Universal Corporation ($UVV) is the world's leading leaf tobacco supplier. The asset value case is straightforward:
* P/B: 0.90
* 41 consecutive years of dividend payments (I love when a dividend is old enough to drink)
* 6.1% dividend yield
* Operating cash flow of $327M against a market cap of $1.34B
At first glance this appears like the kind of asset-valuation situation Graham would look for... But when I went through the 10-K, there's a disclosure that made my spider sense tingle.
The company has reported material weakness in its inventory controls. This is notable because it's the second overlapping material weakness. They still haven't fixed the first one from the prior year. For a company whose entire value case rests on its balance sheet assets, a material weakness in inventory controls directly impacts what those assets are actually worth. The weaknesses don't necessarily mean the book value is wrong. But they do mean the company's own auditors can't confirm that the internal processes for valuing inventory are reliable. This erodes the ability I have to trust in the book value being reported.
I rated it WATCH rather than PASS. The yield and the asset discount are genuinely attractive. If they can figure out how to do inventory control I would consider adding to my portfolio.