From a technical perspective, the big down move into the 8.10 "switchback" of the February 2011 top makes sense. The stock has been in an uptrend since March 2009, and sustainable trends retrace back to prior swings. The violent nature of the retracement is also not uncommon. Such moves are known as "dirty" or "European". Big traders use them to steal valuable positions away from weaker hands.
Given that Kahn and Kellogg increased their positions in Q4, and given the cash and land on the balance sheet, my feeling is that this latest move is manipulative. One thing that would help me bolster this argument is the company's liquidation value. Has anyone here done any serious calculations regarding this? If the company had to shut down tomorrow because it can't find any new contracts, how much could they get? My feeling from the 2012 annual report and from other fora on NTE is that the stock is trading well below this value. Many thanks
I wish I could be as optimistic about you that this switchback is technical in nature. I have a feeling it has more to do with the possibility that the company many transition from being a fast growing EMS company to a real estate project in Q4.
I did some work on liquidation value of everything except the development parcel. Here is what i came up with on a per share basis:
$4.44 - Current Assets less current liabilities 3/31
$0.95 - Wuxi land and buildings (recently developed assume sold at cost)
$0.50 - land parcel that the company was going to relocated to in Shenzhen
$0.30 - Salvage value of equipment
The big questions that no one can answer is what is the development parcel worth? I did verify that there is a 60% tax for a land sale, which is why the company will not liquidate it. Based on construction costs and rents the company provided, I estimated that a developer would pay roughly $200 per buildable foot for the parcel, which would value the land between $4 and $5 per share on an after tax basis ($10+ per share pre tax).
However, assuming a complete liquidation I estimate shareholders would net around $10 per share before fees, plus whatever after tax profit they make in the next couple of quarters.
If they do successfully develop the 700k sf office building, I estimate the stabilized asset would be worth roughly $12 per share of which $4 would be the cash from the balance sheet the company would use to develop the property and the remaining land would be worth $3.50 a share after tax for a total of around $15 per share. However, you would have to wait four or five years to realize the value.
Hi smkros, thanks for that. I'm with you on the value of the assets excluding the development parcel, although I get a slightly lower number of 5.5 dollars per share because I don't know how easy it is to sell off inventories, plants and equipment in an environment where growth is slowing due to depressed export demand and rising wages. I have absolutely no idea how much you would need to discount the stuff, but I applied a 2/3 discount to be conservative. Maybe this is too much, I don't know.
Regarding the development parcel, how do you get to 10 dollars a share pre tax? There are 44 million shares outstanding so that would value the 500k sqft parcel at 440 million, and if I'm not mistaken Nam Tai's ENTIRE land rights are worth 16 million dollars according to the annual report...I realize the rezoning may make the parcel more valuable, but how do you justify a jump this big?