EVI EnviroStar

This will be a brief post as the story is simple and the investment has largely played out.

I've followed EVI for a couple of quarters but never purchased shares. They had a decent(profitable) business, large insider ownership, and good asset protection. I shoulda, woulda, and coulda bought when the company was trading below $1.30/share, but I didn't. Instead I waited for them to offer a special dividend of $0.60/share(not on purpose). Here's my thought process, all figures are from their respective 10Q.

As of 9/30/2012 there were 7.033M shares outstanding.  They had $10.397M of cash on the books with customer deposits of $4.997M. Net cash therefore is $5.4M or $0.76/share. They will pay out $0.60/share, or $4.2M as a special dividend in December.

Right now they have a tangible book value of $8.387M, paying out the dividend will reduce that to $4.16M, most of it will be working capital. 

So what's a fair value?

They have a four year average of generating $0.58M of free cash flow (net income plus D&A plus non-cash items minus CapEx). Slap a 10X multiple (arbitrary choice) on that and the operating business is worth between $5-$6M, or $0.71-$0.85/share. Sprinkle in BV of $0.59/share ($4.16M of post-dividend BV) and you get a post-dividend value of $1.30-$1.44/share.

With EVI currently at  $1.95, the post dividend share price should be $1.35, meaning we're in fairly valued territory now.

Is there more upside?

Potentially, yes. Backlog has increased to "historic levels" this quarter and I would be willing to bet owner-operators like the Steiner family could allocate capital efficiently. If the price of the shares pops again, I will likely be a seller. Should we hit my initial buy prices in the low $1.60's I would be willing to buy more.

This could be interesting to revisit post-dividend in case the market over-corrects to the downside. Long EVI