Up for the challenge

Holders Technology sees the current year as 'one of both significant challenge and great opportunity', a fair assessment considering the stress on the distributor's finances as it repositions itself in a growth market.

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Holders distributes materials used to manufacture the printed circuit boards that are ubiquitous in electronics, to wholesalers, PCB and lighting manufacturers. It diversified in 2009 when it bought JK Components, now Holders Components, a distributor of light emitting diodes. Since then its established Opteon, which markets LED lamps.

Expectations

The company faces two challenges, both with the potential to consume capital. First it must weather the vicissitudes of the PCB market as customers destock and restock according to fluctuating demand in its troubled European markets. Secondly, it's investing in marketing its expanding range of LED products across Europe.

Bargain, recovery, cyclical, stalwart, (some potential for) growth

Holders maintains its core business is PCB materials, and since the LED opportunity is currently loss making I'm assuming the company's earnings will remain cyclical, requiring it to maintain strong finances as a cushion during downturns.

Threats

competitive position – weak
The supply of PCB materials is a competitive market, although Holders has been in the industry since 1972 and claims long standing relationships with its suppliers. Organisations are switching to energy efficient LED lighting so it's entered a growth market in which it already had some expertise as a distributor of materials that form the circuits that power LEDs. It's a late entrant though, and its fledgling lamp businesses is up against successful and entrenched companies like F W Thorpe, which is also in the Thrifty 30 portfolio.

management – strong
Executive chairman Rudi Weinreich owns 45% of the company. By diversifying into a closely related business during the recession, when Holders was able to do so cheaply, Weinreich showed he's a cautious steward who's prepared to take calculated risks to achieve prosperity.

finances ' normal
Despite the demands put on it by its two divisions, the company says it's committed to a 'conservative financial framework' and the figures bear it out. It has no long-term debt or defined benefit pension scheme and the capitalised value of its operating leases is (very approximately) 18% of tangible asset value. However, after two years of negative cash flow, Holders hasn't got much in reserve so I don't think its finances are especially strong.

valuation – cheap
Since Holders' earnings from the PCB businesses are likely to remain unpredictable and earnings from the LED business are speculative, I've chosen to compare Holders' market value to tangible book value. It trades at a 19% discount.

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Holders Technology is cheap but speculative. The Thrifty 30 portfolio is a happy holder, but I've not added more shares as a result of this review. I need profitable growth in the LED business first.

Notes

1. Holders Technology website
2. Holders Components website
3. Opteon website
4. The PCB components Holders Technology supplies
5. My Holders worksheet (two sheets)
6. More on Holders Technology and F W Thorpe
7. About the Thrifty 30.