Mietteitä Sijoittamisesta

Piensijoittajan avoin muistio

Stanley Furniture – Johdon Ajatuksia Osakkeiden Takaisinostosta

leave a comment »

Stanley Furnituren entinen toimitusjohtaja, Jeffrey Scheffer, hehkutti vuoden ’06 ja ’07 vuosikertomuksissa sitä, että kuinka yritys oli palauttanut rahaa omistajille osakkeiden takaisinostojen ja osinkojen muodossa. Valitettavasti takaisinostojen ajankohta oli katastrofaalisen huono, koska:

  • Stanleyn vuosikertomuksen mukaan huonekaluteollisuuden alamäki alkoi jo vuonna ’05.
  • STLYn osakkeen hinta oli ’06 ATH $29.25, kirja-arvon ollessa ~$9.9 per osake. P/B oli siis lähellä kolmea = kallis ostos.
  • Vuonna ’07 yritys lainasi rahaa ostaakseen omia osakkeita, vaikka oli melko selvää, että sillä ja USAn taloudella ei tule olemaan kovin ruusuinen tulevaisuus. Osakkeen hinta oli toki laskenut huipustaan mutta se ei paljon auttanut, sillä kirja-arvo on laskenut tämän jälkeen merkittävästi. Tänä päivänä se on noin $3 per osake.

Näiden seikkojen valossa “katastrofaalisen huono ajankohta” on mielestäni melko sopiva kuvaus. Kirjoitin uudemman kerran Micah Goldsteinille ja tiedustelin hänen ajatuksiaan asiaan liittyen. Tässä hieman lyhennetty versio sähköposteista.

Minä:

We talked about shareholder value in the previous emails so I thought I would ask your opinion about the topic. In the year ’06 and ’07 the CEO, Jeffrey Scheffer, wrote the following:

We used this strong cash flow from operations along with cash on hand to purchase 1.4 million shares of our stock for $33.6 million, pay cash dividends of  $3.7 million and repay $2.9 million of debt.” (2006)

“During 2007, strong cash flow from operations and $25 million in proceeds from additional borrowings were used  to  repurchase  639,331  shares  of  the  Company’s  common  stock  for  $13.6  million,  pay  cash  dividends  of
$4.2 million, make scheduled debt payments of $2.9 million, invest $4.0 million in capital improvements and increase cash on hand by $25.4 million.”

I lost my exact notes somewhere but if I recall correctly, in the years 2006-2007 Stanley’s book value was somewhere around ~$9.9 per share (correct me if I’m wrong). The share price was ATH at $29.25 in 2006 and went as low as $12.68 in 2007. So, in the ATH, Stanley’s price/book value – ratio was around 3, which is a very high price to do repurchases. The slowdown of the furniture business was noted to have started in ’05 and in ’07 it was pretty clear that the US-economy was in crisis. Still, the CEO continued to repurchase stock. The situation got worse in 2007 because money was borrowed to repurchase stock. In addition, as we now know, Stanley’s book value ATM is +$3 per share. This makes the share repurchases to look really overpaid. In my opinion, these repurchases were really destroying shareholders’ value, instead of creating it. It would have been better if the company would have paid handsome dividends or retain some cushion for the hard times (for a cyclical company this would have been a really good thing). I think that companies should buy their shares when it’s selling below book value or if the stock is in other ways undervalued. The second reason is of course a bit hard to figure out, unless one is familiar with company analysis (in the investing sense).

What are your opinions about this? When do you think it’s good to repurchase shares and will this be the main way of returning cash to shareholders in the future? Or will it be dividends?

Micah:

There is a long history of debate in the capital markets on the best way to return cash back to shareholders – something I look forward to having to figure out in the near future.  The beginning must be excess cash and no internal best use for it.  Unfortunately we are still consuming cash with capital investments and operating losses.  As those needs lessen and our return to profitability gets further along, we hope to be in a cash generative mode and have to figure out uses for it.

I personally believe that if there is a best use for the cash internally, that will always be best for the shareholder.  Whether it be growth capital, strategic investments, etc., taking care of the core assets and perpetuating the business through time is objective number 1.  

As for my thinking on dividends or share repurchases, they both have a place.  As you know, both Glenn and I are substantial shareholders and we will always try to act in their best interest.  I believe a dividend policy makes sense when a company generates cash flow from operations on a consistent basis.  I also think that a share repurchase program makes sense if management believes the shares are undervalued and enough liquidity exists that the shares can be purchased overt time without driving the price up.  

I do think it is hard to evaluate repurchase decisions well after the fact (with the value of hindsight).  Certainly the share price, state of the economy, debt (or lack there of) all play into managements decisions – we still have so many unknowns that it is hard for us to say how we will return capital to shareholders should we find ourselves in that position.  The decision would be made with the help of many advisors and again, I hope it is one we get to make in the not to distant future.

 

Written by vdell

28/12/2011 at 19:56

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: