A low-risk, US net-net with consistent FCF

An opportunity to buy dollars for cents while getting a cash-flowing business thrown in for free.

Introducing today’s US listed stock:

NCAV Ratio = 0.8

TBV Ratio = 0.4

EV/5Y FCF Ratio = 2

P/5Y FCF Ratio = 3.5

The business has generated positive FCF in 4 of the last 5 years, and has an average annual shareholder yield of 11.67% over the past 10 years (at today’s price).

Its net-cash alone outweighs the current market cap.

This is a classic case of a business being priced as if it’s dead, despite probably not dying for quite a long time.

I value listed-businesses using the same method I previously used to buy SME businesses in the real-world.

If buying whole, I’d pay a multiple of FCF, plus the net-cash.

I was deliberately conservative, because I couldn’t can’t afford to lose money on a bad deal.

I assume the business will average todays 5Y FCF figure, for the next 10 years (zero growth assumed).

I discount that 10Y total back at 7%.

All other assets, aside from net-cash, are valued at $0.

Finally, I assume the business will be set alight, burned to the ground, and valued at $0 after year 10.

No fancy terminal-values for me.

Using this method, today’s stock STILL offers around 200% upside to my calculation of fair value.

As an extra bonus, this business also has a compensation settlement agreed, which will see it receive around 20% of it’s current market cap in cash, soon.

Let’s dive in…