Cost-U-Less Inc. (NDAQ:CULS) shares continued their rise today after Delafield Hambrecht demanded that the company immediately put itself up for sale in a letter attached to their Schedule 13D filing with the SEC. These demands come after Monarch Activist Partners - a 5.4% holder in the company - made similar demands for the company to put itself up for sale in order to deliver value back to shareholders.  They both argue that the company would be better off being private as it is incurring heavy costs associated with being a public company while failing to realize the benefits with an illiquid, under-performing stock.

Just how much is Cost-U-Less actually worth in their eyes? Well, Delafield Hambretch reasons that given the company's current enterprise value of $30 million, and using EBITDA estimates of $7 million for 2006 and $7.5 million for 2007, pro-forma EBITDA for a prospective buyer should be $8.5 million (after adding back public company expenses). If this assumption is correct, then the company currently trades at only 3.5x EBITDA. What does all of this mean? Well, Monarch Activist Partners noted that Pricesmart (the company's self-acknowledged closest competitor) trades at a multiple of almost 16x. This means that even after taking an extremely conservative approach and valuing the company with a 40% discount from the industry mean, CULS is worth in excess of $12 per share. This translates into a 40% or greater premium to today's stock price!

Delafield Hambrecht also indicated that while a strategic buyer would likely pay more for the company, financial buyers would still pay a significant premium to the current market rates. On that note, the hedge fund said that it would likely participate as such a bidder if the company were put up for sale. Many investors also insist that there could be other strategic buyers, given the company's low market cap and deep discount to its peers.

But will any of this materialize? Well, given the nearly 15% combined stake in company by these two hedge funds, management may decide to respond to shareholders rather than risk a confrontation with the two hedge funds. Indeed, both hedge funds said that if they did not hear back from management, they may seek to replace members of the board in a proxy contest, which should set off some alarms at company headquarters. Unfortunately, the company's Investor Relations personnel were unavailable for comment today when we called; however, we will follow-up and post any developments here at SECInvestor.com. Meanwhile, this is definitely a stock to keep a close eye on as this situation unfolds, especially given the deep discount in the company's share price.

Related Companies
Costco Wholesale Corporation (COST)
PriceSmart, Inc. (PSMT)
Wal-Mart Stores, Inc. (WMT)