Hello All,
I've been taking a look at American Biltrite and believe it's highly undervalued but wanted to throw it out there for a brief sanity check.
The company has three divisions: ABI Speciality Tapes, American Biltrite Canada (flooring, conveyor belts, sheet rubber packing, matting, truck flaps, etc.), and K&M Associates, a national costume jewelry supplier.
Market Cap is $20.8 million, and TTM revenues are around 210 million, with gross profit margins of ~50%.
My valuation calculations show:
Net Reproduction Value = $33.04.
EPV Valuation = $17.09
DCF Valuation = $12.71
Avg. valuation target = $20.95.
For the EPV calculation, I wanted to be conservative so I used the average Owner's Earnings of from 2001 to 2010 which was $8.4 million. For the discount rate I used the company's weighted average cost of capital, which is 6%. This resulted in a valuation target of $17.09.
For the DCF calculation, I used a 20% discount rate and assumed 0% terminal growth and projected future cash flows for each year equal to the average owner's earnings from 2001 to 2010 ($8.4 million).
Working against the company are a large number of asbestos litigation court cases due to the fact that ABL used to manufacture flooring products containing asbestos. From the company's 2011 Q2 10-Q:
"ABI has multiple excess layers of insurance coverage for asbestos claims. The total indemnity costs incurred to settle claims during the six months ended June 30, 2011 and the year ended December 31, 2010 were $3.2 million and $5.7 million, respectively, all of which were paid by ABI's first-layer excess umbrella insurance carriers, as were the related defense costs. ABI has multiple excess layers of insurance coverage for asbestos claims. The total indemnity costs incurred to settle claims during the six months ended June 30, 2011 and the year ended December 31, 2010 were $3.2 million and $5.7million, respectively, all of which were paid by ABI's first-layer excess umbrella insurance carriers, as were the related defense costs."
Total number of Asbestos related claims filed against ABL in 2010 were 304, while for the six months ending June 30, 2011, there were 190 new claims–an annual rate of 380. The company currently has almost 1300 unsettled claims against it, although it looks as though it's only settling 14% of these cases. The rest are getting dismissed. The company's lower and upper estimates for the total amount it will have to settle are about $17 million on the low end and $61 million on the high end.
On the other hand a quick look at the company's balance sheet shows that it seems to have significantly reduced its liabilities over the last few years.
Has anyone else looked at ABL? Are there any booby-traps here I'm missing?
Thanks,
Larry D.
AVIC
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