Thursday, January 5, 2012

UK Value Investor

UK Value Investor

21st Century Net-Net #1 – PV Crystalox Solar

Posted: 04 Jan 2012 12:06 PM PST

The first lucky recipient of the 21st century net-net badge of honour is PV Crystalox Solar, one of the world’s leading providers of photovoltaic silicon wafers.  The company meets the requirements by having  a price to book ratio of 0.07, ditto for price to tangible book, a price to sales of 0.08 and a net cash balance of some £48m (about 11p per share, while the share price is closer to 4p).  The market cap is around £17m and they are listed on the SmallCap index for now.

In keeping with the spirit of net-nets I have had but the slightest glimpse at the company’s reports.  That glimpe highlights a number of very significantly bad events, but none of them look to be immediately fatal.

Wafer prices are down 50% over the last year due to oversupply and weak demand in Germany so the company is responding with reduced and suspended production at various plants, as well as laying off staff.

The previous dividend of more than 2p is almost certainly consigned to history, at least in the shorter term.

For existing investors it has not been a happy time with the share price dropping from a maximum of 200p in 2008 down to 50p at the start of 2011 and onwards and downwards to less than 5p today.

However, the company is net cash and has no meaningful debt outside of Japan, so it should be able to weather a very large storm.

I’ve put it into the portfolio with a 1.6% weighting (1/60th of the portfolio) and I don’t intend to look at how it’s progressing until January 2017.  By then, if it’s still in operation and hasn’t failed or been taken over, I will see what it’s worth and flip it for something else.

The assumption (or is that hope?) is that on average these super low price to book, net cash stocks will be up more than 100% which should keep the portfolio ahead of the wider market by some degree over the long term.

For those who are interested, Interactive Investor have produced a short film about the company here:

http://www.iii.co.uk/emvideo/modal/17346/610/396/field_video/brightcove/1117300629001

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