The Deep Value Week – 2025/02
Strategic Shifts that may unlock value, M&A, investor discussions and a new CEO in place
Companies mentioned:
· Alico, Inc (ALCO) - Major Strategic Shift Away from Citrus Operations & New Analyses
· Charles & Colvard (CTHR) – Mentioned on X
· Deswell Industries (DSWL) – Mentioned Favorably on X
· SunLink Health Systems (SSY) – SSY and Regional Health Properties Merger Agreement
· Strattec Security (STRT) – New Analysis from Sidoti
· Tandy Leather Factory (TLF) - New CEO, BOD Changes & “letter to Chairman”
“Graham’s Geiger counter”
Benjamin Graham suggested that one way to measure the valuation of the overall market was to assess the number of net-nets available. When many such opportunities exist, it indicates a cheap market overall, while their absence suggests that the market is expensive. Today’s net-nets, however, are not the same as Graham’s net-nets. Many are un-investable being Chinese RTO’s, loss-making biopharma’s etc. But we do think it is interesting to follow this number over time, and what percentage of total listed stocks qualify as a “naked” net-net without any type of quality adjustments to make them investable. Below is a net-net screen from Stockopedia.
Alico, Inc (ALCO) - Major Strategic Shift Away from Citrus Operations & New Analyses
Strategic Shift │ P/TB 0.91 │ Agriculture │ URL / URL / URL
Alico, Inc. has announced a major strategic transformation, shifting focus from its citrus production under the Alico Citrus division to a diversified land usage and real estate development strategy. Citing ongoing financial challenges from citrus greening disease and environmental damage, the company will discontinue capital investment in citrus operations after the 2025 harvest. Alico plans to repurpose its 53,371 acres of Florida land for diversified agricultural activities and explore commercial and residential development opportunities.
Focus on Land Development and Diversified Agriculture
The decision reflects Alico's commitment to long-term stability, aiming to reduce financial volatility while preserving its agricultural roots. Approximately 75% of the company’s land holdings will remain agriculturally focused, while 25% are targeted for commercial and residential development, with around 10% set for development within five years. Management estimates the current landholdings could be valued between $650 million and $750 million, with most of the acreage intended for agricultural use.
Operational and Financial Adjustments
As part of the transformation, Alico will wind down its primary citrus operations, reducing its citrus workforce immediately while continuing to manage 3,460 acres under third-party care through 2026. The company expects to generate positive cash flow for the remainder of the fiscal year following planned land sales and restructuring costs. Cash reserves at the end of FY2025 are projected to cover operating expenses for at least two more years without further land sales.
Macrotips Trading also published a new write-up on Seeking Alpha where the conclusion was that land divestments could unlock up to $80 per share. Alpha Ark also wrote a piece on the company. Finaly, Miko Kap David also wrote a follow-up.
Charles & Colvard (CTHR) – Mentioned on X
Discussion │ P/TB 0.16 │ Moissanite │ URL
Rebv wrote a long thread on Charles & Colvard on X.
Deswell Industries (DSWL) – Mentioned Favorably on X
Discussion │ P/TB 0.39 │ Injection Moulding │ URL
Andy Thomas shared his thoughts on Deswell Industries on X.
SunLink Health Systems (SSY) – SSY and Regional Health Properties Announce Merger Agreement
M&A │ P/TB 0.48 │ Healthcare │ URL
SunLink Health Systems and Regional Health Properties have announced a definitive merger agreement, with SunLink set to merge into Regional. Under the terms, SunLink shareholders will receive 1.41 million shares of Regional common stock and 1.41 million shares of newly issued Series D Preferred Stock, with a liquidation preference of $10 per share. SunLink shareholders will own approximately 43% of the combined entity after the merger, which aims to strengthen financial stability and create growth opportunities through complementary healthcare assets.
Key Transaction Details and Strategic Goals
The merger will create a stronger, more diversified healthcare-focused real estate investment trust (REIT). Regional will benefit from SunLink's debt-free balance sheet and its pharmacy business, while SunLink gains access to Regional’s established senior care and long-term care facilities. The transaction is expected to generate around $1 million in annual cost synergies by fiscal year 2026, with further operational efficiencies possible post-integration. The combined company will have expanded leadership, including executives from both companies and two new industry veterans on the board.
Approvals and Next Steps
The merger, unanimously approved by both boards, is expected to close in spring 2025, pending shareholder and regulatory approvals. SunLink and Regional shareholders will vote on the merger, with detailed information to be included in an SEC-filed joint proxy statement. Both companies emphasize that this merger will create a stronger platform for long-term growth and enhanced shareholder value through expanded healthcare services and real estate operations.
Strattec Security (STRT) – New Analysis from Sidoti
Analysis │ P/TB 0.80 │ Automotive Security │ URL
STRATTEC Security Corporation has outlined a strategic shift under its new leadership team, with CEO Jennifer Slater and CFO Matthew Pauli focusing on product profitability, operational efficiency, and cost-saving measures. The company has improved its pricing profile, with $32.7 million in pricing benefits reported for fiscal 2024, including $13.2 million in recurring gains. STRATTEC also plans further reductions in salaried staff and overhead expenses while selling its Milwaukee facility to streamline operations after reducing production shifts from three to two.
Financial Performance and Growth Outlook
STRATTEC projects continued profit recovery, maintaining its earnings estimates of $2.76 per share for fiscal 2025 and $2.78 for fiscal 2026. The company's revenue remains driven by major OEM customers, including General Motors (30%), Ford (21%), and Stellantis (11%), with balanced exposure across product lines such as door handles, power access, and locks. STRATTEC's debt remains low, with $13 million tied to its ADAC-STRATTEC joint venture, representing just 6% of total capital. Free cash flow is forecasted to reach $8.3 million ($2.04 per share) by fiscal 2026.
Valuation and Strategic Target
Sidoti & Company maintains a $45 price target based on a 16x forward earnings multiple applied to projected fiscal 2026 EPS of $2.78. STRATTEC’s stock currently trades below its Q1 fiscal 2025 book value of $50.18. The ongoing focus on pricing adjustments, lower input costs, and operational efficiency, combined with a solid balance sheet and a stable customer base, supports a positive long-term outlook despite the cyclical nature of the automotive industry.
Tandy Leather Factory (TLF) - New CEO and Announces Board Changes & a letter to Chairman
CEO Change │ P/TB 0.68 │ Leather Retail │ URL / URL
Tandy Leather Factory has appointed Johan Hedberg as its new Chief Executive Officer and Board Member, effective January 6, 2025. Hedberg, with over 30 years of wholesale and retail leadership experience, most recently served as Chief Sales Officer and President, Americas, for Fiskars Group. He succeeds Janet Carr, who will stay through March 2025 to assist with the leadership transition, financial reporting, and the company's headquarters relocation.
Board Restructuring and New Appointment
TLF also announced the election of John "Rocky" Sullivan to its Board of Directors, effective January 6. Sullivan, an Investment Advisor Representative with JCP Investment Management and owner of Sullivan Companies, replaces James Pappas, who stepped down along with Janet Carr. Chairman Jeff Gramm expressed gratitude for Pappas’ service and highlighted Sullivan’s extensive investment background as a positive addition to the Board.
Strategic Direction and Leadership Vision
Hedberg expressed enthusiasm for leading Tandy Leather, emphasizing the company's rich 100-year history and commitment to expanding its customer base as it transitions to new headquarters. Outgoing CEO Janet Carr reflected on her six-year tenure, praising the team’s resilience during economic challenges and expressing confidence in Tandy's future under Hedberg's leadership.
ShadowStock also wrote a follow-up on the company and shared a Dear Chairman letter to TLF’s chairman.
The writer may own shares of the companies mentioned. This communication is for informational purposes only.
One more thing. I recall looking at Deswell and believe it is a Chinese company that is involved in plastic injection molding. If I am wrong please let me know. Btw, I should mention I have a small holding in TLF.
Excellent. I am glad to see that Shadow is still writing his Blog. My only contention with his calculation is that the inventory and accounts receivables should be discounted, the former more than the latter. Usually a retailer has inventory that may not be able to sold at the original price. Also, you never know if all of the receivables are collectable. So you can’t or shouldn’t count either fully as you would with cash. Therefore $7 may be too high, unless the new CEO can work some magic or leather comes back in vogue if not in the US, perhaps in Greenland and it snowballs from there. Just my two cents. I hope others will comment. Keep up the good work.