Last night the Seattle Mariners were getting trounced by the Minnesota Twins, losing 19-6, when they brought in 38-year-old catcher Carlos Ruiz to pitch an inning. Ruiz, who gave up one run in his inning of work, displayed an 82-mph fastball and had one of the better performances by Mariners pitchers. It's pretty rare to see a non-pitcher called to the mound, let alone a catcher who is approaching the end of his career.
Even rarer these days are net-nets -- companies trading below net current asset value, calculated as current assets minus all liabilities -- and rarer still, net-nets that pay dividends. Recently I came across a new name, Gulf Island Fabrication (GIFI) , that fits both bills to grace my ever-shrinking list of net/nets.
Gulf Island Fabrication builds offshore drilling platforms and has had a rough go of it the past several years, with its shares currently trading at about one-third of 2013 levels. Depressed oil and gas prices have wreaked havoc on the company and losses have mounted, which is why Gulf Island Fabrication finds itself in net/net land, a place that no company would go by choice.
The thing that has allowed Gulf Island Fabrication to stay afloat is a fairly strong balance sheet, one that shows no debt. GIFI also ended its latest quarter with $34.7 million, or $2.33 per share, in cash. While cash can be fleeting when companies are in the red, Gulf Island Fabrication has up for sale a major asset, its South Texas facilities, which have a book value of $110 million. Selling the facilities could provide substantial liquidity for the company and potentially help it weather the current storm. (The fact that the assets are for sale is also the very reason Gulf Island Fabrication now qualifies for net/net status, as those assets have been reclassified as current assets rather than long-term assets; net/net determination only considers current assets in the calculation).
Gulf Island Fabrication currently trades at 0.95 times net current asset value and 0.6 times tangible book value per share. The company also pays a dividend -- albeit a very small one, of one cent quarterly -- and currently yields 0.4%. If and when the assets are sold, it is unclear what the company will do with the proceeds, but dividends and stock buybacks are among the possibilities that management mentioned on the most recent quarterly earnings call.
This one is certainly not a pretty picture, given the difficulties in the oil and gas industry, but net/nets rarely are. That's what makes them so intriguing.