Newsletter 18 - Holders technology conclusions - a buy 10th november 2014

So what might cause Holders Technology’s share price to rise?  Here are some ideas.  I would like to hear what you think.
​

A checklist of recovery potential
 

• Macroeconomic recovery?  This may help in Europe, but, in a highly competitive industry, competitors might just expand production resulting in lowered pricing and oscillation around breakeven.
• Exit of competitors from the industry, leading to higher prices for the last man standing? No evidence of this in the history.  Unlikely.
• Managerial pulling-up of socks?  This is possible, perhaps our best hope.  They have plenty of experience, but do they have the gumption?
• Takeover by another company? Possible.  Perhaps the chairman has had enough. Such a takeover should value the firm at £4m - £5m (compared with market capitalisation of £1.65m).
• Liquidation.  If it was my firm I would seriously consider this, releasing £4m - £5m. To justify using shareholders’ funds of this amount the company should be generating at least £320,000 after tax year-in-year out.  If their current projects do not look likely to achieve this then why not sell the inventory, run down debtors and sell off fixed assets?
• ​
  

Worries – can you help? what have I missed?
 
I will be interested to hear your views on the following concerns:
 

1. Turnover is the same as it was 10 years ago.  Will it be the same in another 5 or 10 years?
2. How good is the management at identifying good business to pursue, i.e. business that will generate a rate of return greater than the cost of the capital (say 8-10%) used for that area of activity? Do they have that discernment?
3. Do they have the courage to liquidate the firm if the trading prospects remain poor?
4. What is the risk that the firm will be taken private?
5. Very thinly traded – can I exit without moving the price against me?

 
What I have done - or, what have I done!!!
 
I bought some shares at 42p last week to add to those I bought 10th October at 52p. Within hours of buying at 52p Holders Tech announced that a customer accounting for 10% of turnover cancelled its contract.  I had to do some reassessing before continuing with this investment.  I concluded that the large share price fall had more than compensated for the loss of 10% of turnover which, the directors say will be ‘mitigated by alternative strategies and cost reduction measures’.   So I bought some more. I’ll put this holding in my 2014 NCAV portfolio at 47p, half way between my two buying prices.