Gencor Industries: A cigar butt offering a quick 61% gain (NYSE: GENC)

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Investment thesis

Purchase of the shares of Gencor Industries (NYSE: GENC) offers a huge margin of safety as it trades below its liquidation value of $11.86 per share. Over the past ten years, this business has consistently generated an annual net income of $6.5 Million, and the company’s share price has consistently recovered above its liquidation value within a year. Above all, the recent acquisition from Blaw-Knox for $13.8 million in 2021, the upgrade of SEO from NASDAQ to NYSE in 2022, and the CEO change from John E Elliott to Marc J Elliott, 55, in 2022 could be a sign that management is trying to revive this company’s share price. Our price target is $15.3 and we believe buying GENC at $9.5 per share is a profitable trade.

Company presentation

There are many reasons why Gencor Industries is not your typical dying cigar butt company. The main activity of the company is the production of asphalt plants, and recently asphalt pavers have been used to manufacture asphalt concretes on roads and highways. GENC is known for its asphalt plants because their line of Hetherington & Berner asphalt plants is the oldest in the world, dating back to 1894. Additionally, the asphalt finishing machinery division operates under the Blaw brand. -Knox. It produces road paving machines. This is the company’s only new division in the last ten years, and we’re excited to see management expand into a new revenue stream. Gencor is one of the few in the industry that remains profitable during the downturn of supply chain disruption and rising raw material costs. As shown in the Seeking Alpha screenshot below, GENC has the highest gross and profit margin compared to its counterpart. In 2022, founder EJ Elliott’s youngest son, Marc G. Elliott, took the helm as CEO of the company.

margin table

Profitability compared to peers (Looking for Alpha)


There are many predictable catalysts for GENC to accelerate the stock price gain to reach our target price. We believe the new NYSE listing and new CEO Marc J Elliott could mark the start of a stock price reversal in this company.

For example, we suspect the company could be more transparent in hosting earnings calls that could greatly benefit GENC’s stock price. Before COVID, with no supply chain issues and no wars between Russia and Ukraine, Gencor was operating with a much healthier net profit margin of 13% in 2019, and its stock price was trading above its liquidation value. As reported on 10-Q3 2022, the company’s revenue grew 20% year-to-date due to its customers anticipating the funding of the $1.2 trillion infrastructure bill over five years. We expect revenue to increase once funding begins. Following the easing of supply chain issues, the de-escalation of unrest in Europe, further increases in revenue, earnings and the organization of the earnings call, we believe the course of the GENC stock could quickly reach our price target of $15.3, offering a gain of 61%.


The outlook for Gencor Industries is much better than the typical soggy cigar butt. Warren Buffett walked away from investing in cigar butts because most cigar butts are dying with declining revenue and often negative profits, thus destroying value over the holding period . Gencor’s financial statements proved otherwise. As seen on Seeking Alpha, Gencor’s revenue has grown from $63 million in 2012 to $85 million in 2021. Total net income for the past ten years is $62.5 million. This corresponds to a ten-year average annual net profit of $6.25 million. As a result, net working capital increased from $105 million to $153.2 million, while total equity increased from $103.5 million to $166.4 million. According to the latest 10Q, its net working capital consists of liquid assets such as $19.5 million in cash and $91.1 million in marketable securities. These characteristics make GENC an ideal candidate for investing in cigar butts.

Additionally, the nine months ended Q3 2022 shows a 23% increase in revenue to $80.4 million due to the five-year $1.2 trillion infrastructure bill and the addition of Blaw-Knox. Additionally, nine-month operating profit doubled from $1.4 million to $3 million. On the other hand, the net profit is only negative due to a loss of $4.7 million in marketable securities compared to a gain of $4.9 million last year.

Gencor is benefiting from government stimulus, but is facing the headwind of rising costs due to inflation. As a result, Gencor Industries currently operates with a slim net income margin.


1) Liquidation value (Expected floor price of $11.86)

Buying GENC shares today is profitable in several ways. As seen on 2022 10Q, this company has total current assets of $168.1 million and total liabilities of $14.9 million. Additionally, the company has a 2021 property tax expense of $223,000. This calculates an estimated property value of approximately $20 million at a property tax rate of 1.1%. A quick search of his Orlando property shows an estimated value of $13.1 million, and the Iowa property, which is three times the size of Orlando’s, is likely worth more. Therefore, we believe that the estimated value of $20 million in properties is a conservative measure. With 14.6 million diluted shares outstanding, this translates to a liquidation value of $173.2 million or $11.86 per share. Buying GENC for $9.5 offers a 25% gain over its liquidation value, and we’re happy to find such a bargain.

2) Target price of $15.3 in one year (liquidation value + additional P/E of 8)

Over the past ten years, GENC’s stock price has traded below its liquidation value a few times, and its stock price always recovers above its liquidation value plus one Additional P/E of 8 based on 10-year average EPS of $0.43.

2015 2020 2022
52 week low $7 $9.5 $9.5
Current assets $112.4 million $156.9 million

$168.1 million

Total liability $7.4 million $9.9 million $14.9 million
Estimated value of properties *

$10 million

$13.1 million $20 million
Diluted shares outstanding 14.3 million 14.6 million 14.6 million
Liquidation value per share $8.04 $10.97 $11.86
EPS of $0.43 multiplied by 8** $3.44 $3.44 $3.44
Target price $11.48 $14.41 $15.3
52 weeks tall $15.4 $15.7 Still to see

(Source: Author’s work)

* Estimated property values ​​are calculated as reported net properties and amenities divided by reported net properties and amenities in the second quarter of 2022 multiplied by $20 million of the property’s estimated value today.

** We use an additional P/E of 8 because this equates to 50% of the median P/E paid in the industry.

As shown in the chart above, GENC has consistently recovered above our target price calculation in one year. Therefore, we believe that GENC’s stock price has a very strong chance of reaching our price target of $15.3 within the next 12 months, and this trade should offer a gain of 61%.


We believe that buying GENC shares involves minimal risk. Gencor Industries is facing labor, supply chain and freight pressures due to COVID and the ongoing war in Ukraine. Additionally, the company assigns more manpower to minimize delivery disruptions to its customers. As a result, the company is operating with a low net profit margin of 2% in 2022. However, as evidenced by the company’s ability to be profitable in nine of the last ten years, we believe that any operating loss will not will only be temporary. More importantly, buying GENC so cheaply at a price below its growing liquidation value of $11.86 makes this trade very difficult to lose money.


Buying shares of a consistently profitable company below its liquidation value during an industry downturn has been proven over the past 100 years to be a surefire way to make money in the market. scholarship. Many legendary investors such as Benjamin Graham, Warren Buffett and Joel Greenblatt have done this in the past. Our speculation of a reversal in the stock price in GENC could accelerate the realization of profits in this trade. Additionally, the value of this company’s working capital is poised to increase over time due to its large portfolio of $91 million in marketable securities, the $20 million appreciation in value land and its ability to generate consistent annual net income of $6.5 million. Our price target of $15.3 in one year makes buying GENC at $9.5 an attractive buy.

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