Evidently, to date, no one else has reported seeing the white grizzly bear my daughter and I saw on a June hike to Crow Creek Falls Montana's Elkhorn Mountains. I continue to query a contact at Montana Fish and Wildlife. He's been very gracious, and has not once challenged our sanity, but I am still waiting for another hiker to report seeing what we saw.
I also continue to look for the investment equivalent of the white grizzly, that rare name that few others see. I am not finding it these days, looking for it remains a worthy challenge, and not as dangerous as pursuing a grizzly.
I did, however, recently identify a new net/net (company trading below net current asset value or NCAV), which are indeed quite rare these days. Some net/nets are of the perennial variety - always trading near or below NCAV, which renders the distinction less meaningful. Universal Stainless & Alloy Products (USAP) , however is new to the list.
The name, which makes and sells finished specialty steel products, has been impacted by the Covid-related decrease in air travel, which has in turn decreased aircraft production. While sales of premium alloys have held up, the same can't be said for specialty alloys, where second revenue fell 31%. That was enough to drive a 38 cent second quarter loss, 10 cents worse than the "consensus" (just two analysts).
Conditions don't look much better for the rest of 2020, with the company expected to lose $1.16 for the year. USAP is not expected to be profitable again until 2022. Shares have been cut in half year-to-date, with all of the damage done once Covid reared its ugly head, and unlike many other names, as markets have recovered, USAP has not.
The balance sheet is not great to say the least. The company ended the second quarter with just $300K in cash, and $73 million in debt. On a brighter note, USAP stated on its second quarter conference call that it should be able to reduce debt by more than $20 million in the second half of 2020.
Put that all together, and it is clear why the company currently trades at just .98x NCAV, and just .27x tangible book value per share. A good part of that tangible book value includes property plant and equipment, with a net book value of $176 million. That includes owned facilities and real estate in Pennsylvania, Ohio, and New York. If you get past 2021, consensus estimates are calling for 2022 earnings per share of $.135, which puts the two year forward price earnings ratio at 55.
While this is not a higher-quality net/net (that descriptor being an oxymoron in itself) due to the composition of current assets which are heavy on inventory and accounts receivable, and very light on cash, the story may be worth following. There's not a great deal of room for error given the debt and low level of cash, and shares are priced accordingly.
