I don’t spend much time revisiting companies I’ve previously written up for this blog, but now and then it’s fun to check in and see how the a business has progressed, as well as its stock’s performance. One company I’ve written on a few times is Retail Holdings NV. For anyone not familiar with the company, Retail Holdings owns stakes in various consumer durables companies in Southeast Asia, all of them doing business under the historic “Singer” brand name. When I first wrote about the company in 2012, Retail Holdings traded at a large discount to the value of its publicly-traded subsidiaries.

Fast-forward to today, and the company still trades at a large discount to the value of its publicly-traded subsidiaries. In fact, the discount has grown, due to the increasing value of those subsidiaries. Retail Holdings own stock has been frustratingly, tryingly lethargic. ReHo’s stock price at the time of my original article nearly two years ago was $22.75. Today? It’s $18.05. Even with the two $1.00 dividends in the interim, Retail Holdings’ shareholders have suffered losses while the market is up 40%+.

So what gives? ReHo’s underlying businesses have actually performed well, so that’s not the issue. Consolidated revenues hit a new record high of $458 million for the twelve months ended June 30, 2014, and adjusted operating profits rose 22% since the same period two years ago. And it’s not as if the market values of the company’s subsidiaries have fallen. In fact, the company’s Indian and Bangladeshi holdings have appreciated substantially in 2014.

I suspect that Retail Holdings’ performance is mainly due to two factors. The first and more serious factor is investor distrust. In June 2013, Retail Holdings announced it would pursue an IPO of its Asian holdings. Great news! The market would finally show the stock some respect once a large part of those stockholdings were converted to cash! But alas, it’s wasn’t to be. Several months later,  company scuttled the IPO process citing poor market conditions. Heartbreak. I can’t blame the company entirely. The market really did turn sour as investors grew nervous about the India’s economic stability. But the damage was done, and now the company suffers from a credibility deficit. Investors will be much less likely to trust Retail Holdings when the IPO process is eventually re-started. Second, investors woke up the reality of doing business in developing economies. And Retail Holdings operates in some of the most “developing.” Pakistan’s issues are well-known, and Sri Lanka only recently put a 30-year civil war to rest. Even Thailand, tourist hotspot that it is, was wracked by protests and work stoppages this year. Together, these nations account for almost half of ReHo’s asset value. Retail Holdings’ largest asset by market value, Singer Bangladesh, also suffered the effects of instability. Singer stores in Bangladesh were shut down for over two months in 2013 by strikes.

When I first wrote about Retail Holdings back in 2012, I pegged net asset value per share at around $27. NAV per share has risen at a healthy rate since on the strength of rising revenues and earnings. Precise market cap figures for some of ReHo’s subsidiaries are tough to track down, but today’s NAV breakdown looks much like this:

In addition to its corporate subsidiaries, Retail Holdings also owns some securities, notes it was issued during its reorganization a decade ago. These can be generally described as “distressed” and have undergone multiple restructurings. The par value of these notes is $23.8 million, or about $4.50 per share. However, I think a haircut is warranted due to the non-marketability and dubious credit quality of the notes. Assuming a 30% discount yields per share value of $3.15.

Retail Holdings also holds some corporate-level cash, though the exact amount is uncertain and is probably low following the recent dividend. I’ll ignore it. The combined per share value of the public subsidies and notes is $34.81 by my estimate, a 93% premium to today’s closing price for Retail Holdings’ shares of $18.05. Put differently, ReHo shares are trading at a discount to NAV of at least 48%.

So what will it take for Retail Holdings shares to finally reach their intrinsic value? Probably an IPO of the company’s Asian assets, though who knows when that will take place. In the meantime, I am content to wait, so long as the intrinsic value of the company’s Asian subsidiaries continues to rise. This seems likely, as all the various operating subsidiaries have showed healthy gains in revenues and income over the past several years and occupy a strong market position in their economies. It will be a happy day when Retail Holdings officially completes an IPO or goes private, even if we investors must wait awhile longer.

Alluvial Capital Managment, LLC holds shares of Retail Holdings NV for client accounts.

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