Syms sym
November 12, 2003 - 11:57pm EST by
2003 2004
Price: 6.81 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 104 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Syms is no secret to any hard-core Graham value investor. It is known as a perennially cheap stock where nothing ever happens, and is written off as unattractive until something changes, which is a perfectly valid assessment. What I see here is very little downside risk provided you’re not forced to sell at an inopportune time, and a very quick double were anything to change. The asset value is almost indisputably north of book value of $14.57 per share, arguably well north of 20, and here is the stock trading below 7 in a market where there are supposedly no cheap stocks. There is one reason and one reason only for owning Syms. It trades at less than half , maybe 1/3, of what its assets are worth. For a certain type of patient value investor, that’s reason enough to own a stock. Its never been posted on VIC, which I found kind of surprising.

The company is in the off-price retail business, mainly menswear. Over the years, they have consistently made money, but the last three years the best that can be said is that they’ve shown an ability to break even on the cash flow statement. There has been deterioration in the business in the soft retail environment of the last few years. All I hope for from the business is stability – same store sales comps is not the reason I own the stock. And given the business’s historical resiliency (retained earnings of $230 million didn’t get there by losing money), I don’t think this is a cash burn situation. Management knows how to make money – they just have an uncanny ability to keep the stock price down.

The company is under majority control of Sy Syms and daughter Marcie Syms. Sy, 77, has never shown any concern for shareholder value, and even if Sy got hit by a bus (not that I’m wishing bad things on the guy), Marcie’s right there to annoy shareholders for another 20 years.

If you’re looking for a catalyst, so am I. If you’ve got one, tell me. All I can say here is that in a market without a lot of cheap stocks, here’s one of the cheapest.

Syms is an asset play. Book value is $223 million, $14.57 per share. Here is what the book value is:

Cash 19.8
Other Current Assets 97.8
Fixed Assets 131.1
Other Assets 22.4
Total Assets 271.1

Total Liabilities (no debt) 48.2

Equity 222.9

Market Cap is $105 million, so the stock is trading at less than half of book value. It gets better.

Lets break the balance sheet down into three categories:
i. Cash of 19.8 million.

ii. Non-Cash Net Working Capital of 49.6 million. What do you want to discount that by? Its inventories mainly, which they sell for a profit.

But even if we discount the NWC by 25%, and add the cash we’ve found 57 million, or $3.72 per share in cash and current asset liquidation value.

Now lets get to the good stuff.

iii. Fixed Assets of 131.1 million

The company owns 23 of its 40 stores, and they’ve owned many of them for a long, long time. No need to get much more specific than that, and there is so little disclosure that I couldn’t if I wanted to. I will freely admit I don’t know anything more than what is in the 10-K.

The land is on the balance sheet at original cost and the owned buildings are on the balance sheet at depreciated levels – forgetting about all the leasehold fixtures for the 17 leased stores and all their other assets, here’s what they own, at original cost:

Land 40
Buildings & Improvements 120
Total Real Estate at Original Cost 160 ($10.46/share)

(Those “Improvements” don’t include leasehold improvements)

So if we take the working capital valuation above and just add the land at original cost, we’re at the market cap already with nearly 1 million square feet of retail buildings and a distribution center for free. But even that is a ridiculously conservative assumption. The company was founded in 1959 – their first store – in lower Manhattan!!! – is on the books at original cost. The land, at least, is certainly worth significantly more than its balance sheet value.

Here are the locations of the owned stores. These are not real estate locations that have depreciated in value over the last 20 or 30 or 40 years. Their flagship store in Lower Manhattan certainly depreciated in value when the Trade Center came down, but no way it is overstated at original cost from decades ago.

Lower Manhattan
Westbury, CT
Commack (NY or CT?)
Rochester, NY
Buffalo, NY
Paramus, NJ
Secaucus, NJ
Cherry Hill, NJ
Fairfield, CT
Ft. Lauderdale, FL
Miami, FL
West Palm Beach, FL
Tampa, FL
2 in Georgia
Addison, IL
Rockville, MD
Southfield, MI
Hurst, TX
King of Prussia, PA
Monroeville, PA

I look at this as a real estate stock, in the hands of management who has shown no sign of letting shareholders get at that value. Who knows if tomorrow is the day management gets religion or gets sick of being a public company, but if tomorrow’s not the day the real estate is still there, slowly appreciating in value. I see my downside as long as I’m patient as getting taken out by management at 9 or 10, which I would stomp and curse about, but if making 25% is my downside risk I think I can live with that.

This stock is just way too cheap to dismiss because there is no catalyst. It is not at all hard to see 15 or 20 dollars per share of liquidation value here (possibly significantly more), most of it in the form of real estate in reasonably good locations, trading at less than half that.

I would note as I’m winding down here that the company is buying back stock. Not as aggressively as I would like, but enough to matter if the valuation is what I think it is.

No coincidence the largest outside shareholder is Tweedy Browne, and the Kahns also have a big position. A Graham cigar butt, no doubt, but that last puff could be a big one if a few things were to turn out unexpectedly.

The best shot I can take at a catalyst is the change in the dividend tax, in combination with a low interest rate environment. A little mortgage debt here could work wonders if the family decides they want to cash out but still maintain control. The Syms family build a business over two generations and the father is 77. No investor seems to believe anything will change but is it too hard to imagine that they might want to cash out and diversify their wealth at some point? These are not stupid people.

Sy, if you’re reading this, here’s some free investment banking advice, which is probably worth more than the kind you pay for. There is $15 per share of retained earnings on the balance sheet. My understanding is that any one-time dividend up to that level would be taxed at only 15%. A $5-10 one-time dividend would shake things up here and mortgage debt is cheap. Just mortgage a few properties, thus avoiding capital gains taxes, pay out the current market cap of the stock, and you’ll be a hero.

I’ve been following this stock off and on for about four years, but as for Q&A, the 10-K takes an hour tops to get through and once you’ve read that there’s not a lot I can add. If anybody has insights beyond the obvious – “the stock’s never going to go anywhere”, “management isn’t going to do anything” – hopefully we can get beyond the Yahoo thread here – I’d love to learn more. I strongly suspect there are members who know more about Syms than I do – whether what they know is good or bad is something I would like to know, which is why I post this idea.


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