Alpha Pro Tech (APT): An Intelligent Investment

The table below shows net income for the three and nine-month periods ending 09/2022 as per the 10Q. Note the YOY profit contribution decreased from the Disposable Protective Apparel.  A 4.2M unallocated overhead expense (C Suite) for the nine months ending 09/2022. The expense of ~ five million per year can be saved if absorbed by a larger entity. The large C suite savings makes for a more attractive acquisition candidate.

Opportunity/Valuation:

The table below shows Alpha Pro Tech as an opportunity from a deep asset and discounted earnings perspective. Note the significant book value and retained earnings per share increase compared to the decline in enterprise value per share. BV per share increased 110.74% from 12/2018 to MRQ. RE per share increased 129.75% from 12/2018 to MRQ. This is in contrast to EV per share declining -69.72% from 12/2018 to MRQ. This is in contrast to EV per share declining -69.72% from 12/2018 to MRQ. BV per share increased 148.34% from 12/2015 to MRQ. RE per share increased 356.45% from 12/2015 to MRQ. This is in contrast to EV per share declining -12.81% over the period.

Liquid NCAV trades at 75% of enterprise value. Another EV to GP, TB, EBIT, and revenue are at or near low historical and relative valuations. 

Risks:

The building supply segment (home repair and construction) faces a challenging macro environment with rising interest rates and a potential 2023 recession.

Lower margins from product material and labor inflation.

Personal protective equipment (PPE) may see less demand and increased competition after COVID.

Donna Millar, the deceased co-founder’s wife, owns 10.26% of the shares, amounting to 1,284,603.

Years of zero insider buying; CEO Lloyd Hoffman sold most of his shares during the 2020 run-up during the irrational market price reaction to COVID. CEO sold 1,251,574 shares at $31.65 or $39,608,120 in 2020.

Inventory buildup is seen in a rising DSO from an average TTM Days inventory of 217 days versus the historical 123 days average.

Excessive C-suite compensation for a tiny company. Annual compensation, CEO Lloyd Hoffman 2020 = 1,632,000, 2021 = 1,079,000: Senior VP of Manufacturing = 2020 = 791,826, 2021 = 626,382, CFO = 2020 = 505,250; 2021 = 378,000

Conclusion:

Alpha Pro Tech APT is an intelligent investment in the tradition of Ben Graham. It’s cheap on historical FCF earnings, break-up value, reproduction, or sum of the parts. Further, investors get paid to wait with a high shareholder yield from share repurchases and increasing BV.