Institutional Analyst: Special Situation Research
IA’s Special Situation Research, Monday, 01/20/2014.
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1. UNR Holdings (UNRH) $1.00, We’re Back on Board.
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1. UNR Holdings (UNRH) $1.00, We’re Back on Board.
We’re back on board with UNR Holdings (UNRH), which is one of the most interesting companies we follow and one which we described over a year ago (near the same price) as “quite possibly the single most undervalued stock we have ever initiated coverage on.”
And with 40 years in the business this year, having started on the floor of the CBOE as a runner in 1974, we’ve played a lot of cheap stocks. Some as low as 5 or 6 times earnings, some below book. But we’ve never seen anything like the valuation on URNH. Not even close.
The company just announced that they hired one of the most respected CPA auditing firms we know of, MaloneBailey.
The idea came out of our special situation website, “IA Special Situation Research” (IA) which looks for good ideas based on traditional fundamentals (unlike an Internet or Biotech stock) such as price to book, PE or price to sales. From an financial standpoint, these type of companies are usually coming off a bad quarter or year (i.e turnaround) or some other “special situation." From a corporate standpoint, they are usually on the boring side of things, like a potato chip manufacturer. Chips ? Yeah, what the...
Nonetheless, our biggest winner over at “IA" is just that, a snack food company called Inventure Foods (SNAK), an idea we got from “Carl” who lives on a island off Seattle, is one of our subscribers and who is one of the best small-cap stock pickers - we have ever come across. Trading at $1.07 when we (he) found it, it was called Poore Brothers at the time and was selling for $1.07. Today sells for $13. Sweet. Or is that salty.
That’s a market cap from mini-miniature (roughly $25 million) to $250 million or a quarter of a billion (which sounds like so much more than $250 million). Still though, it’s really small on Wall Street even today, but we’re guessing they have some really happy shareholders down in Phoenix, AZ.
Looked at another way, from a relatively boring snack food company -- returns of $10,000 to $130,000 or $1 million (for an institutional investor) to $13 million. Who needs Twitter ?
Oh the point here, is with the type of companies, patience is key. So don’t even invest one dime of your trading portfolio, because you will be sure to lose. Not necessarily lose money, but the lose the “game.” As patient as we are, we have a long list of companies we held for years, sold out from “dead money boredom" and then just months after selling - find out everyone suddenly discovered what we discovered years back, only to see it run up three-fold. And then years later after that, see the $2 stock we sold for $2 cross the CNBC tape at $25.
So back to UNR Holdings. The game is patience. And in their particular case, a lot of patience last year - because they got late on the audited financials and as we mentioned just announced hiring a new firm (one of the best), last week. Up until they release audited numbers, there was nothing we could do but sit and watch.
But now with the hiring of Malone & Bailey - we are now back on board.
This letter is just a heads up, to put it back on your radar screen.
For a brief bit of history, UNR Holdings is one of the preeminent builders of commercial real estate in Moscow and its suburbs. Not small projects, but big, beautiful projects. As just one example, the “Marshall Rybalo” project is valued at more than $950 million and could generate sales of $225 million for UNR. It includes 863,000 square feet of total living space, 709,000 square feet of non-residential space and 521,000 square feet of underground parking. UNR is not your small-time “local developer.”
At last look (using audited numbers) they sold for a multiple of less than one time earnings, less than cash, less than book value (of $3.61) and of the 24 million shares outstanding, CEO Alexy Kim owned 20.5 million.
We’re not making this up. It would be too outrageous. Here is the last 10K:
So what happened and how could this be? This is our take, from our report to repeat ourselves:
"We believe this undervaluation has been created by a mere lack of interest. After the $25 million equity offering that was contemplated in June of 2010 was withdrawn, institutional investors lost interest and the shares of UNR Holdings fell into a “market support” void. We believe the timing of the offering was unfortunate and withdrawn due to adverse market conditions. As an example Lennar Corp (LEN) had fallen from $20 in April of 2010 to $12.75 by August of 2010. The UNR Holding S-1 was filed in late June of 2010 – right in the midst of Lennar’s plunge – making the foreign based UNR holdings a difficult sell at best. Today, Lennar trades at $28 and is up 58% in the last twelve months alone.”
$25 Million Offering S-1. http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=7328911
Since 2010, Lennar (LEN) as traded up four-fold to as high as $45, while UNR (UNRH) has languished and traded sideways.
WHERE WE LEFT OFF:
When we stepped to the side, UNR was selling for $1.00 per share or a total market value of $24 million. Here are some “select*” audited financials. All of these numbers fluctuate quarterly and yearly, in line with what stage of development they are in their projects, such as the breaking ground stage or selling units in completed projects stage - as well as how many projects they have running on a concurrent basis.
Market Value $24.5 million ($1.00 per share)
Revenue (TTM) $168 million $6.85 per share)
Net Income (TTM) $26 million ($1.19 per share)
Book Value $88 million ($3.61 per share)
Cash & Equivalents $10 million
Short Term Investments $$17.8 million ($1.13 per share combined)
Retained Earnings $95.5 million ($3.89 per share)
As in what the.. ?
WHERE WE ARE NOW:
As we mentioned earlier, without audited numbers, all we felt comfortable doing is sitting on our hands. Others though have been more venturesome (possibly taking advantage of the temporary information void) and the shares are actually up 96% in the last two years - though certainly not in a straight line.
The company has been very active at communicating with shareholders its progress with various projects via seven press releases covering their smaller Pushkin project, valued at $63 million. The Nemchinovka project which is expected to generate approximately $600 million in total revenues for UNR Holdings when completely sold, and that they broke ground on two new projects Odintsovo and Sokolinki.
But it wasn’t until the company recently announced that the hired one of the preeminent accounting firms to audit their numbers, did our hair stand on end. The press release also mentioned they selected MaloneBailey as a precursor to a possible exchange upgrade, which in our opinion would do wonders for the relative per share price valuation. In a later letter we will compare UNR’s current financials to the NASDAQ’s required financials.
Being "on board” means that we will now be closely following and reporting on UNR’s progress and we suggest you do the same. In our view, who UNR has hired to audit their financials is equally as important to having the numbers actually audited. So here is what we dug up on MaloneBailey.
"MaloneBailey is in elite company as one of only nine CPA firms in the world that require an annual inspection by the PCAOB; all other firms are inspected every three years. The Sarbanes-Oxley Act requires the PCAOB to conduct annual inspections for firms that regularly provide audit reports for more than 100 issuers. The nine annually inspected firms include, BDO USA, LLP, Crowe Horwath LLP, Deloitte & Touche LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP, MaloneBailey, LLP, McGladrey & Pullen, LLP and PricewaterhouseCoopers LLP. The firm recently announced that it has reached a milestone in its 31-year history, with 150 SEC-reporting clients.”
Clients range from single individuals to multi-national corporations with gross revenues in excess of $1 billion. MaloneBailey clients are located in more than 25 states and 8 countries
Nice. This could be one of our better discoveries ever. Not necessarily from a percentage future performer basis, but rather from the bragging rights, that would come from telling people "we found a stock selling for under one-times earnings and…”
Only time will tell, but we’re pretty excited right now.
Morningstar has nice multi-year financials:
Definition of retained earnings:
"Retained earnings is a permanent account that appears on the balance sheet under the Stockholder's Equity heading. The account balance represents the company's cumulative earnings since formation that have not been distributed to shareholders in the form of dividends. If the retained earnings account has a negative balance, it is called "accumulated deficit.” ( http://www.wikihow.com/Calculate-Retained-Earnings )
*Please read all financials, not just "select" to get fuller picture.
(TTM trailing twelve months)
Disclaimer: UNRH: The above letter and/or news release contains forward-looking statements. The statements contained in this document that are not statements of historical fact, including but not limited to, statements identified by the use of terms such as "anticipate," "appear," "believe," "could," "estimate," "expect," "hope," "indicate," "intend," "likely," "may," "might," "plan," "potential," "project," "seek," "should," "will," "would," and other variations or negative expressions of these terms, including statements related to expected market trends and the Company's performance, are all "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. These statements are based on assumptions that management believes are reasonable based on currently available information, and include statements regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performances, and are subject to a wide range of external factors, uncertainties, business risks, and other risks identified in filings made by the company with the Securities and Exchange Commission. Actual results may differ materially from those indicated by such forward-looking statements. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company's expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based. UNR Holdings is a client of Institutional Analyst Inc., and has been compensated with one hundred thousand restricted shares and ten thousand dollars.
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