A long, long time ago, I started mentioning Cagle’s (CAGAQ) potential for a much higher distribution than the current share price. I pegged final distribution to equity around $4 per share, but the final distribution was very sensitive to the assumptions made.
Well, Cagle’s filed their first plan of liquidation, and the expected recovery comes in materially lower- $3 per share for the equity…. What gives?
Well, two things have happened
- Their results for June (their last month of operations) were absolutely disastrous. If you’ve read the journal, you’ve heard about the highest cost for corn in ages. Well, that “high cost” led Cagle’s to a COGS that was higher than their revenue. So, instead of running at breakeven or a profit before interest and legal expenses…. they reported a big loss, eating in to their margins.
- The equity distribution seems awfully conservative.
2, however, could probably use some explaining.
Look at the balance sheet from their June results (page 3). Remember, they have no more operations, so the only changes to this going forward come from bankruptcy costs and actually liquidating. The balance sheet shows shareholder equity of ~$5.65 per share. Even if you factor in $6m in total costs for bankruptcy (cure costs, accrued interest, legal expenses, etc.), and then assume they collect nothing from their non-cash and JCG note assets, I’d come out with a book value of $16.2m and a final distribution in the $3.50 range.
Are there risks? Of course- legal costs could come in higher, and there are still some potential adjustments to be made to the JCG notes.
But I continue to think they’re justified at these prices.
Disclosure: Long CAGAQ
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