Friday's column focused on another "double-net," West Marine, Inc. (WMAR) , that is being acquired. Since this self-defined subset of value (companies trading at between 1x and 2x net current value) has been such fertile ground for acquisitions over the past couple of years, my next columns will be devoted to the current crop of double-nets. While not all will be acquired, or prosper, this group has quietly produced some interesting situations, and is worthy of further exploration.
Here are the first four, in order of market capitalization, and please note that I have excluded development-stage companies.
1. Avnet, Inc. (AVT) -- The largest double-net on the list, with a market cap of $4.9 billion, and one of the largest I've ever seen since developing this technique several years ago. Currently trading at 1.66x net current asset value (or NCAV), the electronic component, enterprise computer and networking name ended the latest quarter with $1.39 billion, or $10.80 per share in cash and short-term investments, and about $1.75 million in debt.
AVT currently trades at 12x next year's consensus EPS estimates, and yields 1.85%. Net profit margins are fairly slim, typically in the 2% area.
2. AVX Corp. (AVX) -- This electronic components name, which has been a perennial double-net, is a subsidiary of Kyocera Corp. (KYO) (owns 72% of the company), which likely precludes it from being acquired. Still, it has some interesting attributes.
Currently trading at 1.74x NCAV, and 1.41x tangible book value per share, AVX ended the latest quarter with more than $1.1 billion in cash, or $6.60 per share, and no debt. Currently yielding 2.7%, net profit margins are solid, around 10%.
3. Benchmark Electronics, Inc. (BHE) -- Another perennial double-net, BHE trades at 1.77x NCAV, and similar to the previous examples, is also cash rich. BHE ended its latest quarter with $753 million, or $15.20 per share in cash, and $220 million in debt. Currently trading at 19x consensus EPS estimates for 2018, and just under 1.5x price-to-tangible book value per share.
While the company has engaged in share repurchases over the years, having reduced shares outstanding by 20% since year-end 2010, it is time to do something with all that cash -- a major buyback, initiating a dividend, or a combination of the two. Otherwise, it may ultimately attract suitors.
4. Movado Group, Inc. (MOV) -- This watch company, which has also been a frequent constituent of my double-net list over the years, currently trades at 1.56x NCAV. It has had quite a ride over the past several years as the market for watches has at times been tenuous. When I recently expressed some doubt about the future of the industry (as someone whose cell phone doubles as my watch), a Real Money reader kindly pointed out to me that there is still a vibrant community of watch collectors that will support it.
MOV ended its latest quarter with $234 million, or just over $10 per share in cash, and just $30 million in debt. It currently yields just over 2%, and trades at about 15x fiscal year 2019 (January) consensus EPS estimates. Net profit margins have been sliding; from 8.9% in 2014 to the current 5.1%.
Of all the current double-nets, Movado has one of the best brand names. This along with its solid balance sheet could make it attractive to an acquirer; the company's enterprise value is less than $400 million. However, the Grinberg family (Efraim Grinberg is CEO) controls the voting, owning the majority of Class A shares, which have superior voting rights.
