Retail Holdings NV (RHDGF): Alluvial Capital Bullish On Sewing Machines Maker

Alluvial Capital is bullish on Retail Holdings NV (OTCMKTS:RHDGF), a $102-market cap manufacturer of sewing machines, consumer electronic products, and home appliances. In its 2017 Q3 investor letter (that you can download a copy here), the fund discussed its investment thesis on Retail Holdings as well as on two companies. We’ve already covered Alluvial Capital’s favorite stock ALJ Regional Holdings in the other article. Here is what Alluvial Capital’s founder David Waters said about Retail Holdings:

If I seem to mention this particular holding in every letter, its only because there always seems to be something new to report! The end is in sight for Retail Holdings’ long running liquidation. Having sold off all but a small piece of its highly valuable Sri Lankan business in September, the company now holds only its Indian and Bangladeshi subsidiaries. Singer India is worth only $3 per Retail Holdings share, while Singer Bangladesh is worth $12. I should note that a portion of the remaining Singer Bangladesh stake carries restrictions on remittance from Bangladesh. Singer Asia is seeking to remedy the situation. I assume any resolution will involve some kind of payment to the Bangladeshi government, so I think it’s fair to discount the value of the restricted shares by 25% or so. That discount would cut NAV by $1.02 per share to $26.60 as of September 30.

Between now and mid- January, Retail Holdings will distribute $9 per share, or 41% of the current trading price of $22. Assuming shares fall to $13 following the $9 in distributions, Retail Holdings shares will trade at a discount to NAV of 26%. I expect the company to make distributions of at least $10 in 2018, and to complete its liquidation by mid-2019 at the latest. Even if ultimate liquidation is delayed by another six to twelve months, Retail Holdings shares offer a superior opportunity at $22.

Retail Holdings NV (OTCMKTS:RHDGF) is a holding company that has a 54.1% equity stake in Sewko Holdings Limited, which distributes consumer products in Bangladesh, India and Sri Lanka through Singer Asia Limited. For the first six months of 2017, the company reported revenue of $256.2 million, up 10.2% from prior year. Its net income was $6 million for the first six months, versus to $7.2 million in the prior year. Earlier this year, Retail Holdings’ board of directors approved a dividend of $9.00 per common share to shareholders. This dividend is in addition to the previously-announced $1.00 per common share distribution to be paid in November 2017.