Tiny Canadian stocks selling below the market value of their assets

The idea behind this is to buy assets for much less than they’re worth.  You try to buy easily valued assets (cash, stocks) at a discount.

I don’t really like this style of investing.  The problem is that many of these companies have terrible management.  The discount can be described as “here today, gone tomorrow”.  Often the companies will do dumb things with their money (or funnel it to insiders) and shareholders won’t make much money.  But here’s a list of them anyways.

Northfield Capital (NFD.A)

Book value:  $85.508M
Subtract 90% of the book value of the winery equity+debt (“Equity accounted investment”):  $1.819M

Total:  $83.689M
Shares outstanding (basic and diluted): 2,659,575

Adjusted value per share:  $31.473/share
Last trade: $23.00
Discount: 27%

Northfield mainly owns mining stocks.  It has shares in senior miners because that particular senior took over a junior that Northfield owned shares in.  Management has an impressive track record and insider compensation is reasonable.

I have written about many of the stocks in Northfield’s portfolio (e.g. Osisko/Queenston, Canadian Orebodies, Canada Lithium, etc. etc.).  I have no problem shorting some of the stocks in Northfield’s portfolio as I am shorting Canada Lithium right now.  I have mixed feelings about Northfield and own shares in it.  Northfield is similar to Aberdeen and Pinetree; Northfield’s management is clearly superior to its peers (lower insider compensation and a much better track record).  I suspect that Robert Cudney, the CEO, knows how the brokerage game is played.  It started off as a very small conglomerate (this may be kind of sketchy because it’s really hard for nanocap stocks to overcome their corporate overhead).  Eventually the company had success making money on Internet stocks.  In the early 2000s, Cudney (and one of the company’s directors, Thomas Pladsen) slowly bought a huge portion of the company on the open market (and Northfield also repurchased shares).  It made a lot of money through concentrated bets on junior mining stocks and didn’t seem to make anything on junior oil and gas.  It has slowly gotten rid of the various private businesses from its conglomerate past.

He is the full-time CEO of Northfield Capital and part-time CEO of White Pine Resources.  I would characterize White Pine as being in “hibernation mode” as it has cut its expenses drastically and is probably waiting for the junior mining markets to get frothy again.  White Pine is more or less your typical junior mining stock (it mines the stock market).

Northfield is currently buying back shares because doing so is free money.  However, the shares are extremely illiquid so the repurchases won’t have much of an impact on the company.  There are months where this stock doesn’t trade.

Selwyn Resources (SWN on the TSX Venture)

Shareholders will likely approve a 7 cent dividend.  The rest should be worth at least 1-2 cents.  The stock currently trades around 7.5 to 8.5 cents/share.

Activists have taken over the company so it is likely that the company will liquidate.

I have had many posts on this company in the past… here is the latest one.

Ryan Gold

Ryan Gold was named after Shawn Ryan, who discovered the White Gold deposit in Yukon.  The company’s name is a little misleading because the company has no gold and Shawn Ryan has left the company.  But it has a pile of cash.

Current assets: $20.046M
Long term investments: $1.133M
subtract total liabilities: -$0.113M

Total:  $21.066M
Shares outstanding (non-diluted): 117.14M

Adjusted value per share: $0.179/share
Current share price: $0.14/share
Discount: 22%

I have no opinion on management.

Phoscan Chemical Corp (FOS.TO)

Current assets: $58.128M
Subtract total liabilities excluding deferred tax liabilities: $0.041M

Total:  $58.087M
Shares outstanding (non-diluted): 163,305,280

Adjusted value per share:  $0.356/share
Current share price: $0.28/share
Discount: 21%

They have a development-stage phosphate mine.  I don’t think that it’s close to being economic.  Phosphate prices will need to skyrocket again before the mine will be viable.

Management is average.  They’re on the more serious side of things as far as juniors go (but the sector is awful).  Pay is a little on the high side.  The company is buying back shares currently… who knows how long that will last.

See this VIC writeup for more information.

Aberdeen International (AAB.TO) and Pinetree Capital (PNP.TO)

I have written about these companies before and both management teams are awful.  These are terrible companies with terrible management teams trading below their liquidation value.  Sometimes the discounts reach 50%.

Their private investments are probably carried on the books at inflated values.  You should mark them down significantly (e.g. 90% or 100%) when analyzing the stock.

Pinetree debt is probably more attractive than the common.  However, only Canadians can buy the debt.

Goodman Gold Trust (TSE:GGT.UN)

This is the same idea as Pinetree, except management is somewhere in between Pinetree/Aberdeen and Northfield.  The hedge fund-like fee structure will make it difficult for investors to make money.  Because Dundee is involved, the trust owns many mediocre/bad stocks that Dundee has underwritten.  This conflict of interest is not good for shareholders as they are hit with layers and layers of fees.

This used to be called the CMP Gold Trust.  You should be wary of stocks that rebrand themselves.  Many of them are trying to run away from their awful past.

Other companies

Senvest Capital: I’ve written about them in the past.  I think management is good.  I don’t know if they are still trading at a discount because I haven’t checked lately.  I never bought shares in this company because I don’t like buying odd lots.  Order execution on them may be poor and I hate giving market makers money.  This may or may not be a silly reason not to buy.

Jemtec (JTC on the TSX Venture):  This is probably still trading below cash.  The CEO (Eric Caton) is terrible.  Instead of buying back shares, insiders issued themselves options for 10% of the company.  Shareholders won’t make money because it will all end up being paid to insiders.  I learned the hard way.

Oddball Stocks covers many international stocks.  It is an excellent blog so check it out if you are into Ben Graham’s style of net net investing.

*Disclosure:  I own NFD.A, SWN, an odd lot of Jemtec that isn’t worth selling (I tried to sell all of my Jemtec position but was left with an odd lot), and tiny positions in AAB.TO and PNP.TO.

Advertisements

4 thoughts on “Tiny Canadian stocks selling below the market value of their assets

  1. Senvest has book value of $180 as of latest filing on 11/15/2013.

    https://www.senvest.com/pages/Quarterlyreports

    If there is extreme value like this, I don’t care about odd lots at all. I think this is why stocks like BRKA, GOOG, AAPL, PCLN, have stayed undervalued for so long. Especially BRKA back in the 80s, at least now higher stock prices are becoming more commonplace. (I would have included MA on that list a year ago but now it isn’t cheap).

    The stock is illiquid in Canada but I have been able to buy with limit orders no problem. US OTC the stock is very illiquid.

  2. Pingback: My current thinking on mining stocks (Dec 2013) | Glenn Chan's Random Notes on Investing

  3. Pingback: Mining: who are the sharks and who are the fish? | Glenn Chan's Random Notes on Investing

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s