Gencor ($GENC) – A free business with a huge portfolio


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.

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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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