Hanover Foods FY 2021 Annual Report

The Hanover Foods annual report for 2021 came in last week.

At a share price of $63 for the HNFSA (non-voting) share class, the market capitalization of the company (with 706,846 common shares outstanding) is now about $45 million, compared with net current assets of $101 million ($144 per share), and a book value of $241 million ($341 per share).

That is 45% of current assets (net of all liabilities) and 19% of book value.

Hanover's earnings were not as good in FY 2021 as in FY 2020. Their revenue declined from $401 million to $369 million, and gross profit declined from $41 million to $28 million. On the plus side, SG&A expense shrank by $3.8 million, with the result that operating profit was still $2.4 million.

Hanover bought back stock last year: 8,329 of the voting (class B) shares for $1,304,000, which was $156.56 per share. Those trade more expensive than the class A shares, but the $156.56 is still more than double the recent trading price $71 of the B shares. (The share classes have the same economic interest.) This is the first time we have seen Hanover repurchase a significant amount of stock.

We'll have much more about Hanover Foods in the upcoming November Issue of the Oddball Stocks Newsletter.

Our past posts on Hanover Foods:

The annual report for the most recent fiscal year (2021) that ended May 30, 2021:

Hanover Foods Corp 2021 Annual Report by Nate Tobik on Scribd

LAACO Is Said to Explore Storage West Sale as Self-Storage Booms ($LAACZ)

From Bloomberg (h/t @Catahoula_Value)
LAACO Ltd., owner of the Los Angeles Athletic Club and the California Yacht Club, is exploring a sale of Storage West, its division that acquires, develops and manages self-storage facilities, according to people with knowledge of the matter.

Los Angeles-based LAACO, which has shares that trade over the counter, is working with an adviser to solicit interest in Storage West from potential suitors, said the people, who asked not to be identified discussion private information. A targeted valuation couldn’t immediately be learned.

A spokesman for LAACO declined to comment. Storage West directed inquiries to its parent company.

Storage West, founded in 1978, operates almost 60 facilities in California, Nevada, Arizona and Texas. It posted “impressive year-over-year growth” and recorded occupancy of 92%, according to LAACO’s 2020 annual report, written by Karen Hathaway, the company’s president and managing partner.
Nate posted about LAACO way back in April 2014 when shares were trading for around $1,100. Shares are up 2.4x since then plus it paid $712 in dividends along the way.

Oddball Stocks Newsletter Excerpt: "Full Steam Ahead" by Guest Writer "Catahoula"

This excerpt is from the most recent Issue (#36) of the Oddball Stocks Newsletter: a guest piece by "Catahoula" (@Catahoula_Value).

Catahoula Excerpt by Nate Tobik on Scribd

Oddball Stocks Newsletter Excerpt: Editors' Interview with Mutual Fund Manager Eric Speron

This excerpt is from the most recent Issue (#36) of the Oddball Stocks Newsletter: an interview with mutual fund manager Eric Speron (@off_the_run).

Eric Speron Pages From Oddball_Newsletter_Issue_36 by Nate Tobik on Scribd

Just Published: Issue 36 of the Oddball Stocks Newsletter!

We just published Issue 36 of the Oddball Stocks Newsletter. If you are a subscriber, it should be in your inbox right now. If not, you can sign up right here.

Remember that we have made some back Issues of the Newsletter available à la carte, so you can try those before you sign up for a subscription: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31. We lowered the price of most of our back Issues to $99 from $139. If you are curious about them, there has never been a better chance to try them.

We also published a Highlights Issue in February 2020. The Highlights Issue is available here for purchase as a single Issue. If you have been curious about the Newsletter, the Highlights Issue is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

Make It Rain? Yes! With Make It Ring

 As Founder of CompleteBankData I talk to a lot of banks.  A universal message I heard across banks is that they want to grow, but they aren't built with an outbound sales culture.  Growing loans by outbound direct mail and cold calls is foreign and sometimes scary.  To grow in a predictable outbound manner would require an entire cultural transformation.  Let's break down why this is untenable and how we can solve it.

What we hear from executives is that it just isn't worth lender time to make cold calls, prepare mailing lists, and mail sales collateral to prospects.  At best a lender might bat 1 for 100 from these efforts.  Additionally at most banks the process of going from a mailing list to mailed outbound collateral can take weeks to months.  In our experience it typically takes a bank one month to six months to execute on a direct mail marketing campaign.  Ironically the larger the bank the slower to execute.  When you look at it like this it makes sense why banks aren't investing in outbound outreach.

What makes sense is for lenders to focus on handing inbound requests and farming business from existing relationships.  Banks know that this works, and why try to fix what isn't broken?

What is worth it is for us (CompleteBankData) to do this outreach for you.  This is why we're in business in the first place: it's not worth your time to prospect, but it is worth our time to prospect for you.

Let me explain how it works.

We use our next generation market intelligence to assess where the market is going, not where the market has been (to paraphrase a Wayne Gretzky quote).  From this we identify areas of opportunity and recommend prospects to you based on your lending preferences.  We can be as broad as "everyone in county X with a loan maturing in the next six months above 3.75%."  Or as specific as "small business owners who also own a personal airplane, have recently financed an auto and have a house worth $1m."

Once we have identified a set of prospects you decide if they are good to go or not.  Typically banks like to browse this list and knock off people they have worked with in the past that they don't wish to interact with again.

Then we execute on the mailing and or telephone prospecting on your behalf.  Since our tools can identify prospects who are in an ideal position to borrow, our conversion results are significantly higher than average.  

Finally we make your phones ring with prospective borrowers at the other end.

To summarize:

  1. We recommend prospects based on your idea borrower profiles
  2. You decide if they're good to go
  3. We execute on mail and/or telephone prospecting
  4. Your phones ring with prospective borrowers on the other end
That's it!  It really is that simple.

So what does this mean for your bank?  Let's take a look at some rough cut numbers.  In Pennsylvania right now there are over a million outstanding mortgages with rates above 3.75%.  With an average loan size of $240k that's $240b worth of mortgages that can be refinanced saving borrowers money.  Think Pennsylvania is unique?  It isn't, there are similar number of high rate mortgages nationwide.  You probably think that these are bad credits, they aren't.

Here's an example I ran yesterday.  In two of the most prosperous Philadelphia suburban counties there are 422 borrowers who have a loan between $1m-$4m, who all earn $200k or more and many who have $1m of liquid assets and yet still have a mortgage above 4%.

We don't do just residential.  Surprisingly residential mortgages are an afterthought for many of our clients.  We can identify these same types of opportunities for commercial loans as well.  Commercial credits can be even better due to the sticky nature of the relationships and sizes of the loans.

In many markets there are at least $500m-$1b in commercial loans that will be maturing in the next six months to a year.  Sometimes substantially more!  

The possibilities for prospect automation are almost endless.  Want to target commercial borrowers at a bank that's closing branches?  We can do that.  How about targeting borrowers at a bank that's merging? We do that as well.  High income borrowers? Yup, that too!

I want to share a slide on how impactful this is for our clients.  When one client sent a single postcard to ideal prospects identified by us they....

Imagine if prospects received multiple mailings.  We can, at another client using Make It Ring with multiple direct mail pieces their response rate was 5%.  Five percent of prospects picked up the phone and called our client asking about financing.  If you know anything about direct mail that number is off the charts.

If you are a banker and want to grow your loans without your headcount we can help you.  Click through and setup a time to get a demonstration of our software.  If you are a bank investor who owns shares in an underperforming bank, or a bank that wants to grow but might not know how we can help them as well.  

Contact Us Now

Sonics & Materials, Inc. Tender Offer ($SIMA)

We received this recently regarding Sonics & Materials, Inc. (OTC: SIMA). Some highlights from the tender offer document:

  • Sonics & Materials, Inc. (“Sonics” or the “Company”) is offering to purchase up to 837,580 of its
    common stock (the “Common Stock”) in a tender offer at a price per share of $10.00 in cash.
  • We will purchase up to a maximum of 837,580 shares of Common Stock, which number of shares represents all of the outstanding shares of Common Stock held by stockholders other than Robert Soloff, Lauren Soloff and their respective affiliates, including JBH Sonics, LLC (collectively, the “Soloff family”), and shares held by Sonics. The Soloff family is our largest stockholder, controls our Board of Directors and will not participate in this offer as a selling stockholder. As of the date hereof, the Soloff family beneficially owns 2,563,490 shares of our Common Stock (representing 73.2% of the outstanding shares of our Common Stock).
  • In recent years, the Company has received inquiries from stockholders regarding how the Company plans to use the cash on its balance sheet. While the Board has explored various options, including having engaged an investment banker to present possible acquisition targets (none of which is contemplated at this time), the Company has received several requests from stockholders that the Company use its available cash to repurchase its issued and outstanding shares not held by the Soloff family. In connection with this offer, the Company recently retained Access Value, LLC (“Access Value”), an independent third-party valuation firm to determine the fair market value of the our Common Stock. Access Value has determined that the fair market value per share of Common Stock as of March 31, 2021 was $6.11 on a minority, non-marketable basis and $9.60 on a minority, marketable basis.
  • Sonics designs, manufactures and sells (i) ultrasonic bonding equipment for the welding, joining
    and fastening of thermoplastic components, textiles and other synthetic materials, and (ii) ultrasonic liquid processors for dispersing, blending, cleaning, degassing, atomizing and reducing particles as well as expediting chemical reactions. To further address the needs of its customers, the Company also manufactures a spin welder and the vibration welder, both of which are used for the bonding of thermoplastic components. The Company was incorporated in New Jersey in April 1969, and was reincorporated in Delaware in October 1978. Robert S. Soloff, its chief executive officer and founder, invented the ultrasonic plastic welding process early in his career. He has been granted numerous patents in the field of power ultrasonics and is considered to be a pioneer in the application of ultrasonic technology to industrial processes. The certain patents granted to Mr. Soloff in the field of power ultrasonics have expired and the technology related to them is now in the public domain and is used in part in the development and manufacture of the Company's products. Lauren Soloff, Robert Soloff’s daughter, has worked in the business since 1994. In 2019, she became president of the Company.

The tender offer document shows unaudited financials for the nine months ended March 31, 2021. The company made $2 million (net) on $18.5 million of sales in just nine months. Book value at the end of March was $35 million and current assets net of all liabilities were $31.7 million.

At $10 per share (the tender offer price), the market cap is $34 million. However, the enterprise value is much less, because of all the cash on the balance sheet. 

You might wonder how a company with $9.32 in net current assets could have a fair market value of $6.11. Here is the reasoning applied by the Access Value appraisal report:

Based on the LOCD [lack of control] market indications and the analysis of key factors of control noted above, a 19.0 percent LOCD was selected to convert the control basis of value to a minority basis of value in the market approach and the asset approach to valuing the Subject Interest. [...]

An LOMD [lack of marketability] of 38.0 percent was selected for the income approach, which reflected public market liquidity; and a 30.0 percent LOMD was selected for market approach and asset approach, which reflected control liquidity in the private markets.

If I owned Sonics & Materials shares, I'd be on guard on the future for the controlling shareholders to try to squeeze me out at a ridiculously low "appraised" valuation.