Member Info for asclypius

http://news.sky.com/story/1177232/moulton-sizes-up-bid-for-ailing-pawnbroker

I think it's probably a negative sign, in the sense that it's another piece of evidence that EZCORP have limited further interest in the company. On the other hand, we already knew that they weren't interested after they refused to underwrite a capital raise. And the Board does need to be cleaned out anyway. So I don't think it's a huge negative. Nice strategy.

I expect losses, but I am just not convinced that the losses are so large that they can destroy the £36 million excess of current assets against all liabilities which was measured last December. Even in an administration or liquidation, creditors are entitled to no more than the amounts they lent. It's possible that the residual equity value is zero, but that seems highly unlikely to me. Residual equity value of £20 million would provide a 100% return from the current levels. This company was making profits of £5-7 million per annum in 2006-2008.

Correct, benjamin. I invested here partly on the grounds that tangible book value (current assets) was significantly greater than total liabilities, implying that the company could do exactly this and get rid of inventory to deal with their debts in this emergency. I would be more worried if management wasn't doing what they are doing.

Also worth noting that today's resignations reduce EZCORP's links with Albemarle, increasing the likelihood of a takeoever by a new parent IMHO.

Agree with the view that the company has been very badly run to this point but would approve of management's decision to sell their inventories. That's exactly what they need to do get some liquidity IMO. Also don't think there is any harm in lowering expectations before they release their annual report. As far as I can see, most brokers have maintained positive EPS estimates despite recent problems, and so it is correct that management should tell investors to prepare for losses.

Do you think management should do something else? What do you think the company is worth?

Hint: you should buy shares when they are out of fashion. That's when they are cheap! As for ABM, I approve of management's strategy. Current assets minus all liabilities was £36m last December, and I invested during October on the grounds that the company could liquidate current assets in a worst-case scenario to deal with their debts. Sitting on an average loss of about 30% now but I find it very hard to imagine that the company has blown most of that £36m in less 12 months and will fail to provide a decent chunk of residual equity value. Sale as a going concern to H&T or someone else would be fine. This company made profits of £10-£15 million in the crazy times and should be able to make £5 million in normal times. Market cap: £13m.

It's certainly possible that this could drag on for years. The question is for how much longer the Chairman, who by the way is 68, wants to continue running a loss-making business which is nibbling away at the value which he so impressively managed to build up over many decades, and in which he has a 60% stake. AIM application, August 2013: "The Board's strategy is to continue to develop the core business in the UK whilst aiming to protect margins and existing market position. Where opportunities arise to generate accelerated returns to shareholders, corporate M&A activity will also be considered." Annual Report, October 2013: "I am unable to give a clear view on the immediate way forward for the company... the Directors are in a position to maximise whatever opportunities arise."

I think it's more likely that the entire operation was botched and that most private investors tendered 23.52% of their shares, either through their own or their broker's error.

Net Assets: £22.8m. NAV: 80p/share, including a heavily depreciated office building which might be understated. All assets are tangible and easily understood: freehold property, inventories still being sold at a steady margin over cost, receivables and cash. Contracts and lists of suppliers and customers might have value to competitors, but aren't included in NAV. Most recent annual pre-tax loss: £1m, or 3.5p/share. Management has a heavy stake in the business, and has shown admirable willingness to cut costs in the face of declining revenues and profitability. Let's suppose that there are two more years of 3.5p/share net losses, and that the sale/liquidation is then disappointing in the sense that costs or discounts result in only 70p/share being distributed to shareholder. That would be an 84% return in two years over the current offer price of 38p, with not much risk involved (no debt, steady margins, low operating costs versus NAV). There is plenty of uncertainty in how this will play out, but this strikes me as an extraordinary proposition. I am long, bought my shares at a lower price, and might sell or change my mind at any time. DYOR etc.

I profess ignorance as to whether the MM's are incompetent / manipulative, but as you say, the situation will change with the passage the passage of time. Investors who stay around long enough for a business like Orosur to execute a strategy, and to reward shareholders with dividends or an attractive takeover offer, don't need to worry about the MM's. And if the MM's are doing their job badly, that can only contribute to excess volatility (since profitable market-making is what reduces volatility), creating bountiful opportunities for those investors who can figure out when a company is mispriced.

If the market is massively mispriced, that makes things more profitable (in the long-term) for those investors who are able to identify the mispricings. No need to be upset :)

I have invested in this today. What grabbed my attention initially were the statements of strategy and objectives by the new management team in the most recent annual report, which I thought were spot on. The way I am analysing it is in terms of cash flow. I calculate from today's RNS that there are now 226,000 oz. of Reserves, up from 182,000 in the previous filing. At a rate of 50-55,000 oz per year, it suggests we should have a good chance of getting "4 more years" of decent production here, translating to CFO of $90-$100 million over that time period. What matters next, and what I have trouble predicting, is how much of the CFO will be lost through CFI and exploration. I will take a central estimate that half of the CFO will be lost through CFI and unsuccessful exploration efforts. So let's suppose that we'll have $45-50 million of CFO after capex and unsuccessful exploration. That's £28 - 31 million. Current Assets minus Total Liabilities are presently -$3 million, or about £2m. Supposing that the company will need to overcome this deficit over time, the residual CFO after Capex etc. will be £26 - £28 million. Adjusting for an interest rate to reflect that this cash will be received gradually over a number of years produces a present value of £22 - £24 million. If full taxes have to be paid at 25% (although I don't know what the tax situation will be), the lower bound on that figure would become £16.5m. Would be delighted to get feedback on my valuation method. I'm deliberately factoring in conservatism by assuming that there is no residual value to any non-current assets in four years. I want my valuation to give me a lot of room for upside surprises and produce a low probability of many downside surprises.

I do think NAV is decisive. It's being run in such a manner that NAV is making only modest declines despite a horrific market environment. The NAV itself is based on asset values which look to me as if they have been conservatively depreciated over the years. I find it difficult to imagine a situation where management could fail to return significantly more than 40p/share to investors.

Grech, there are in my opinion at least a handful of companies on AIM which are even cheaper than Naibu. I'd rather not name them for the obvious reason that I might buy shares in them soon. But there are only a handful. The problem with Naibu is that the valuation has to be weighted downward for the possibility of value destruction through fraud, foreign and political risk. There are a host of legal issues in the admission document which I could have mentioned in my previous post. Most people do not want to put their capital at risk in such a situation. I believe that the risk is mispriced but I also understand the psychology of those who are afraid of losing their capital in a catastrophic scenario. It's similar to the fear of flying: even though outright fraud/failure is not all that likely, none of your capital is likely to survive that outcome. People would prefer the risk of experiencing mediocre performance in something which is less likely to crash and burn. Re: Insiders, it's true that the Chairman has bought some shares but it's also true that they've been replaced by outsiders including individual private investors, Hargreave Hale and Montoya. The accountants and Non-Execs all appear to be reputable people, but is that enough to guarantee safe passage for private investors? It has not been proven to be enough in every historical case. By the way, I also prefer the "absolute" method of valuation as opposed to the "relative" method of sector analysis, but I don't think that sector analysis should be ignored completely. Sector average multiples, and the multiples of particular companies compared to those sector averages, can give you price targets by telling you what the market is likely to pay for a company when its reputation is just as good as the other companies in its sector. Takeover multiples in the industry can also give you a clue as to what a private industry buyer would be likely to pay for the company you are analysing. So I wouldn't write that off completely. Thanks very much for the list of peers, Dan. Plenty of reading to do.

Thanks very much Dan. Some investors wait for the perfect investment (à la Philip Fisher). Others, while not so strict, choose to avoid any company which has certain negative characteristics, e.g. being located in China. This means that they are, in reality, applying a discount of 100% to any such company and would consider it to be overpriced if the market cap was anything greater than £0. What I've been trying to do is to apply sensible, realistic discounts for negative characteristics, and only apply a discount of 100% when I am quite confident that the company is worthless. It seems unlikely to me that Naibu is completely worthless (though I could yet be proven wrong - at least I will have a dividend as a consolation prize). I think Naibu investors should also be keeping a watchful eye on Camkids. Which peers in HK do you refer to?

Absolutely, fair enough. I think I have a longer investment timeframe per individual investment than you - nothing wrong with that. On the other hand, with Albemarle at the present time, there are relatively short-term events coming up which will shed much light on the value of the presently issued equity, so that investors may be proven "right" or "wrong" much faster than with a typical investment. For what it's worth I'd be very happy if, after the effect of some exceptional write-downs and restructuring costs, the company's net tangible book value has not dramatically deteriorated over the past year. I would probably participate in a rights issue but, from the perspective of an external observer, it seems to me that the company should not need as much as the £35 million which was demanded from EZCORP. That £35 million (if it is really needed to get rid of the bank threat), added to a market cap for the presently issued shares of about £20 million, suggests a price of £55 million for what would then be an extremely well-capitalised company with a huge backing in tangible assets, and earnings which ought to normalise after restructuring at least around £5 million p/a (something close to what H&T, which I also own, can earn in the current environment). There is risk in any special situation such as this. I invested in H&T before this A&B situation emerged: H&T's management struck me as having a very strong financial pedigree, whereas A&B's management were predominantly from a retail background. Pawnbroking is a financial business, so I wanted financial people. H&T had a bigger pledge book and a more sensible expansion plan. But there is still plenty of value in A&B, in my very humble opinion. Best of luck Galvy. Long: ABM & HAT. Dyor, etc

I agree that the company is not very deeply undervalued at these levels - I invested at lower levels. OTOH, I continue to hold because I reckon that there are still good returns to be had here. Earnings of £5m-£6m this year on a market cap of £60m is quite acceptable. How is the company likely to be affected by changing economic conditions in future years? I am quite bearish on the UK consumer, so I anticipate continued strong demand for pawnbroker services. On the other hand, if conditions weaken, I would anticipate that the smaller operators would be the first to go, leaving market share to the bigger players like H&T. It's also worth noting that for FY 2012, H&T had current assets of £97 million versus total liabilities of £43m, providing an NCAV of £54 million. In other words, the current market capitalisation of £60 million, crudely speaking, values the company's fixed assets, brand name, other off-balance-sheet assets and liabilities and everything else which constitutes the business as a going concern at "only" £6 million. And it may have earned £5 million since that balance sheet date. Sounds fairly cheap to me. I am long HAT and ABM. Dyor, etc

Good luck in becoming a billionaire. I'll be happy if I make it to millionaire, and happy for my modest ABM investment to move me 1% closer (even if I have to hold on for a couple of years). Short-term price movements aren't scary to me if they don't change the underlying value - which is usually the case. For ABM, given that it *might* try to sell some shares soon, the relationship between share price and underlying value is a little stronger than usual. But since I don't see how the company's write-downs and exceptional losses this year could have eaten into the tangible book value so heavily that the banks might not get repaid, even in a liquidation, and given that there is good reason to believe that many of its units would be sold as going concerns (if it ever came to that), I think the currently-issued equity is undervalued at these levels. I am long. Dyor, etc