Gencor (GENC) is a business that I think is more than interesting at these prices. In many ways, it reminds me of Warren Buffett’s investment in Sanborn Maps in the 60s, where the company is trading at a discount to its massive investment portfolio and the business is being thrown in for free. In many ways, this is also similar to another current holding of mine, TSRI, a stock that trades for less than the value of its cash.
Anyway, on to the company. Gencor has quite an interesting history, including a bankruptcy at the beginning of the decade caused by too much debt from bad acquisitions. The company came through the bankruptcy by selling under-performing divisions and quickly paid off creditors at 100% without diluting equity holders. If you had researched the company then and figured out the equity was money good, you’d be up huge. The stock traded under $1.00 for over a year at the turn of the century as the bankruptcy proceedings dragged on. Even given it’s recent pull back, you’d be up over 7x in ~10 years. Not bad.
Today, the company operates solely as a manufacturer of heavy machinery used to make highways, but the bankruptcy is an important thing to keep in the back of your mind. The business is, to be honest, not a good one. Uncertainity in the highway spending bill is hurting them, the business is cyclical and a bit capital intensive, and even at the top of cycles it barely earns above average returns.
However, what makes GENC interesting is during the middle of the decade the company had a “second” business- they were minority owner of a very, very profitable venture that they had invested in just before their bankruptcy. This venture, now wound up, generated significant cash flow for GENC- all told, it sent them just under $110m in pretax cash flow from fiscal 2003 to 2008. Given that they were just coming off a liquidity driven, you can probably guess what they did- they kept it all on the balance sheet in cash and marketables.
Today, the cash and the marketables continue to sit on the balance sheet. At their most recent 10-k, they had over $74m in total, made up of ~1/3 equity and 2/3 cash + bonds. Given total assets of under $105m and annual revenues under $60m, at this point, a purchase of GENC really doesn’t represent a business with a significant cash balance. Instead, the investments has grown so large that today’s purchases represents the portion of an investment portfolio with an operating business on the side.
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