Great article from Motley Fool14 Apr 2010 15:24
There aren't many companies left at a discount to cash, but here's one.
Profitable companies whose valuations are more than covered by cash and/or other assets are much harder to find than they were a year ago. There are still a few, but it's usually a lot easier to spot exactly why such a seemingly attractive discount exists.
Such is the case with climate change and sustainable development company Camco (LSE: CAO). Amongst other activities, Camco is involved in the dark art of dealing in carbon credits, which seems to be something of a deterrent to investors who, understandably, find it difficult to get a handle on what this involves exactly.
Do what!?
Camco describes itself as a company, offering a "full range of emission reduction services to public and private organisations worldwide". What this means in practice is that it identifies greenhouse gas (GHG) emission reduction projects, and commercialises the resulting carbon credits. This allows the market to drive industrial processes towards lower emissions.
Since GHG mitigation projects generate credits, these can be used to finance carbon reduction schemes between trading partners and around the world -- with companies like Camco at the centre.
Camco also invests in green business ventures such as Good Energy, the UK's first retail provider of green electricity from renewable sources -- and acts as a consultant to industry, advising companies taking steps towards lower carbon emissions. It has 250 staff around the world.
Asset rich and profitable
Whatever the reason for the lack of interest, the shares have been in freefall. They were over 90p just three years ago, since when it's been a fairly unrelenting slide as carbon credits lost their in-vogue status, to the current mid price of 12.75p.
This may have created a contrarian buying opportunity as the market capitalisation currently sits below Camco's cash level and well below its net tangible asset value (NTAV), despite the fact that the company is profitable.
In fact, the house broker expects to see earnings per share of during the current calendar year of 2.5p, which would place the shares on a price-to-earnings ratio of just five.
Whether or not this will come to pass is almost a side issue though, given the asset backing. Any kind of sustainable profitability makes the shares look overly cheap when you take into account the cash balance with the final results for 2009 announced last month of €28.3m. This equates to £25m at the current exchange rate, whilst Camco's overall valuation is just £22.5m.
The company's NTAV, meanwhile, was close to €47m (£41.5m), and it had net working capital of €44.6m (£39.4m) though most of this is accounted for by pre-payments. But this still seems to make little sense for a company expected to deliver a profit.
Overall, the picture last year was one of a pick-up in the second half. Adjusted profit after tax (excluding a non-cash imp
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