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from Outstanding Investor Digest's December 31, 1996 Edition

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CENTURY MANAGEMENT'S
ARNOLD VAN DEN BERG

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OID: I don't mean to look a gift horse in the mouth. But what does it look like on a non-liquidating basis?
Van Den Berg: On a going concern basis, given the cash flow and the earnings potential, we believe Moore has a private market value of at least $45 to $50 per share.

OID: So that it's selling at 40¢ on the dollar or less business-wise - according to your estimates?!
Van Den Berg: That's right.

OID: May we ask how you arrived at your estimate - and, of course, why you say "at least"?
Van Den Berg: Actually, we always do our valuations several different ways. But, in a nutshell, Moore is on track to have sales this year in excess of $140 million - which is more than $50 per share.

OID: Closer to $54, but who's counting...
Van Den Berg: So their market cap plus their debt - which is easy to calculate since they don't have any debt - is only about 35% of sales.
And we've done a lot of studies of price-to-sales and price-and-debt-to-sales. When you get down below 45%, you're getting down near bear market multiples.

OID: Depending on the type of business, of course.
Van Den Berg: That's exactly right. And I am making a generalization. However, for this kind of company, 35% of sales is cheap.

OID: If they were earning decent returns, maybe so. But it looks like they lost money in 1993 and 1994, only made 9¢ in 1995 and only earned about 24¢ in the first three quarters of this year.
Van Den Berg: I knew you'd be asking that question.

OID: How long have they been earning subpar returns? And what makes you think they'll get better?
Van Den Berg: Their subpar results go back three or four years. But a lot of it, I think, is due to their R&D. During those years, they had the highest expenditures on R&D that they've ever had. To give you some idea, here are Moore's R&D outlays per share the last five years: $4.32 in 1991, $4.65 in 1992, $4.54 in 1993, $3.96 in 1994 and $3.77 in 1995.
But now they've finished their new line of products. Plus, they've increased their shares outstanding from about 2.1 million to closer to 2.6 million by selling 500,000 new shares to their pension fund. So we believe that they can probably normalize their R&D going forward at about $3 per share.

OID: That's very interesting, although it doesn't explain why Moore lost $2.20 per share in '93 and didn't earn more than it did in '95 when their R&D was only $8.1 million - although management points to depressed sales as the culprit in 1993.
Van Den Berg: That's right. Another reason why their margins are depressed is competitive pressures worldwide. However, their sales are picking up enough that we believe that they'll be able to raise their margins as well.

OID: In fact, I see their sales have been increasing at a 20% annual rate for the last half a dozen quarters.
Van Den Berg: That sounds about right. They've been showing a very nice increase in their sales. Likewise, they've announced that their bookings are up 20%. That's a mighty good sign that the higher R&D was well spent.

OID: And that eventually translates into earnings?
Van Den Berg: We think so. In fact, we believe that Moore will get its net profit margin back up to about 5%.

OID: That's what they've earned historically?
Van Den Berg: They have. We're not expecting them to do that next year, mind you. But they certainly have the capability to do it in the next three or four years. And 5% margins would give them close to $2.70 of earnings power on '96 sales - and, therefore, something north of $3 on the sales they're likely to achieve in '97.

OID: In which case the current price would represent slightly over 6 times normalized earnings.
Van Den Berg: You've got it. So the only leap we're making is that higher sales eventually lead to something near historical margins. And we're very comfortable there.

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