Two Tech Shares Worth Looking At

Published in Company Comment on 17 June 2011

Sliding markets are leaving value opportunities exposed.

The dodgy market is throwing up opportunities here and there -- but being selective is the important thing.

PV Crystalox Solar

One share that has caught my eye again is recently is what is beginning to feel like something of a perma-value candidate PV Crystalox Solar (LSE: PVCS).

This company presents a number of value credentials, as I've pointed out before, but weakness in the demand for, and too much strength in the supply of, the silicon ingots and wafers that are then used by solar power manufacturers -- and fears over further weakness -- continually hold back the share price.

This may or may not be justified -- this is what makes a market. The shares have traded in the 45p-67p range over the last 18 months or so and the recent doldrums have taken them back down to just above 45p as I write -- valuing the manufacturer at £188m.

The company did see a reduction in full-year profits as prices fell, but has since made efforts to cut production costs and the overall market is still growing.

In return for an investment at today's price, the bulls are buying around 57 pence worth of net tangible asset value per share, and net cash per share of 11.6p per share, in a company which is expected to bring in earnings per share for the year of 6.24p, placing the shares on a price-to-earnings ratio of a little over 7.

Meanwhile, the prospective yield of over 6% certainly isn't to be sniffed at.

There's clearly something wrong with these figures. Either the brokers are being needlessly optimistic and simply aren't seeing the wider picture as governments with tight purse strings around the world cut subsidies for clean energy -- or the shares are undervalued. I prefer to believe the latter.

Germany has been the largest market for PVCS over the last decade and had been expected to cut its feed-in tariff (FIT) incentive to solar power buyers from 1 July by between 3% and 15% depending on the level of installations during March, April and May. But the cut didn't materialise as demand has remained so weak through the second quarter. Clearly, this is something of a double-edged sword for PVCS.

On the other hand, the country's ruling coalition's decision to shutdown of all of its nuclear power plants by 2022 in the wake of the Fukushima crisis will mean it will need to accelerate the search for alternatives.

On a long-term view, the shares look good value by my slide rule.


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Last November, I thought fast-growing fabless semiconductor company, CSR (LSE: CSR), presented good value at 324p on a combination of its huge cash pile which accounted for 50% of the market cap, and which made the price-to-earnings unfeasibly low against enterprise value -- with some excitement by virtue of the fact that the company is growing quickly.

A litigation settlement reached in January by CSR and California-based Broadcom Corp. ended a long-running battle between the two chip makers and helped send the share price up to 447p in February.

But news of a proposed merger with Zoran Corporation -- also California-based -- and poor first quarter trading figures, along with the market's slump, sent the shares all the way back down to 307p this week.

Then Friday's news that CSR has amended the figures on its proposed merger downwards to $6.26 in cash and 0.589 ordinary shares of CSR for Zoran shareholders, due to a worse than expected trading performance by Zoran in the second quarter, has given the shares a fillip back up to 323p at the time of writing – helped by cancellation of CSR's proposed share buyback programme.

CSR says the $313m (£194m) cash needed to buy Zoran will be met from its cash pile. Takeovers (for that's what this really looks like) are so often the enemy of value -- and CSR's shareholders clearly haven't welcomed the whole possibility. Nevertheless, CSR remain convinced it's the right strategic decision and is spending around 80% of its cash pile, so must be reasonably confident of success.

It will be very interesting to see where the (silicon...) chips fall here and is one to keep a close eye on. Personally, I'll be content to watch from the sidelines until the trading situation becomes clearer.

More from David Holding:

David owns shares in PVCS.

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F958B 17 Jun 2011 , 3:07pm

A new 12-month closing low on PVCS?
Best avoided, in my experience.
New 12-m lows on "value" shares are often a warning of trouble coming.
Look at HMV in the last several months and also GMG and TNO in the last several weeks, for striking examples of how, once that 12-m closing low is broken, those "value" shares often go into freefall.

Rather than signalling that a share is cheap, a close below the 12-m closing low is often a warning signal.

UncleEbenezer 17 Jun 2011 , 6:52pm

PVCS is my biggest loser. Not buying more now, 'cos I have enough exposure. But I see no reason to sell that dividend at a knock-down price! Hasn't China overtaken Germany as the biggest market?

CSR is a stark comparison to the lofty valuations of other chip designers ARM (my biggest winner) and IMG. I expect that's because its core product is in a market that no longer gets anyone excited.

mcturra2000 17 Jun 2011 , 8:17pm

I get nervous at the idea of companies relying on FiTs (Feed-In Tarriffs). Governments can change their mind at any time. Wasn't EAGA a green energy company that turned into an investing disaster?

wokingblade 18 Jun 2011 , 7:26am

I think the future is China, not Germany and,indeed, that's where the capacity surplus lies.

I smell a value trap.

Not one for me.


somedangfool 20 Jun 2011 , 2:51pm

What's a slide rule?

5753225 21 Jun 2011 , 2:51am

A slide rule is a type of green calculator useul to persons who can carry exponentials of 10 in their heads.

drfuzz 23 Jun 2011 , 7:15pm

Spot on mcturra2000, while I own shares in PVCS, I am actually looking to offload them having come to the same conclusion. On most value ratios it is an attractive company, and its sitting on a load of cash (the factors which attracted me at the beginning), but... FiT makes it an artificial market, and at some point that carpet will be pulled from under PVCS... plus as pointed out, the future of this industry probably is not in Europe.

RobinnBanks 26 Jun 2011 , 10:55am

PVCS is a good company, but according to a report some 12 months ago, it is using out-of-date technology, which has been superseded by better materials and methods of producing solar cells at other companies: hence the large price drop over the last year.

RobinnBanks 26 Jun 2011 , 12:00pm

This is from an article by John Harrington on Digital Look in September 2009:

"PV Crystalox Solar has been around since 1982 and was one of the first to develop multi-crystalline silicon technology on an industrial scale, setting the industry standard for ingot production. Though it may appear at first glance to be a new technology, it is in fact an old technology company. According to stockbroker KBC Peel Hunt, a ‘much more economic’ competing technology already exists and is produced by US company First Solar, but PV Crystalox’s technology is ‘the incumbent technology’ and will ‘put up a good rearguard action’."

RobinnBanks 26 Jun 2011 , 12:16pm

A slide rule is an analogue calculator used before electronic digital calculators were invented. It has three parallel rules with numbers; the central one could slide between the other two for calculations;
answers could be read by a cursor.

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