Not an exciting net-net…

This is going to be a rather short post about a net-net on the pink sheets. Most of the good net-nets I have found on the pink sheets have already been discussed by value bloggers, some of my favorite blogs can be found in the right column of this site. I don’t plan on doing posts that are basically duplicates of posts on other blogs, even if I have a position in the stocks discussed. Unless I feel that my post would really provide some new and useful information. In all other cases I’m just going to repeat Charlie Munger and say: “I have nothing to add”.

Like I said, most of the attractive net-nets I have found on the pink sheets can already be found on other sites, so that tells you that this one is probably pretty ugly and obscure. And it is. I have not bought the stock, despite the fact that it is trading slightly below the value of its cash and investments and has a profitable operating business. The reason I wanted to post the stock is that it is very rare to find an American business trading below the value of its cash and investments.

Titanium Holdings Group

The company is Titanium Holdings Group (TTHG) (website). Financials are only available on the company website: http://www.titaniumholdings.com/financials.html. They are not released on the OTCMarkets.com website. The financial statements are audited by Pasternack & Company.

Titanium Holdings has one operating subsidiary called Cleaning Ideas (website). Cleaning Ideas sells sanitary maintenance supplies and paper products.

I told you: this one is ugly. It’s a very boring business too. Cleaning Ideas sells products like carpet cleaners, window cleaners, floor polish, various kitchen supplies, etc. There are 10 locations, mainly located in San Antonio. The most important thing is that this business is marginally profitable. With the exception of the year 2011, when the company showed an operating loss of $50k, the company has shown operating profits:

Year: 2011 2010 2009 2008 2007
Operating income: ($50k) $71k $88k $77k $158k

The company has released results for the first nine months of 2012 on December 4th and the company has returned to profitability this year, showing operating income of $46k.

Balance Sheet

The reason I looked in to Titanium Holdings is their balance sheet. On September 30, 2012 Titanium had $2.12m in cash and marketable securities of $92k. Total liabilities were $302k.

Titanium Holdings Group has 9,228,997 outstanding shares and the latest trade price was $0.20. The current market cap is $1.85m. The company’s cash and marketable securities therefore exceed (marginally) the market cap. I’m going to ignore the other assets, since the cash is the key factor here.

History, Management & Ownership

Randall K. Davis is the CEO of Titanium Holdings. He and his family have been the owners of Cleaning Ideas before Titanium bought this company in 1999. Titanium was actually formed in 1997 with the name “Enviro-Clean of America” and had the following business strategy:

“the acquisition and consolidation of janitorial supply companies”
Source: 2002 Form 10-KSB filed with the SEC

The company abandoned this strategy in 2000 and disposed of several of the other acquisitions that were completed during those first years. The name of the company was changed from Enviro-Clean of America to Titanium Holdings and the company announced in the 2002 report it was “seeking strategic alternatives”. Since then, not much has happened it seems like.

The Chairman of the Board, Steven Etra, owns 52% of the shares.

Conclusion

Titanium Holdings looks like a nice net-net at first glance, but I don’t want to own this stock. The reason is simple: I have no idea what the company is going to do with the cash. It looks to me that the goal of the company is to find either some other passive investments (the company currently still owns some shares in a company called IVAX Diagnostics, even though most of those shares have been disposed) or to acquire new subsidiaries.

If I were a shareholder I would not like to see that happening. A better option would be a special dividend to give almost all of the cash back to the shareholders. The company has not been using the cash balance and individual shareholders surely could do a better job by reinvesting the cash themselves. However, I do not think this scenario is likely to play out. The Chairman does own a big chunk of the shares, so in theory his interest are well aligned with minority shareholders. Titanium is a $1.9m company though. The smaller the absolute dollar amount involved, the more dangerous it becomes to assume that a majority owner will act rationally and with consideration to minority shareholders.

One other thing to mention: this stock is extremely illiquid. It can literally go months without a trade.

Disclosure: no position.

Posted in Pink Sheet stocks, US stocks and tagged .

NeverLoseMoney

Author of ValueInvestingBlog.net. Private investor.

4 Comments

  1. “the acquisition and consolidation of janitorial supply companies”
    hmm, that’s the same business plan as SWSH.. Now if only Wayne Huizenga was backing it, the market cap could’ve gone to $1.5 billion (then back to $1.9m 😉

  2. Their site does look nicer since I last looked at it. I believe it had a real 1990’s look before. 🙂

    But yeah, I don’t think much will be happening at TTHG. It’s still basically the same situation today as when I wrote the post: a cash box with a crappy, though marginally profitable business attached to it.

    For some reason the management likes to invest some of the cash in speculative biotech-type companies. Those haven’t done well… The latest annual report now shows a $100k investment in a real estate partnership. Maybe that will work out better.

    I just have no idea what their strategy is. The chairman is a majority owner, but he has shown no concern about investing the excess cash by making an acquisition of another small business or returning some of it to shareholders. Everyone just seems content to own this very marginal business and sit on the cash. Perhaps the money is a small part of his net worth and he just doesn’t care too much?

    I think TTHG should trade at a substantial discount to book value, especially given the speculative investments they’ve made with some of the cash. Still, almost everything is worth owning at some price. I know Nate from OddballStocks.com likes to buy this one when it is on sale and sell when it recovers. I also owned a little in 2013.

    Someone wanted shares earlier this month apparently and paid north of $0.30. I think that was a good time to sell for those that held shares, unless they know something I don’t.

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