Saturday, April 14, 2012

That was fast - Unusual activity in BSET

An reported story - on Friday, Bassett Furniture, BSET, (Disclosure, I am long BSET), saw a massive rise of 5.5% on volume of 200,000 shares, 10x the normal amount.  There was no news nor any press release from BSET.

As I posted earlier this week, the chart of Bassett stock indicates that someone is on an acquisition spree for a stock that is undervalued compared to the sum of its parts.

As I have said, the company is really two halves - one is an investment company with a strong balance sheet (though relatively few investments at the moment).  The balance sheet already reflecats over $20mn of impairments, much of which could be reversed, particularly if business improves.

The other half is an operating company that manufactures, designs, distributes and retails furniture.  The open question has been, can the business make a go of it, in the face of sharp declines in consumer spending.  This past quarter, we received the first indication that, so long as business does not deteriorate further (on the top line), yes, Bassett can be a modestly profitable venture.  The natural operating leverage in the business (which has increased with the acquisition of several retail outlets from former licensees) means that with a modest uptick in volume, profitability should recover nicely (leading to reversals of the valuation adjustments on upto $19mn in deferred tax assets).

Looking at massive liquidity, and the opportunity to use BSET to shelter income tax for some profitable venture (if not from the Bassett furniture business itself) the company looks like a good acquisition target for a private equity firm.

Up to now, whoever has been acquiring shares has been doing so quietly, trying not to increase the price dramatically.  However, with the very large volume on Friday, I expect an announcement over the weekend or latest sometime next week that someone will have to announce something.

What do you all think?

No comments:

Post a Comment