The first lucky recipient of the 21st-century net-net badge of honour is PV Crystalox Solar, one of the world’s leading providers of photovoltaic silicon wafers.
The company meets the requirements by having a price-to-book ratio of 0.07, ditto for price-to-tangible-book, a price-to-sales of 0.08 and a net cash balance of some £48m (about 11p per share, while the share price is closer to 4p). The market cap is around £17m, and they are listed on the SmallCap index for now.
In keeping with the spirit of net-nets, I have had but the slightest glimpse at the company’s reports. That glimpse highlights a number of very significantly bad events, but none of them looks to be immediately fatal.
Wafer prices are down 50% over the last year due to oversupply and weak demand in Germany, so the company is responding with reduced and suspended production at various plants, as well as laying off staff.
The previous dividend of more than 2p is almost certainly consigned to history, at least in the shorter term.
For existing investors, it has not been a happy time with the share price dropping from a maximum of 200p in 2008 down to 50p at the start of 2011 and onwards and downwards to less than 5p today.
However, the company is net cash and has no meaningful debt outside of Japan, so it should be able to weather a very large storm.
I’ve put it into the portfolio with a 1.6% weighting (1/60th of the portfolio), and I don’t intend to look at how it’s progressing until January 2017. By then, if it’s still in operation and hasn’t failed or been taken over, I will see what it’s worth and flip it for something else.
The assumption (or is that hope?) is that, on average, these super low price-to-book, net cash stocks will be up more than 100%, which should keep the portfolio ahead of the wider market by some degree over the long term.
Nice post John.
I am looking into PVCS myself and have a buy target but it’s a bit lower than todays price. Notice in the accounts how cash seems to fall by about €20m and debt increases by €15m. Not an ideal situation.
My biggest problem is that I don’t know how much to handicap each item of the current assets. Cash should be lowered since this seems to be a trend then there are restructuring costs and redundancies on top. Receivables should be discounted but by how much ? I assume that €40m will be good. and inventories I usually halve.
There is also some property on the books but I’d like to ignore that when making my valuation for an extra margin of safety.
Hi Marcel, thanks for your comment. The points that you’ve raised are important but may be impossible to answer.
In my case I’m not really trying to calculate an intrinsic value as such; I’m just buying companies that have a lot of assets for the price and that have a reasonable shot at surviving the next few years.
Graham also used:
cash + securities + 75% of receivables + 50% of inventory – all liabilities
But you probably know that already.
In the end I think you have to make your best estimates and stay well diversified.
Hi John,
Has PVCS been added to your personal portfolio ( ie real portfolio ) or a paper portfolio ?
I agree that those points I made are hard to answer so a large margin of safety is neccesary. Those with lots of cash can buy every net net in sight ( I have a list of over 30 of UK stocks trading at 2/3rds of such value )however I hold larger companies as well which provide me with a good divi income. I’d have to sell a few shares in those to buy net nets which I am currently not willing to do. I’ll wait for the dividends instead and reinvest those in net nets. :O)
You have a nice site. Well done.
Thanks, you are too kind. For the moment it’s a paper portfolio. If the returns are good and volatility is acceptable I’ll drip feed some of my dividend income (from my far more defensive big cap holdings) into it in perhaps a year or two.
If it continues to perform then I’ll move up to say half of my funds into it but that would be over a longer time frame.
Interesting John, do keep us posted with updates. Enjoy your visit to the land of net-nets.
I will. If it all works out over a period of years I’ll drip a portion of my pension into it and see how it goes when real money is at stake.
Hi John,
Just discovered your website a few months ago but I must say its been a great discovery! I to have been looking at PVCS and agree it’s one to put away for a few years. My only worry is that solar technology might be surpassed. I know this is not in the fundamentals but it’s a nagging worry for me. perhaps I should stop worrying and follow the fundamentals?
Hi Paul, thanks for commenting and I’m glad you like the site. As for solar technology, I’m afraid I really have nothing of value to say as I have no idea whatsoever how this technology will pan out over the next 10 or 20 years. If you’re talking about a time-scale of less than 10 years then I don’t think it’s going anywhere, but beyond that, I do not know.
And you’re right, certainly in the case of this net-net style portfolio such considerations are not relevant. But it depends if you’re running a concentrated portfolio or not and what your investment approach is (quantitative or qualitative being the major factors).
If you’re worried about uncertainty then here’s a quote from Richard Feynman:
“The scientist has a lot of experience with ignorance and doubt and uncertainty, and this experience is of very great importance, I think. When a scientist doesn’t know the answer to a problem, he is ignorant. When he has a hunch as to what the result is, he is uncertain. And when he is pretty darned sure of what the result is going to be, he is in some doubt. We have found it of paramount importance that in order to progress we must recognize the ignorance and leave room for doubt. Scientific knowledge is a body of statements of varying degrees of certainty — some most unsure, some nearly sure, none ABSOLUTELY certain.” (which I found here: http://laserstars.org/bio/Feynman.html)
Personally, with the level of uncertainty that I have with this company, I choose to accept that I don’t know and instead protect myself by only investing 1.6% of the fund into it.