Company:Sumbitted By:Submitted On:Recommendation:Expected Timeframe:Geography:Country:Situation:Retail Holdings (RHDGF)Jd James (Ocean Park)Sep 02, 2010 at 08:09PMLongOne Year To Two YearsNorth AmericaUnited StatesDeep Value
Retail Holdings N.V. (RHDGF) is a retail holding company that arose from the 2000 bankruptcy and liquidation of The SingerCompany, a firm in business for almost 160 years which is likely most familiar for its prior role as a sewing machinemanufacturer and distributor to the garment industry, but which also founded an extensive network of durable consumergoods retail and manufacturing firms with operations in multiple nations across South and Southeast Asia. First posted byperspicar in 2007, RHDGF still trades at around $9, but is now experiencing several catalysts including an earningsturnaround, expanding market value of its public subsidiaries, and a recent asset sale unlocking significant cash, eachpointing to significant upside from current levels.RHDGF's primary assets consist of a majority stake in Singer Asia (which in turn owns controlling stakes in multiple publicly-traded South Asian durable consumer goods retail and manufacturing subsidiaries further detailed below), in addition todirect ownership of $25.2 million in 11% notes issued by a KKR affiliate during a 2004 sale of the Singer sewing machinemanufacturing operations and trademark, and additional free cash at the holding company level.The most significant asset is RHDGF's 56.5% ownership of Singer Asia, a holding company with an aggregate $256 million inrevenue which owns majority stakes in publicly-traded subsidiaries in Pakistan, Bangladesh, Thailand, India, and Sri Lanka.Through these entities, Singer operates the single largest retailers of durable consumer and electronic products in bothPakistan and Bangladesh, and is particularly dominant in Sri Lanka, where it holds from 37% to 80% market share nationwidein multiple product categories including televisions, refrigerators, and washing machines. In areas where tariffs or logisticsact as barriers to global sourcing, Singer Asia also owns capacity to manufacture or assemble various consumer goods locally,including controlling stakes in two Sri Lanka-based durable goods manufacturing firms, Singer Industries and Regnis PLC.Singer Thailand is the largest direct (door-to-door) retailer of durable consumer goods in that country, and has again becomeprofitable after measures to tighten lending policies at its consumer credit arm. After acquiring additional equity during a2008 restructuring, Singer now owns a 85.9% stake in Singer India; which now operates principally as a wholesale distributorto the garment industry, but also owns a network of 17 retail stores in major urban centers and is one of only twomultinationals with the legal right to operate a nationwide retail operation in India.In 2003 a 43.2% minority position in Singer Asia was sold to an unrelated private investment fund for $30 million in cash,which was used to buy back stock and discharge debt and warrants arising from the 2000 Singer bankruptcy exit. This 2003transaction would value RHDGF's current stake at $39.4 million, which together with the $25 million in notes receivable farexceeds the current $42 million market cap, a reassuring margin of safety using a conservative baseline estimate of privatemarket value. However, after years of successful restructuring, organic revenue growth, and cost controls, Singer Asia hasbegun to generate significant growth in earnings (magnified by heavy stock buybacks at RHDGF), now making RHDGF deeplyundervalued based both on current net income and on a sum-of-the-parts market valuation of its publicly-traded assets.Earnings PowerConsidered purely as a going concern, Retail Holdings appears increasingly attractive, with earnings from continuingoperations reaching $0.80 per share for the last six-month period. CEO Stephen Goodman has historically been veryconservative and non-promotional in his communications, but in 2010 midyear comments released earlier this monthsounded a much more positive tone, noting a substantial increase in revenue and progress in cost controls, and forecastingnet income in excess of $37.0 million for the current fiscal year, equivalent to earnings per share of more than $3.25. Backingout a $1.76 one-time boost to net income expected to occur in the current fiscal quarter on the recently concluded ILFS salefurther detailed below, this would still represent annual run-rate operating earnings of $1.84 per RHDGF share, for a forwardP/E of just 4.35.
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