It has been a while since I last posted about HOLT. After the turmoil
of the past month and the subsequent additional decline in HOLT,
other cigar stocks and the broader market, I thought it would be a
good idea to review my reasons for owning HOLT.
To briefly summarize, I think that most of the serious damage has
already been done to HOLT. It has a strong balance sheet, for
reasons I will go into in greater detail, and it has not suffered
from a decline in sales. This post will focus on what I perceive to
be the financial stability of this company....
I include a copy the company balance sheet from its most recent
quarterly summary:
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<font size=2>
June 30, 1998 March 31, 1998
------------ --------------
Current assets: (UNAUDITED)
Cash $ 4,641,732 $ 4,074,276
Investment securities-held to maturity 4,154,973 4,096,361
Accounts receivable (net of allowance for doubtful accounts of $120,000
At June 30, 1998 and March 31, 1998) 1,512,552 1,319,141
Inventory 4,082,627 3,456,597
Deferred income taxes 161,000 161,000
Prepaid expenses and other current assets 547,259 402,863
------------ ------------
Total current assets 15,100,143 13,510,238
Investment securities - held to maturity 7,986,240 7,948,760
Property and equipment, net 1,504,716 1,456,567
Deferred income taxes 9,100 9,100
Other assets, net 805,729 815,837
------------ ------------
Total assets $ 25,405,928 $ 23,740,502
============ ============
Current liabilities:
Accounts payable $ 1,162,853 $ 657,424
Due to related party 659,482 534,157
Accrued expenses and other current liabilities 56,088 240,570
Income taxes payable 789,049 521,100
------------ ------------
Total current liabilities 2,667,472 1,953,251
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.001 par value, 25,000,000 shares authorized, 5,770,000
issued and outstanding 5,770 5,770
Additional paid-in capital 17,640,851 17,640,851
Retained earnings 5,191,343 4,225,522
------------ ------------
22,837,964 21,872,143
Treasury stock, 2,400 shares at cost
Stock purchase loans (14,616) --
(84,892) (84,892)
------------ ------------
Total stockholders' equity 22,738,456 21,787,251
------------ ------------
Total liabilities and stockholders' equity $ 25,405,928 $ 23,740,502
>>Book value is calculated by dividing Stockholder's Equity by the
number of diluted shares outstanding. For Holt, Book Value is
$3.94.
How solid is this book value? Extremely solid. Here are the numbers
if you were to assign zero to the value of Holt's operations. Thus,
let us assume that we are liquidators of HOLT assets.
Add all cash and cash like instruments. I then assume that 50% of
A/R is uncollectable, and that inventory must by marked down by 50%
for quick sale. Likewise, assume that property and other assets can
only be liquidated at 50% of value. Subtract all liabilities and debt
from this adjusted total and I come up with a value of $18,082,000.
On a per share basis, this amount is equal to about $3.15. This is a
very conservative worst case scenario, and the price of HOLT today
is around 4.25!! This is quite a value. Unfortunately, the market
is slumping and buyers are few and far between. However, it seems
that the owners of HOLT stock right now are patient and not
willing to sell any more at these levels until other news comes out.
I think that HOLT will be a relatively safe parking spot for my
money until the rebound occurs. |
