International Value Investing: Turbotec (TRBO:LN) - United Kingdom

by Geoff Gannon

Richard Beddard of the Interactive Investor Blog brought this company to my attention through Twitter. Here’s a short blog post about Turbotec.

This is actually an American company listed in London. A few years back, its sole shareholder unloaded half the company by floating it in the U.K. There’s since been a dispute with the shareholder, Thermodynetics, which is discussed below.

The company has a market cap of $6 million. The stock price in U.S. dollars is 47 cents per share.

That's 29.5 pence.

Although the shares are priced in pence - the sales, assets, earnings, and cash flows are all in U.S. dollars. So, you really need to translate pence to cents every time you check the price on this stock.

That’s regardless of whether you are in the U.K. or not. To British investors, this is effectively an American stock. The stock may be quoted in pence, but the business is run in dollars. So British investors are still exchanging their pence for cents when they buy and their cents for pence when they sell.

For non-U.K. investors: “GBP” means Great British Pounds; “GBp” means Great British pence. A pence is 1/100 of a pound. So watch your shift key.

The company is moving to a new manufacturing facility in North Carolina. This had been a New England company. The new location makes a lot more sense.

Regardless, the mortgage associated with the North Carolina property more or less wipes out the company’s net current assets.

However, the company still has about $0.86 a share in tangible book value versus a $0.47 share price. Check the latest quote and the GBP to USD exchange rate when you read this.

So we’re talking about a profitable company selling at a 45% discount to its tangible book value.


Turbotec (TRBO:LN) – Reports

Below, I’ve quoted from the subsequent events section of the annual report. These are the two material events you might miss out on if you just read the 2010 financial statements. I’ve also translated the court award into U.S. dollars, because again, that’s how you should value a company that keeps its assets and earnings in U.S. dollars.

In April 2010, the Company completed the purchase of an approximately 100,000 square foot facility and an adjacent 5.46 acre parcel of undeveloped land in Hickory, North Carolina for $2,768,750. The company plans to relocate its manufacturing operations to this facility commencing in late fiscal year 2011. The purchase was financed in part with a mortgage from the Company’s existing bank in the amount of $2,215,000. The mortgage has a twenty five year amortization schedule with equal monthly payments of principal with a five year term and bears interest at a floating rate linked to the bank’s prime rate.

And there was also a court case:

“On 10 May 2010 the Company was notified that it was successful in its defence of the claim brought by Thermodynetics, Inc. in relation to the payment of administration fees under the Relationship Agreement entered into at the time of its admission to AIM. The company was awarded substantial costs, including an order of payment on account of ($560,000) by Thermodynetics, Inc. with an additional amount to be determined by the court. The initial payment was received by the Company in May 2010 and will be reflected in the fiscal year 2011 accounts.”

Talk to Geoff About International Value Investing