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:
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.
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.
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.