer Investment Partners has an investment the stock(s) mentioned in this article at the time of posting. We may in the future buy or sell shares and are under no obligation to update our activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.