In these fear-fuelled times a nice company cash pile is reassuring. We highlight some cash-rich shares on the London market.
In these fear-fuelled times a nice company cash pile is reassuring. Debtors can turn bad, stocks may be near worthless and balance sheet valuations on land and buildings may need to be taken with a pinch of salt. But cash is cash.
During the meltdown that followed the tech stock boom, the receding tide left some companies' share prices trading at a significant discount to cash. Many Fools did well from these anomalies during 2002 and 2003, in some cases forming action groups to demand a return of cash to shareholders.
Today’s situation is different in that it is not as sector-specific. The credit crunch and fears of looming recession have caused investors to be generally pessimistic across the board about earnings prospects. As a result, share price valuations have generally tumbled in tandem with the gloomy outlook. This chart shows how the all-share index has performed over the past couple of years.
The question is whether the generalised fall in valuations has created a situation whereby shrewd investors can again profit from cash-rich companies.
This thread on one of the Fool’s most popular discussion boards explores a number of companies whose valuation is currently smaller than their cash pile.
Some possibilities
There are certainly a few companies worth looking at. At the last count, I-Mate (LSE: IMTE) the specialist in Microsoft Windows mobile devices and software had $53.5m in cash and cash equivalents. But that was almost a year ago, since which time trading has been difficult and today, the company is valued at just £5.66m. I-Mate’s final results are imminent.
Similarly, automated processes supplier, Robotic Technology Systems (LSE: RTS), is valued at less than £3m yet had £3.7m in cash and cash equivalents and over £8m in net tangible assets at the last count. But here again, trading isn’t going well.
Meanwhile, Alexander Mining (LSE: AXM) has more cash than its valuation as pointed out here, as does Indago Petroleum (LSE: IPL) for reasons explained by the same shrewd investor here.
Financial research tiddler Stockcube (LSE: SKC) has almost as much cash as its valuation, but is profitable, whilst 60% of Total Systems’ (LSE: TTS) valuation is accountable for by cash. TTS recently returned to profit and has net tangible asset value in excess of its market capitalisation.
Potential investors weigh risk against potential reward. There are no easy ways to make money and things are rarely as simple as they seem. Investors need to decide whether the company valued at £30m with £60m in cash but burning through £5m a month is going to apply the brakes quickly and severely enough. Is the company being run to satisfy the egos and salary requirements of its Directors and management or is it truly concerned with maximising shareholder value?
But as a starting point, a cash pile is certainly a positive indicator and the companies listed above are worthy of further research.
> You could buy shares in one of these cash-rich companies and pay only £1.50 commission via Motley Fool Sharebuilder.
