The Deep Value Week #1 – 2024/40

The Deep value Week is created in the spirit of Shelby Cullom Davis who wrote a market letter (on insurance) that “no one read”, and when questioned on the why of still writing it, answered that they wrote it for themselves, as a form of self-reflection on their activities – helping them refine their thoughts, test their theories and maintain discipline.

In Alpha Pro Tech (APT) (P/TB 1.02), a manufacturer of protective equipment for the healthcare and construction industries, five Form 4 filings were published this week, where management, under the RSU program, was awarded shares. James Buchan, David R. Garcia, Benjamin A. Shaw, and John Ritota were each awarded 4,740 shares ($27k at 5.65$/share). After these transactions, Buchan and Garcia hold 14,153 shares each, Shaw 4,740 shares, and Ritota owns a total of 59,203 shares directly. Ritota also holds shares indirectly through his wife (15,000 shares) and daughter (5,000 shares), but he has waived ownership rights to these. All shares were acquired at a price of $0. On a positive note, they have – at least not yet – not sold the shares.

This week, APT also announced an expansion of its share repurchase program by $1.0m, bringing the total amount available for share buybacks to $1.5m ($0.5m remained from the previous expansion in April 2024). The company plans to conduct the buybacks through open market purchases or private transactions and intends to retire all repurchased shares. APT is a cannibal (which is rare in the deep value world) and has repurchased 53% of its outstanding shares since 2007 – also in a relatively "linear" process (more common are large one-time buybacks).

Something that could potentially be positive for APT is that the Biden administration has granted up to $510m to increase domestic production of personal protective equipment in order to replenish the U.S. strategic national stockpile for future public health crises. However, it is unclear whether any of these funds will reach APT – but increased demand for the sector's products should, in some way, have a positive effect on the company.

Art's Way Manufacturing (ARTW) (P/TB 0.84), a manufacturer of agricultural equipment, released its quarterly report this week and reported progress despite challenging market conditions during the third quarter of 2024. The company reported a decline in sales, with revenues of $5.9m for the quarter, a 28% decrease compared to the same period in 2023. The agricultural segment was particularly affected, with a 46% decline due to falling crop prices and rising production costs for farmers. Meanwhile, sales in the modular buildings segment increased by 12%, driven by large research projects. Net income for the quarter was $2k ($241k). For the first nine months, net income was -$427k ($921k).

The company also announced that CEO David King is stepping down after just over four years in the position, and Chairman and major shareholder Marc McConnell will take over as CEO. McConnell emphasized continued focus on cost savings and strong growth in the modular building segment. Marc’s father, J. Ward McConnell Jr., became Chairman of Art's Way in 2002. Marc himself has served as a board member since 2001. He became Chairman in 2015.

Nanocap100index wrote below on $ARTW on X.

At Bridgford Foods (BRID) (P/TB 0.64x), a food company specializing in the production and distribution of ready-made foods, including baked goods, meat products, and snacks, Brian E. Bridgford (third generation of the founding family), Vice President of Production, reported a transaction on October 1, 2024, in which he acquired 300 shares of the company at a price of $9.10 per share. After the transaction, he holds a total of 3,011 shares directly in the company. Over the past two years, all insider transactions have been purchases.

At Chicago Rivet & Machine (CVR) (P/TB 0.69x), a manufacturer of metal fasteners and assembly equipment for the automotive and manufacturing industries, Stanley Kesselman, a private investor and attorney, updated his ownership (13G – “passive”) as of September 30, 2024. He holds a total of 58,094 shares, representing 6.0% of the company's outstanding shares. Kesselman has sole voting and dispositive power over these shares, with no shared rights to either voting or disposition.

Jewett-Cameron Trading Company (JCTCF) (P/TB 0.69x), which manufactures and distributes products for gardening, agriculture, and animal husbandry, as well as building products and tools, gave a presentation at the Lytham Partners Fall Conference. The presentation can be viewed below. When we clicked on the link, the YouTube video had four views, which unfortunately says something about the interest in the company.

JCTCF also announced that they have partnered with Continental Sales & Marketing, Inc. to expand distribution with national and regional retailers in the home improvement sector. The collaboration particularly focuses on the company's products Lifetime Steel Post® and Adjust-A-Gate®.

Just over a month ago, the company's second-largest shareholder, Parthenon LLC, sent an "open letter" asking the board to explore "strategic initiatives." On X, it is also clear that shareholders are expressing doubts about the company in its current form and its plans.

The contract manufacturer Key Tronic (KTCC) (P/TB 0.46x) has announced an amendment to a loan agreement, extending the credit facility's maturity date to December 3, 2025, and including an amendment fee of $50k. There are no ongoing covenant violations.

KTCC also reported that they are unable to file their 10-K for the fiscal year ending June 29, 2024, on time, due to challenges related to internal controls and financial reporting. Specific issues include misclassification of price variations and estimated credit losses, as well as staff turnover in the finance department. The company is also investigating the need to restate reports for previous periods.

For the fiscal year 2023 and parts of 2024, the company underreported revenues and will need to adjust these, which may lead to an increase in both revenues and cost of goods sold by between $10m and $26m for 2023, and between $4m and $10m for 2024. The company expects a decrease in both revenue and earnings for 2024 compared to 2023, partly due to a cyberattack that resulted in lost revenues of approximately $15m during the fourth quarter of 2024. However, much of this could be recovered in 2025.

On X, RatzoRizzo also mentioned that the dollar has recently strengthened against the peso, which will positively impact the company's results. In recent quarters, the company has suffered from the opposite effect.

Also interesting, as SmallCapKing noted on X, is that KTCC's stock price has shown very strong performance throughout September.

At Seneca Foods (SENEA) (P/TB 0.73x), a food producer focused on canned and frozen fruit and vegetable products, primarily under its own brands and private labels, Harris Perlman posted a very insightful comment on X regarding the company's drivers and public procurement. By analyzing publicly available data from the USDA's bidding process, he found that prices began to rise after falling during 2023-2024. Reasons for this include Del Monte's factory closures and poorer harvests due to heavy rains. Here is a write-up on SENEA by Perlman from August 2023.

At Strattec Security (STRT) (P/TB 0.77x), a manufacturer of automotive locking systems and security components, Gate City Capital Management, LLC reported ownership of 412,341 shares (13G – “passive”) in Strattec Security Corporation, representing 10.1% of the company's outstanding shares. Within Gate City Capital Management are two skilled analysts, Nicholas Bodnar and Harry Sauers, both of whom have publicly written about value investing in the past. GTC appears to have an excellent track record and we are happy to see that they added to their position. STRT also recently participated in the Sidoti Small Cap Conference, see the presentation below.

The writer may own shares of companies mentioned herein. This communication is for informational purposes only.