Net Current Asset Value Stocks From Australia – Coventry Group

Here is a net current asset value stock from Australia, the land down under. Suppose that you were told that there was a company that has fallen to an all time low in terms of stock prices in 2017 and that it was currently loss making for 2 years in a row. Would you bother entertaining the thought of investing in a company such as this? Well, the company that we are going to describe in this extremely brief case study is an Australian company. (My books have more in depth case studies by the way)

Coventry Group Case Study

Net current asset value stocks can be found around the world. If you are willing to look for it that is. About a couple of years ago,  I came upon this company called Coventry Group. Established since 1936, the company was caught in a severe mining industry downturn. The business that Conventry Group is in is the distribution and marketing of gaskets, fasteners,  hydraulic fluid systems and cabinet making hardware. 

Amidst poor industry conditions, what we had was a situation where the share price of the company fell from around $3 to $0.60. At the same time the piotroski factors showed a score of usually 5 or more in the years prior. With an operating history of more than 8 decades, the company was going to come out of this fine when I studied this.

The debt is nearly non existent and had a healthy balance sheet apart from the fact that the company became loss making. At a market capitalisation of 24.6 million and a net current asset value of 59 million, the price to net current asset value was around 59%. At around the same time, the current ratio was 3.34 and was healthy by Graham’s standards.

Source : Google

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In 2017, the company skipped the paying of dividends and that was the right thing to do in my opinion. It had to conserve cash for survival. In fact, this is an indication that the management is actively managing the affairs of the company. I have personally seen my fair share of companies whose management and directors were sleeping!

As you can see from the chart, the skipping of dividends played a huge role in producing a very low price. And that is a good thing. Previously, the company  traded at prices between $3.50 and $4. For astute investors, dividend skipping produces a very low price. I have mentioned before that for net current asset value investing, it is not important to identify what are the catalysts of the company. I did say that one should look out for anti catalysts. In this case, it was dividend skipping and that produced a downward shock to the share price. Shocks are good in my opinion.

If you look at Coventry Group,  the company’s management is not averse to giving dividends.The company has gone through some restructuring and write offs . Though the company is loss making, it stands to reason that when the mining sector turns, so will the company. In fact, at the point where I looked at it, the average dividends paid per share was 17.5 cents per share. Hence, they were willing to reward shareholders but at the right time. In any case, a low price to the net current asset value and a willingness of management to give dividends at the appropriate time would act on the stock in 2 ways. Firstly, mean reversion can occur when industry conditions improve. Next, when the management gives dividends again, one is likely, probably going to see the share price react to that.

Eventually, the company’s price went up to $1.20 in the span of 12 months providing a good return for investors who dared to tread the path less traveled. And although the company has not yet given a dividend, the markets are always forward looking and the  share price has reacted accordingly. So there we have it, a case study of an Australian Net net. You can find them occasionally so be sure to search wider and deeper for it.

This is a short simple case study of a net current asset value stock in Australia. And I hope you enjoyed it. Thank you for reading! May you be blessed with prosperity, health and happiness!

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Books On Net Current Asset Value Investing : Case Study Driven

These books which I have written are case study driven and discuss strategies, mindsets and situational approaches to employing the net current asset value strategy.

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kingsley

I have been an investor for 15 years now and my journey has meandered from Warren Buffett to Ben Graham. My start, like many, really was the naive idea that Buffett's skills could be replicated in some fashion. I was proven wrong when some of the supposed stock picks that I chose had dismal performances. Then, I learnt that it is no point trying to be someone I am not. Gradually, through failure and some success in deep value investing, my approach towards stocks gradually shifted to an approach based around Graham's techniques. So, I give credit where credit is due and to Ben Graham, I and many other investors around the world, owe him a great deal. So, if you want to read up on biographies, read about Ben Graham. His seminal work, Security Analysis is a gem. My books are just rich interpretations of what he has taught.

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