This post is going to be a bit of a grab bag of updates, as a couple of the stocks I profiled have had material news.
Petrobank (TSX:PBG) has announced a merger. I profiled the company here earlier in the year, as a net-net. While the company will no longer be trading below its NCAV after the merger, that is because it has parlayed its cash into a stake in valuable producing assets, and the market has bid up the stock accordingly. The combined entity will have the resources to more fully develop the assets in Trinidad, and will be less focused on THAI development in Canada, which hasn't worked. All-in-all this is a positive development.
Chaparral Gold (TSX:CHL) demonstrates one way that good things can happen when you buy companies for less than their net current asset value. When I profiled the company here they were trading at $0.32, and was available at a discount to their net current asset value at that time of approximately $0.48. This was also a spin-off situation, and those are often prospective for value investors. The mechanics of the spin was analyzed here.
Recently, a private equity firm has made an offer to purchase the entire company at a price not much above its NCAV. This seems like an opportunistic course of action, as the company's mining properties are likely to have some value. The bid was recently extended, and was for $0.50 per share. As the shares are trading at $0.68, or nearly 40% in excess of the bid price, I've closed my position. It's a double from where I recommended/purchased, and the incremental value of a higher bid is outweighed for me by the possibility of the deal going through at $0.50. I could be leaving money on the table here, but I don't see a margin of safety in the shares any more.
Whatever happens, I'll use the current $0.68 price when compiling my results at the end of the year, even if that turns out to have been a mistake.
Of course, not all of my net-nets have had something exciting happen to them, but that's not always necessary. Eyelogic Systems (CVE:EYE.A) is at $0.14, or nearly a double from $0.08 when I profiled the company as a net-net. It's still trading well below NCAV, and I still hold the shares. Maybe nothing exciting will ever happen, but the company is still trading around two-thirds of net cash, so there is a definite margin of safety.
Disclosure: Long PBG, EYE.A, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
Thursday 10 April 2014
Tuesday 8 April 2014
Potential Arbitrage Opportunity - McVicar Industries (CVE:MCV $0.48)
McVicar industries is a specialty chemical company with operations in China.
For those of you that are still reading, the story gets worse before it gets better. In 2013, the companies Hongbo facility was "illegally occupied by the factory management and staff," according to the company's press release. The company sold that operation back to the entity it originally purchased it from, and has announced a plan of amalgamation with its largest shareholder. The amalgamation will deliver proceeds of $0.50 to shareholders, and the most recent trading price is $0.48, for a 4.16% return on the trade if the deal is completed.
The independent valuation prepared at the board's behest concludes that the transaction is not fair to shareholders and that the company is worth $0.70 to $0.76 per share. I think it is unlikely shareholders will put up much of a fuss, and will generally be happy to get out of a Chinese micro-cap at a premium of >100% to the pre-deal price of the company.
The special meeting to approve the transaction is scheduled for the end of April, so a completed deal would be an attractive annualized return.
Disclosure: No position, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
For those of you that are still reading, the story gets worse before it gets better. In 2013, the companies Hongbo facility was "illegally occupied by the factory management and staff," according to the company's press release. The company sold that operation back to the entity it originally purchased it from, and has announced a plan of amalgamation with its largest shareholder. The amalgamation will deliver proceeds of $0.50 to shareholders, and the most recent trading price is $0.48, for a 4.16% return on the trade if the deal is completed.
The independent valuation prepared at the board's behest concludes that the transaction is not fair to shareholders and that the company is worth $0.70 to $0.76 per share. I think it is unlikely shareholders will put up much of a fuss, and will generally be happy to get out of a Chinese micro-cap at a premium of >100% to the pre-deal price of the company.
The special meeting to approve the transaction is scheduled for the end of April, so a completed deal would be an attractive annualized return.
Disclosure: No position, may change at any time
Disclaimer: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only, and none of the information is guaranteed. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusions. Seek qualified professional advice to make an investment decision. Investing includes risks, including loss of principal. Absolutely no warranty is made for the quality or correctness of the information above, and liability for its use is expressly disclaimed.
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