Sold Hartco.

I recently sold HCI.to.

The reasoning was that the company may have lots of cash, but I don't see it getting back to shareholders.

The underlying business is OK. They can earn close to or slightly above their long term cost of capital.

Since the start of 2010 there has been at least $9 million on the balance sheet as cash. The CCC is quite short (around 30 days) and it seems that this number may be overstating what is actually needed. There are also some equity investments that one could add as excess to the valuation.

In that time the company has earned around $10 million in operating earnings. With a market cap of $45 million, this looks really cheap. But none of it has been returned to shareholders. No dividend, and no buyback. They did purchase an equity interest in a small marketing firm.

I like when you have a decent company with a ton of excess cash. I don't mind when cash is plowed back into the business at a decent ROIC. HCI's ROIC is around 11% over the last 5 years. Not great, but not too bad.

If you were to get the excess cash on the balance sheet returned, I would put fair value between $4.15 - $5.35 (based on 6x EV/EBITDA). Without getting any cash you get $2.95- $4.14.

All this is assuming that the company will implement the ERP successfully in the next 6 months and not spend the cash stupidly. There is some reason to be positive as last quarterly earnings were very strong.

I think there is too much risk that you either get no cash returned or it isn't spent wisely.

I would look at HCI again closer to NCAV or $2.00, if it gets there.

Dean