Have you ever heard of the Australian National Stock Exchange? I hadn't either until Dave Waters mentioned that I should take a look at a little company that trades on the exchange, Sugar Terminals Limited (SUG.Australia). He thought I might be interested because the company trades at close to 60% of book value and pays a 10% dividend.
The company owns and operates wharfs and sugar terminals in Australia. Their terminals were originally owned by the Queensland Government until they were privatized in 2000. As part of the privatization ownership passed to sugar growers and millers, and a new corporate entity was formed to manage the terminals. The company has two classes of stock, G shares for growers and M shares for millers.
When investors talk about companies that have economic moats I doubt they're thinking of Sugar Terminals Limited. Sugar terminals must be a commodity business right? A competitor just needs to build a dock further down the shoreline and charge less. The company's results would suggest otherwise. From 2000-2010 the company earned A$441m in revenue, and A$212 in net profit, all of which was paid out as dividends. A 48% net margin is impressive, especially for a company selling at 60% of book value.
The reason for the company's discount is also their source of strength. The company restricts trading in shares to sugar millers and sugar growers and related industry participants. Their website has a list of criteria that an individual or company must satisfy to be allowed to trade in their stock. If a shareholder ceases to qualify the company notifies them and they are required to sell their shares within a certain period of time. If the shareholder doesn't sell their shares the company takes them and gives the shareholder their cash value. I have no idea how the company policies their policies, or knows who active growers or millers are.
A company that's owned by its customers isn't completely uncommon. A company that's owned by its customers and has an active trading market for the shares is very unusual.
Shares trade on the Australian National Stock Exchange, which appears to be the Australian version of the US pink sheets. The stock trades for A$.65 a share and trades about eight to ten days a month. The company's stock price has barely budged since 2009, yet since then they've paid out 50% of their share price in dividends.
If a market is made efficient by informed buyers and sellers Sugar Terminals is the exception to the rule. Shareholders are active and extremely well informed participants in the sugar market. They know the supply and demand dynamics, know the size and quality of harvest beforehand, and are privy to what might be considered inside information. Yet with this sizable advantage the shares still trade at a depressed valuation. The shares barely trade on price at all. It's as if the market is only a means to exchange interests between owners.
Even though I don't meet any of the qualifications for ownership outlined in the company's FAQ I still attempted to trade the stock. I contacted a broker in Australia with the hope of opening an account and purchasing shares. I was informed that they don't open accounts for foreigners. It's worth mentioning that I identified myself as an American. Many (most?) financial institutions worldwide have begun to refuse to do business with Americans because of costly compliance the US government is trying to enforce worldwide. It might be possible for a Canadian, or Brit to open an account without a problem. I also inquired of only one broker, the only one that allowed online trading. I don't have an interest in opening a full service brokerage account in Australia to hold one position.
Even though I haven't been able to find a way to purchase shares I still enjoyed reading the company's annual reports, especially their Chairman's annual letters. The company is clearly run for shareholders, both in that the business services their needs, but also financially. Management is concerned about costs and was able to replace their warehouse's roofs for less than they had initially estimated. I can't remember the last time I read a press release where a company announced a project that came in below cost, usually it's the opposite.
I enjoy finding and reading about oddball companies like Sugar Terminals Limited even if I can't always invest. Companies like this remind me that there probably exclusive ownership opportunities available to me that I might not know about or take advantage of. Examples could include membership interests in local businesses, ownership in a co-op, or ownership in local teams. Many of these mutual-esque holdings have characteristics similar to Sugar Terminals Limited, they are efficient, have high margins, and pay out significant dividends. Sugar Terminals Limited might be off limits to most of my readers, but I'd be willing to bet that most if not all readers have something similar they could become a part of that they might not be aware of.