Holders Technology – interesting, at the right price

PUBLISHED: 28 Sep 2019 @ 01:07 | Comments (0) |

Holders Technology (LSE:HDT) is a candidate for my net current asset value, NCAV, portfolio. Even after deducting one-third of its inventories and one-fifth of its receivables it has a NCAV significantly larger than its current market capitalisation (4.224m shares x 45p = £1.9m).

It is a relatively stable company with no debt, £0.67m of cash, and very little pension obligation. Its managers are experienced, having led the company for decades.

Holders Tech shares have fallen over the last dozen years from around 169p to 45p because in that time it reported many years of losses and declining NCAV. This is due to the highly competitive nature of its two market segments.

The first market is the supply of materials, components and tools (with a little manufacturing) to printed circuit board manufacturers. Customers in the UK are mostly focused on making PCBs for the defence and aerospace sector.

PCB customers in Germany tend to put together PCBs for the motor industry, but they also supply medical equipment PCBs and other types.

Holders Tech customers are faced with many alternative suppliers of components etc. Therefore, this business, although generally profitable, produces low rates of return on capital employed. It is a commoditised sector.

Holders Tech entered the second market area about a decade ago as an attempt to diversify and gain growth. It supplies “lighting solutions” particularly for OEMs and, in particular, using LEDs.

Over the decade the team has built up some expertise, marketplace recognition and a client list. But they made thumping great losses year after year (until recently).

When I held shares in this company before (between 2014 and 2017) I queried at an AGM the logic of trying to gain any degree of pricing power in a market over-supplied with companies providing “lighting solutions”.

Obviously, I failed to convince the directors they had no competitive advantage – they ploughed ahead regardless. The result was more losses in 2016 and 2017, as they continued to hire sales staff.

Due to the reported losses, and the concomitant reduction in NCAV, I sold my Holders Tech shares at a loss in 2017.

But now things seem to be improving. The company has been profitable for two and half years at the Group level; and the Lighting business has stemmed its losses. Perhaps now there are reasons to believe that NCAV is at least stabilised and might even grow from this point forward.

(Previous newsletter on Holders Tech: 4^th – 10^th Nov 2014, 23th – 24^th Feb 2015, 28th April 2015, 17^th -19^th 2015, 3^rd – 5^th March 2016, 8^th – 10^th March 2017)

Net current asset value

£m	30 Nov 2012	30 Nov 2013	30 Nov 2014
Inventories	3.14	2.80	2.74
Receivables	2.40	1.93	1.95
Cash	0.70	1.29	0.63
Other current assets	0.06	0.03	0.07
Deduct current liabilities	-1.59	-1.45	-1.31
Deduct all long term liabilities	-0.26	-0.23	-0.22
NET CURRENT ASSET VALUE	4.44	4.37	3.86
Less one-third inventories	-1.05	-0.93	-0.91
Less one-fifth receivables	-0.48	-0.39	-0.39
Ben Graham NCAV	2.91	3.05	2.56
Net asset value	5.19	5.05	4.49
Per share NCAV	73.9p	77.4p	61.5p
Per share NAV	127p	128p	114p

£m	Nov 2015	Nov 2016	Nov 2017	Nov 2018	May 2019
Inventories	2.53	2.37	2.41	2.85	2.46
Receivables	1.56	1.79	2.27	1.79	1.54
Cash	0.44

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