In my post on my top 5 stock heading into the new year, I mentioned 2 that just missed the cut: Asta (ASFI), which was literally just edged out for the fifth spot, and Lakeland (LAKE), which held the fifth spot until I sold a good bit of my holdings into a run up in share price. Both had interesting news come out today to start the new year, so I thought I’d post them for those interested.
First, Asta announced a new $20m line of credit. The company has a massive net cash balance, so they took out this line of credit to have flexibility in case opportunities for a big acquisition or portfolio purchase come around. Personally, I think they have a huge opportunity staring them in the face to get really aggressive repurchasing shares with their cash balance, but at least they have this line of credit in case the economy turns south and some good purchases pop up.
Second, I saw this article discussing Ansell’s investment in LAKE. I think the title- “Lakeland fits Ansell like a glove”- says it all.
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Saw that article today, too. I am curious, however, if management thinks it can get the company to 10-12% ROE what they will sell LAKE for. 1x TBV would be $11.50, and I see this as the minimum Ansell should have to pay. If the company were capable of doing 11% ROE with a PE multiple of 10x I get somewhere around $15/share. My guess is the acquisition will come somewhere between the two figures.
For now, I am holding and will likely sell some should we reach $12.50.
Thanks again for the heads up.
ASFI had another bit of news come out – a JV in the personal injury space. What are your thoughts on this? I kind of like the format of this deal and, like you, hope they buy back a ton of stock!
I’d rather they just tendered for their stock, but I think the format and structure are pretty interesting. Much better than them buying a company.
Any concern regarding the Q3 termination of their license agreement with DuPont (note 13)? Reading their January 10K, they cite this as a potential “material adverse affect”. The Ansell investment was made after the 10Q was out so they obviously knew this… but still concerns me regarding the value of the business based on income.
They’ve discussed this in depth on the conference calls. The loss of DuPont will hurt, yes- but the dupont business was extremely low margin and prohibited them from selling their own, higher margin brands in the U.S. Long term, it could actually turn into a positive.
Overall, slight negative, but it doesn’t really effect them as bad as a first glance would have you believe
If I am remembering correctly, the Dupont business was lower margin business (I think 15% GM as opposed to 30% GM LAKE gets with other portions of its business). To mitigate this decline in revenue, LAKE has been marketing its own branded products in the US and has been focusing more on international expansion. You can see they have been successful with this with the rise in revenue derived from international markets.
Optically, the company looks like it has decelerating revenue, which it does… However, the effect on the bottom line is not as much as the top line deceleration. Also, considering Dupont formerly accounted for a great amount of revenue, I would say that LAKE is doing a reasonable job dealing with this adverse situation.
If you can, go listen or read (if you have access) to LAKE’s most recent conference call. They go into much greater detail than I am able to here.