A Former Net Net Shows Some Life... Finally
Ingram has at least been fairly well-known in the deep value circles the past few years, simply because it has traded below, or very close to its net current asset value for much of that time. In fact, it's been one of the biggest net/nets in terms of market cap that I've experienced in the many years that I've been researching, following and writing about net/nets.
Driving yesterday's move was much better than expected fourth quarter results reported after the markets closed on Wednesday. Revenue grew 14% to $11.38 billion, but more importantly, easily exceeded the $10.84 billion consensus estimate. Meanwhile, earnings came in at 73 cents per share, blowing away the 58 cents per share consensus estimate.
As a net/net, Ingram was always an enigma of sorts. First off, it's been profitable for seven of the past eight years, while the typical net/net is losing money. It has typically traded at a single digit price-to-earnings ratio. Granted, Ingram's net margins are very thin, typically less than 1%; this company moves a lot of product, $37.8 billion in sales for 2012 in order to generate a relatively thin bottom line. But it's also historically had a strong balance sheet, with cash sometimes exceeding $1.1 billion.
At times it appeared that Ingram might be what I refer to as a "perennial net/net," a term that describes a company that might appear to be very cheap, but that's simply the way it trades. In fact, the company only recently left net/net land due to its acquisition of Brightpoint for $650 million in October. Due to the cash expended for Brightpoint and increase in long-term debt, the transaction changed the nature of Ingram's balance sheet, pushing its valuation above net current asset value. Still, even with the acquisition, and yesterday's run-up, Ingram still trades at just 1.3 times net current asset value. All else being equal, that's cheap.
The early read on the Brightpoint deal is fairly positive. It was accretive to earnings, to the tune of 4 cents per diluted share for the fourth quarter. Ingram expects the buy to add "at least" 18 cents per diluted share in 2013.
Ingram ended the year with $595 million in cash, or just under $4 per share in cash, and $1.05 billion in debt, $943 million of which is long-term. The increase in debt (from $400 million end of last year), and decrease in cash (from $891 million), is primarily due to the Brightpoint acquisition. We'll see if the move pays off for Ingram, but so far, so good.