RE:RE:Expected fair value for CTS is $7.28PuerSimia wrote: CTS is trading at a very low SP indeed. IMO, it's because of their high debt load and low margin business. The hardware business, servers, desktops and laptops, is a low margin business. The services business has much better margins. Being a consolidator of low margin businesses looks great from a revenue perspective, but the bottom line remains fairly thin. I think they should bite the bullet and clean up their debt, even if it means a share consolidation followed by a financing. Their June 30 interim financials spell it out pretty clearly IMO. Notes 5 and 7 in particular, and almost $1 billion on the Balance Sheet under goodwill and intangibles. That's way too high IMO, for this type of business. They're working capital, CA - CL, would be a deficiency of around $300 million if they hadn't pushed off the due date of their revolver debt of $421 million to July 2027. Debt which is now costing 7% instead of 5%. If rates go higher, and Europe and the U.S. enter a mild recession in 2024, things might get a bit sketchy.
CTS is definitely on my radar, but I'd like to see them clean up their Balance Sheet, especially with the prospect of economic headwinds on the horizon.
I've already replied once, but debt is never included in the working capital calculation. So, no, their working capital wouldn't have been a deficiency. They had a debt to renew, and they did renew it, this is normal business course.
The metrics for debt are usually interest coverage ratio and Debt/Ebitda. They measure fine on both accounts.
Goodwill and intangibles represents most of the value for all IT firms. You don't have to build plants, you need to build customer relationships, knowledge base and software technology (which unlike building a plant doesn't have a cost that you can put into a tangible cost category).
Like all business, there are macro and micro risks. At the current share price, I think that many are priced in already.
As a disclosure, I hold a very small position in CTS (around 0.1% of my portfolio). I think the value is there but the market obviously is cautious at the moment.