Member Info for asclypius

Did you get that resolved?

Grech: the problem is that people are afraid of being defrauded, and Naibu has quite a few "flags" which some people might associate with a lack of trustworthiness. Its location within the PRC and bad investor experiences with similarly-located plc's are of course major factors in people's suspicion. As a result, the market has discounted the shares hugely from where they should be trading at in the absence of corporate governance concerns and foreign/political risk. Naibu is the second-largest position in my portfolio because I have read as many documents from the company as I can get my hands on and after much head-scratching, I have not been able to find any "smoking gun". Why would somebody be suspicious? The CFO is the younger sister of the Chairman. The previous CFO left for reasons which are hard to discern. The company made loans to a company owned by the Chairman's mother, who is the ultimate owner of the trademark. The original accountants changed shortly after they were hired, again for no specifically disclosed reason. Anonymous insiders have been dumping their shares for reasons which are difficult to understand. Revenues are being booked but cash flow is not quite so impressive. The relationship between the company and its distributors is another puzzle for investors. That said, my research suggests to me that this is a real company and that its performance is probably substantially similar to that which is described in their official accounts. I do think that it is fair to discount the fair value of a company for related-party transactions, corporate governance concerns and foreign and political risk. But the question is: how much? Should fair value be discounted by 20, 50, 80%? 90%? Is the company rendered completely worthless by these issues? I doubt that the company is worthless. It is certainly speculative. There will be lots of execution risk associated with the construction of the Naibu Industrial Zone. But it is doing the right thing by paying dividends, which too few Chinese companies on AIM have done. I think there is sufficient reason to believe that the Chairman is an honourable man to justify an investment here. Fair value might be around 5x earnings. dyor, etc.

Aren't you boys spending a disproportionate amount of time trying to figure out which way the share price is going to move, instead of trying to understand what the equity might be worth?

Don't you think it's worth considerably more than 40p?

Do you want the assets? I probably don't, because I can't value mining assets very well.

Based on what I can gather from last December's balance sheet, combined with the company's reassurance that profitability since last June has been within the range of market estimates, I don't see how there could be any danger of the banks not getting repaid. The earnings covenant has been triggered, probably because of some writedowns the company is going to have to make, but that doesn't seem like the end of the world to me. Even if none of the company's units could be sold as going concerns to H&T or anybody else, I still think there is residual equity value here. Current Assets - Total Liabilities as of December was £35 million. Depreciated PPE of £16m would cover a lot of the winding-up costs, hopefully including the cost of breaking their leases (if it came to that). The covenant enables the banks to extract penalties from the company under the threat of sending it into administration. The company needs to either raise enough equity capital so that the covenant no longer applies (if this is possible within the terms of their banking facility), or else figure out a way to pay off the banks to prevent them from bringing about an administration. But the company should not pay more to the banks than the cost which shareholders would bear from sending the company into administration - which I don't think is so very high. As for the banks themselves, they want to get paid as much as possible but they also understand that there is little point in sending a company into administration unnecessarily. So I predict a reasonable outcome here.

Hi shareminator - yes, it is simply a swap of shares for the pro-rata net cash ownership represented by each share. Shares tendered will be cancelled by the company. The market value of the company afterwards will be the combined value of its non-cash assets and whatever cash is left after it pays everyone who wants to exit. As you say, assuming that the cash position is sufficient, future costs are negligible, etc., value per share will increase according to the increase in each remaining share's proportional ownership of the non-cash asset value (if this value is materially different to zero).

Hi Sherminator. Nice points. Note 7.2: the CEO and CFO "have confirmed that they do not intend to participate in the Tender Offer." I think this significantly reduces the likelihood of everybody else tendering, the company being wound up, and the cash available for distribution being reduced. The shareholder base is quite diversified and so I'd consider it likely that there will still be a decent number of non-Director shareholders after this tender offer. I wouldn't be entirely sure about the company's continued listing on AIM. This is something of a dilemma because presumably if 90% of shares were tendered, the company could no longer justify paying the AIM fees. But by taking the risk of not tendering, shareholders increase the probability that the risk will be worth taking. They also increase their proportional share of the non-cash assets, which some people might still think are worth something (I have no idea). I quadrupled up on this in the afternoon. Seems like a worthwhile risk arb trade. DYOR as always.

the_Shareminator: I'm sorry but I don't know what is going on behind the scenes. I don't know very much about this company. The RNS this morning made sense to me, including their rationale to return the cash balance to shareholders pro-rata, given the huge discount expressed by the prior share price. I'm engaging in risk arbitrage. It's beyond me whether their assets have any value. But the assets do look to be highly speculative, assets for which the market has no appetite at the moment. Given the very weak prior share price, it sounds fair to offer to return surplus cash to shareholders. Nobody will be forced to sell their shares.

If everybody takes up the offer, they estimate that the remaining cash will be sufficient to cover the costs of winding up the company, which is what they end to do in that scenario. I have opened a long position in this today.

My last paragraph was cut off: The banks can extract penalties because they have the power to reduce the going concern fair value of the equity down toward value in administration. For this reason, an equity valuation of £80 million is probably aggressive. I'd put a floor at £36 million and a conservative valuation at £45-50 million, still leaving room for upside. Good luck all.

I made investments here recently (firstly at 28.3, then at 42), and I don't see the harm in explaining my rationale. The moment of truth will be with us soon. The below is only a personal opinion - DYOR etc. June 2012 figures revealed Current Assets of £91 million and Total Liabilities of £55 million, implying an NCAV (Net Current Asset Value) of about £36 million. Fixed Assets of £44 million were intangible except for depreciated PPE of £16.5 million. Additionally, as at June 2012, non-cancellable operating lease obligations due beyond June 2013 were worth £32 million. Breaking lease obligations would come at a penalty, but my uneducated guess is that in the worst-case scenario, Albemarle could avoid paying £32 million. Penalties and costs of £10 million (I don't know if this is too high or too low, it feels right), combined with liquidation of the £16.5 million of PPE, would produce a net value for Non-Current Assets of about zero. The company has told us that earnings before extraordinary items are on target this year, which I think limits the potential downside to the company's liquidation value. True, the extraordinary items will have put a dent in the Balance Sheet. There is a risk this deterioration could start to nibble into our NCAV of £36 million, if it's substantially greater than this year's ordinary income. Given that the company is in danger of breaking earnings-related bank covenants, this is a possibility. But there is also the strong possibility that many of Albemarle's units could be sold as going concerns. Recall that a merger with H&T has been considered for a long time, with talks reported to have been held in 2009 (I am also a shareholder in H&T). EZCORP are also a very obvious candidate to effect a takeover. What we would really want is for units to be sold as going concerns. We could then attribute positive value to the Non-Current Assets, and should recoup in excess of our £36 million NCAV. It seems to me that £36 million is the lowest residual value which shareholders should hope for in administration, but with good chances for upside. Absent financial and strategic difficulties, the company should be worth about the same as H&T, let's say 10x forward earnings. Albemarle earned £10-15 million per year recently, and even if this halved to £6-£8 million, a valuation of £60-80 million would be fair. Now subtract the £35 million financing which management felt they needed to stave off the banks. That gives a value of £25-35 million for the equity rump of an extremely well-capitalised company. But that's less than the NCAV for that equity - little wonder EZCORP said no! The banks can extract penalties because they have the power to reduce the going concern fair value of the equity down toward value in administration. For this reason, an equity valuation of £80 million is probably aggressive. I