whateverworks

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"What do you want, egg in your beer?" I can hear my father using his favorite expression every time I see a shareholder disappointed that an investment is doing merely "great" rather than making him into an instant billionaire.

One of my best Magic Micro Caps fund (MMC) companies, Twin Disc, Inc. (TWIN, trading on NASDAQ GM) is in a squabble with a major shareholder. Clarus Capital Group Management, LLP, is accusing TWIN of acting like a private company and not doing enough to raise the stock price.

In March 2003 TWIN was trading at around $5 - $6. At the beginning of July 2007 it was trading at around $81 - $83. Even after the recent plunge it settled at about $56 and is holding even.

The 3 yr. eps growth is 54.7%. The TTM eps change is up 50.94%. The 3 yrs. sales growth is 19.45%. The TTM sales growth is 30.38%. The balance sheet is strong. The TTM trailing PE ratio is 16.02. (From what I have read, in general a healthy company will have P/E ratio of 15 to 25.)

Today, with a Market Cap finally over $300K, TWIN is no longer a microcap and will be getting more attention. It is already attracting good press coverage.

With all this growth, in spite of the rise in stock price, price-to-sales is only 1.04 and price-to-book is only 2.95. (This is an industrial company; so price-to-book is meaningful.) Therefore, I believe the stock is still undervalued and I am considering it for the Strategy Lab fund.

Clarus thinks the stock is undervalued, too, but they are criticising the company for not doing enough about it. Well, in 2006 Twin Disc split the stock 2 for 1. At present the company is buying back shares. It is distributing a regular quarterly dividend. The company has a good investor relations section at its Website, holds earnings conference calls and presented at the Noble Financial Stock Conference in August. In addition it distributes releases announcing good news such as the fact that it was added to the Russell 2000 Index in June.

However, all this is not enough for Clarus. They would like to see yet more buyback and believe the company should "incur a more appropriate amount of debt and use the proceeds to repurchase its shares". Clarus filed a 13D saying that in addition to the stock buyback the company's board should consider an outright sale of all or part of the company. Then in an amended 13D filing Clarus disclosed a new letter to the Board again urging the company to hire an investment bank, saying there are parties who are interested in acquiring the company at a significant premium to its current price. They also express concern that this a family-run business, a situation they feel is not good for other shareholders. (Michael Batten, the CEO, is the company's largest shareholder, with about 21% of the stock, and his son is both an employee and on the board of directors.)

Twin Disc issued a press release in which Mr. Batten said that no way was the company going to sell itself and, "Our focus is on maximizing long-term value for all of our shareholders, including Clarus Capital. The Company's management and board of directors continue their ongoing efforts in various initiatives designed to achieve that goal...."

I wonder just who Clarus thinks would do a better job of running the company and who the "parties" are wanting to buy it. Hang in there, Mr. Batten!