Saturday, November 18, 2017

Latest Earnings from Four Holdings

I usually write about my investments' latest financial results once or even twice a year. Recently I haven't done that. So, I will catch up on four of these today.

McRea Industries is a shoe company that sells military footware, industrial footware, and ladies luxury cowboy boots. The company occupies a niche in the military footware space because US military boots must be made by US companies. So, McRea has a North Carolina manufacturing plant devoted to supplying the US military with boots. The rest of the company's manufacturing is in Asia. Obviously, Asia can manufacture footware cheaper than any American company. These boots include women's luxury cowboy boots, industrial footware and even military boots that soldiers can purchase as spares.

McRea's sales has been flat and its mix of military to luxury boots has tilted to military in recent years. This is bad news because the military boots have lower margin. The overall sales of the company has been $104 to $108 M for the last 3 years. So it is basically flat. And the net earnings is down to $5M from $6.6M 2 years ago.

Price 34 4350 13.45 € 415.00
Marketcap (M) 81.6 5089.5 10.76 € 125.83 ($ 148.60)
ROE (%) 6.9 9.6 14.3 11.2
PE 16 15.6 11.7 12.9
PTBV 1.14 1.5 1.67 1.45
Div Yield (%) 1.53 0.1 0 1.93
Price/NCAV 1.27 2.18 1.71 1.97
The table on the right gives the financial metrics for McRea (MCRAA) and three other companies. The company has had a recent run-up which I cannot really understand because the fundamentals have not changed. The only plausible explanation is the general change in sentiment towards tiny microcaps in our long powerful bull market. But overall, my opinion is that this company is quite fairly valued for a shoe company.

The way I see it, the company can only increase its earnings if it increases margins and efficiency in the military boot segment. And it appears to be doing that. Last year the company had $27M of inventory and this year it is only $18M. This helped to increase its cash position from $16M to $28M yoy.

Seaboard Corp (SEB) is a food conglomerate that I have owned for over 15 years. I have always seen it trade at about 10x earnings. But in this bull market it has jumped to 15.6x. The company's management has proven itself to be disciplined and shrewd capital allocators. But it is still a commodity producer. The company currently still drives 75% of the operating income from pork. We have had food deflation for the last several years. But pork has actually benefited as the cost of feed (i.e., corn) has dropped much more than the cost of pork products, hence the decent earnings in recent years. But commodities are always cyclical and things can and will turn. I just don't see how this stock can go any higher.

Pacific Healthcare Organization (PFHO) is in a two-year recovery after losing Amtrust, a huge customer in 2015. Thus far it is doing just fine, earning about $0.30 a quarter for the last three quarters. And it has a great balance sheet, with $7 per share in cash and no debt!

And last but not least on my list today is Installux (PAR:STAL) . Installux has been a star performer in my portfolio. In the five years that I have owned it, the French maker of aluminum building products has increased sales marginally. But profit has increased by about 9% per year in those years because of increased gross margins and increased profit margins. The company's metrics are still quite good and it has € 130 per share cash and no debt.


  1. One bad thing about Installux is the French withholding tax on the dividend. Other than this looks like switching more to Installux would make sense from a valuation perspective. How do you decide when to sell anyway?

    1. Yes, the government withholds 30% of the dividend. But in the US where I am Fed+State tax on dividends is comparable and the foreign tax withholding is deductable against US tax.

      As for adding or selling my position that is a complex issue. A lot has to do with asset allocation of my portfolio. I wouldn't add anymore considering it is up 150% is 4.5yrs and its PE is 12x. But on the other hand I wouldn't sell either as I feel European stocks are underpriced relative to US.

      As I eluded to in my recent posts. I am more inclined to hold things indefinitely now, unless something dramatically changes in the price or the company.