The Value Mirage

Bowlin Travel Centers (BWTL)

Price: $1.19 (3/13/2012)

I found this stock a while back, made a notation to look into them further in my idea notebook and finally got around to it.  Bowlin is what I would consider a value mirage, a stock that looks excellent when first found but once under the covers is quite a bit different.

A value mirage is different from a value trap, very different.  A value trap is a stock that is a seemingly good value, it lures in value investors and once the pile on is complete rounds them up and takes them to the woodshed.  A value mirage is a stock that appears to be a good or great value at first glance but after some detailed investigation is at best fairly priced.  These stocks are good from afar, but far from good.

I want to break this post down into two parts, the value thesis, and then the mirage aspect.  First I should explain what Bowlin Travel centers are.

Bowlin Travel Centers is a company that owns 10 highway rest stops in the southwest US.  The rest areas are more than just a gas station and some bathrooms, Bowlin aims to have destination rest stops.  The rest stops are strategically placed on high traffic routes with few services.  Each stop has gas, a restaurant and usually a themed souvenir shop.  This style of rest area is very common in the west, if you've done any highway travel in the western US I'm sure you've stopped at a place like this.  If not it's hard to describe.  If you're from the east and have driven down I-95 the Bowlin plazas are similar to South of the Border.

Many of the Bowlin facilities have a wild west theme, some have indian themes and there is one called "The Thing".  "The Thing" advertises itself as the "Mystery of the Desert", where you can buy [link to their online store] homemade indian crafts, gold jewelry, pottery and treat yourself to some Dairy Queen.  Once you're done with your ice cream you can buy a gun and some luggage and a nice coffee mug.  The biggest of these rest stops in the US is an attraction in and of itself, Wall Drug, yes I've been to Wall Drug and yes I ate the famed buffalo burger.

For any non-American readers, or readers who have never driven on the interstate and seen these places my descriptions won't do justice.  As far as I know these kitschy places are unique to the US and probably Canada. Simply put they're strange.  I wouldn't say I'm an expert I but I have browsed my fair share of indian trading posts and wild west rest stops on road trips.

The Value Case

Here are some quick bullets with an expanded description below:

• Book value of $12m verses a $5.45m market cap
• $3.8m in cash and securities, or 70% of the market cap
• Management decided to initiate a buyback with a target of buying 25% of the shares outstanding.
• EV/CF of 2.14
• Management has actively been selling unused land.
• The company earns more as gas prices rise, and gas is at an all time high juicing earnings.

If I presented you with a company that had the above value proposition most people would jump at the chance to invest.  The management seems to be doing all of the right things, buying back stock, selling unused land.

On a valuation basis the company is cheap, trading at a low EV/CF, they're over capitalized, this seems like a perfect value stock.

The Mirage

If you just looked at recent results this company seems undervalued.  If you look at the long view Bowlin is doing what they've always been doing.

Revenue 2000: $26m
Revenue 2011: $26m


Cash from Operations 2000: $1m
Cash from Operations 2011: $727k


Price/Book ratio 12/31/2001: 62%
Price/Book ratio 3/13/2012: 45%

The mirage starts to fade away as you realize that Bowlin Travel Centers hasn't changed in the past decade, they're still selling trinkets, gas, and ice cream cones to travelers in the middle of no where.  Results have ebbed and flowed over the past ten years, but they've generally been in the same range.  The company doesn't break out gas and food separately but I have a note that states back in 2001 50% of their sales came from fuel.  So when gas prices are high Bowlin does a bit better, and when they're low their results aren't as good.

The problem is as long as Bowlin keeps the same number of rest stops business will most likely remain the same for the next three years, five years, fifteen years.  The problem isn't that there is no catalyst, it's that this is the business.  What Bowlin is today is what they'll probably be in ten years.  Within this constrain there isn't much management can do for shareholders outside of some buybacks and asset sales.  Even the share price hasn't moved in the past ten years, it traded for $1.35 on 12/31/01, and trades for $1.19 today.

At best a shareholder could hope for is a going private or buyout at book value.  My concern is that if management wanted to do a going private transaction why haven't they done it already?  The company is run by the founder's son who's been at the helm since 1972.

To me Bowlin seems like the perfect family business, it's stable, you could probably earn a good salary and it wouldn't be all that stressful managing the plazas.  Unfortunately it isn't really that good of an investment for shareholders.  The only thing that would get me to notice Bowlin is if their price cratered, maybe if it fell by 50% or so for no reason.  It would be worth considering buying and waiting for the price to rise back to it's seemingly natural resting place at $1.20 or so.

I'd be interested in hearing about other value mirages, leave a company name in the comments.

Talk to Nate about Bowlin Travel Centers

Disclosure: No position

A true oddball: Mills Music Trust

My goal when starting this blog was to find and profile companies far off the radar for most investors.  I usually profile small caps, net-net's, and a lot of foreign companies.  For most investors bombarded by the mainstream financial media the things I write about are really offbeat.  For investors who invest in deep value global small caps a lot of names I mention seem to be common.  After all there are only so many stocks globally and there are a lot of people picking through them.

From time to time I uncover a truly oddball stock, something that is both unknown and a different creature all together, Mills Music definitely qualifies.  I find these stocks interesting because due to complexity or details most investors pass over them.  Mills Music Trust qualifies as something hard to grasp, yet has the markings of a good opportunity.

Imagine a stock without any tangible assets, or a book value.  If it was liquidated it would be worth something yet there is no balance sheet.  The income statement is seven lines long, yes just seven lines.  This is the quick description of Mills Music Trust.

What is it?  Mills Music is a cash collection and distribution machine.  Where's the cash come from you ask?  It comes from EMI the music company.  Mills Music owns the rights to some "oldies" songs, nothing more, nothing less.  Every time a royalty event happens with a song Mills has the rights to EMI makes a note and eventually sends over a royalty.  Four times a year Mills Music pays out the cash received from EMI minus some bookkeeping fees to unit holders.

The business is simple enough, cash in, cash out.  The simplicity is fascinating, here is last year's income statement:

A random thought, I love the fact that they will keep less than $100 undistributed at the end of each year.

The first question to ask is why would anyone want to buy Mills Music Trust?  The answer is blindingly obvious, for the yield of course.  They have paid out $2.62 per share so far this year, and have paid out between $3 and $4.50 over the past five years.  The stock yields close to 9% currently.  Of course no one knows how much they'll pay out in the future because no one knows how many times The Little Drummer Boy will be played on the radio this Christmas either.

Here is the historic dividend history:

There really isn't much else to say about Mills Music Trust.  In short old songs are played on the radio or downloaded in iTunes and Amazon, the cash is sent to EMI, who sends it to Mills Music, who sends it to you.  Mills has rights to over 25,000 songs, but only about 1,500 songs actually generate royalties.  The next copyright of a top 50-income generating song expires in 2018.  Amazingly 66% of the royalties comes from the top 50 songs.  The rights Mills Music owns seem to be as obscure as the stocks I write about.

Oldies are probably pretty stable at this point meaning the dividend is probably pretty stable until some of the songs start rolling off the copyright rights.  For an almost 9% dividend this seems like a pretty safe bet.

Purchase Information:
Mills Music Trust (MMTRS.PK)
Avg Volume: 300 shares (use a limit order!!)
SEC Filings

Disclosure: No position

Trading slightly above net cash: KSK Co Ltd

KSK Co Ltd (9687.Japan)

Price: ¥450 (3/7/2012)

Following up on my last post regarding the performance of Japanese net-net's over the past year it's only appropriate the next company I talk about is a Japanese net-net.  I found out about this company when a reader emailed me asking my opinion of it.  I did some research and put my thoughts together in a post.

KSK is a Japanese company IT services company grouped as following, hardware and semiconductor design, network design and maintenance, and network construction.  The company is listed on the Jasdaq which is part of the Osaka Exchange.  The Osaka Exchange is known for being a derivatives exchange and a secondary stock exchange.

The company also has a few subsidiaries, one subsidiary is a tech support company.  The second is a company formed to manage and maintain networks for the health insurance industry.  There might be a third subsidiary that provides tech support for a specific local government, I couldn't understand if this was part of the first subsidiary or not but it was broken out separately.

The main line of business for KSK is software for semiconductors.  The software they design can be found controlling chips in everything from Android phones to cars.  They create some software on a contract basis for clients and other software as stand alone products they sell themselves.

Quick Thesis & Highlights

The investment thesis on KSK is pretty simple, this is a company with a negative enterprise value that's trading for less than 2/3 discounted net asset value.  The company is profitable, has no debt, and has a solid stream of free cash flow.  Management seems to be aware of the valuation disparity and has been buying back shares somewhat aggressively over the past few years with 16.5% of outstanding shares being repurchased.

Here are some key bullets on the stock if the above paragraph is a bit too much to read:

• ¥3.4b market cap ($42m)
• ¥5.2b in cash and securities, only ¥40m in short term debt
• Net cash of ¥439/sh and discounted NCAV of ¥709
• Profitable for the past nine years
• 3.3% dividend yield
• Management has been buying back shares in 100,000 chunks when possible.  About 16.5% of the total outstanding shares have been repurchased.

Companies like this only come along in Japan.  I have two pictures below, my net-net worksheet, and my earnings accruals worksheet.  When investing in Japan I want two things, a strong asset based margin of safety and solid earnings/cash flow to support my margin of safety.  The accruals worksheet is one way to check the quality of earnings.

There is really nothing all that surprising with the balance sheet, a large amount of cash and receivables with a small bit of inventory.  I would be concerned if an IT services company was carrying inventory but that's not the case.  Liabilities are mostly composed of payables and other working capital items.

The accruals worksheet shows that balance sheet accruals dropped over the past year whereas income based accruals were running in the 6% range.  Neither of these numbers raise any eyebrows.  The explanation for the drop in balance sheet accruals is due to a drop in inventory.

Checking accruals seems like such a simple task but you'd be amazed at how many companies I've rejected based on poor quality earnings.  For a Japanese net-net to get my investment I want high quality assets along with high quality earnings.  I'll put up with low quality earnings, or a turnaround in the US, but in Japan I can demand both and find companies that meet my criteria.

Why cheap?

This is a question I always want to ask of any potential investment, why are the shares cheap?  I think investors often get complacent on this point, but even on a very cheap stock like KSK I think the exercise has value.

KSK is trading at such a large discount to liquidation value, and a reasonable valuation for what I believe are a few reasons:

• The company is in a tough market, IT services is a commodity business and the semiconductor segment is struggling with overcapacity.
• KSK has seen revenue slip and continues to talk about the tough economic conditions it faces.  Clearly this isn't a company on the cusp of record breaking earnings.  Some economic commentators have stated they feel Japan is in a depression.
• The company trades on the Osaka Exchange which is a lot less visible and is more illiquid.  Many foreigners don't have the ability to purchase stocks on the Osaka Exchange.
• While management seems to be somewhat friendly in the sense that they pay a dividend and are buying back shares a liquidation or a buyout doesn't seem likely.

Even with all the potential negative company specific factors and larger Japan macro factors at play I think KSK's discount to liquidation value more than compensates for the downside.  This is a company that if liquidated today would give shareholders an immediate 80% return.

Without anything glaring that could possibly justify the valuation I decided to add KSK Ltd to my collection of Japanese net-net stocks.  With the language differences and my lack of in-depth of understanding of their business I will probably sell KSK when the stock hits NCAV. 

Talk to Nate about KSK Co Ltd

Disclosure: Long 9687 KSK Co Ltd

How about those Japanese net-net's?

I'm in California on vacation, and since I'm physically as close as I've ever been to Japan it seems appropriate to do a post looking back on the Japanese net-net's I've profiled and mentioned on the blog.

I put together a spreadsheet showing the performance of all of the Japanese stocks mentioned on this blog over the past year.  I also included all of the stocks I profiled in my Japanese net-net reports.

So first off the results are impressive.  An investor would have only lost money on one stock which is pretty remarkable.  If someone bought an even amount of each stock they would have had their portfolio return 32.6% against a index return of -4.2%.  

Let me put this in perspective.  Let's take a hypothetical investor who invests $5,000 into each of the stocks presented above.  As of May 1st 2011 they would have had $80,000 which was gradually invested into the 16 stock portfolio.  As of 2/28/2012 their portfolio would be worth $106,080, a very nice return.  US Dollar based investors would have had an extra boost from the Yen appreciation although for my purposes I did everything in Yen so currency movement wasn't a factor in my analysis.

An investor could have an even higher return if they would have kept their eye on the stocks throughout the year and sold when certain stocks hit their NCAV.  I held Dainichi for a while but sold when the price jumped into the high 900s and low 1000s.  The stock has since fallen back to 790 for a 30% gain, but an alert investor could have walked away with much more.

I didn't do anything special to get the list above, some of the stocks were net-net's others were trading close to gross cash.  Some were profitable, others weren't but overall these were a group of very cheap neglected stocks that the Japanese market left for dead.  

I'm sure some of you are wondering how did I do personally?  I didn't quite do as well as the group average although I did beat the median return; my own set of Japanese net-net's returned 24% since purchasing.  I sold off Dainichi when it made it's climb into the low 1000s.  

My take away from this is that net-net investing works, even in terrible markets when the market return is negative a portfolio of net-net's seems to do well.  Every market pundit I've read or heard talks about how Japan is a dead market that investors should avoid.  Prudent investors who went in seeking a margin of safety in the form of buying companies for less than liquidation value did very well for themselves. 

Disclosure: Long SPK, Sugimoto, Asics Trading

Hickok - Intangibly cheap

HICKA

Price: $1.85 (2/27/2012)

I ran across Hickok in the Walkers Manual and upon looking up their address realized I've driven past this place probably hundreds of times on the way to visit my grandparents while growing up.  I also used to drive near this area for a summer job I had during college as a painter.  To toss in another strange coincidence my brother works for a company that's located about a half mile east of Hickok.  So after realizing all of this how could I not look at the company?

To give some background Hickok is a company that manufactures automotive diagnostic equipment.  These are the sort of computers that your mechanic will have to read the diagnostic codes when the service engine light comes on.  Codes are specific to manufacturers so a shop that services domestic cars needs to have a Ford, Chevy, and Chrysler kit.

The company is small with 71 employees spread across two locations, Cleveland (what I referenced above), and Greenwood Mississippi.

So if the coincidences couldn't be enough at this point imagine my surprise when I realized this company was darn close to being a net-net as well.  Here is my worksheet:

There's more than a balance sheet

It's often heard in value circles that buying shares is buying a piece of a business.  Another expression is that we should be thinking like businesspeople.  These are two great expressions but rarely are they carried out.  Most of the time a few quick glances at a balance sheet or income statement are enough to get the Excel wheels turning.  And once Excel is roaring hours/days/weeks/months/lifetimes can be lost building financial models.

I think it's often useful to take a step back away from the financial statements after a very cursory overview and consider the question, "Would I buy this company outright if I had the ability?"  This is a loaded question, a lot depends on the price offered among other things.  But since the company is public we have a price and many investors never move beyond that point.  So the next question is "Would I buy this company outright at today's market price if possible?"  This seems like such a slam dunk question, especially in the case of a net-net.  Who wouldn't buy a company for less than working capital if given the opportunity?  Or even buying a company below book value, surely a nice margin of safety exists.

I wouldn't buy this company, and here's why

First off the company is losing money, but losses have been moderating and it's possible they will turn things around.  The problem is I think the environment they're operating in will make it hard to turn things around and be successful on a continual basis going forward.  This is of course what I'd be looking for as an owner, can this company turn around and operate profitably in the future?  If not will I be able to at least get my money back from the book value of assets?

The company's land and buildings are on the balance sheet with an original cost of $1.6m.  I'm not sure exactly when the building was purchased, the company was founded in 1915, and went public in 1959.  As I mentioned above I know the area, and only a fool would pay $1.6m for their location, especially today.  Hickok is located in a very undesirable area, a heavy industrial area that's seen better days.  Maybe they purchased the land and building during the better times when there wasn't as much overcapacity, maybe..

The problem is the value their facilities might have held when they were originally purchased is now gone.  Of course that's reflected in the balance sheet somewhat with the value of land/buildings/machinery depreciated down to $300k.  This would seem like a more appropriate amount but I still think it's too high.  If you look on Google Maps you can see that most of the area around Hickok is empty lots.  This is where knowing the backstory helps.

In parts of Cleveland there were problems with abandoned houses, drug dealers, and squatters.  The city started to take over abandoned homes and bulldozing the properties.  The lots are owned by the city and are available for sale if anyone wants them.  The problem is there are a lot of empty lots, and no one is really interested in buying.

The other problem is there are a lot of empty industrial buildings similar to Hickok's facilities up for sale as well.  I did a quick search and found a place with 3x the square footage of Hickok located less than a half mile away in a much more desirable location.  The property is listed for $499k or $3.78 per sq ft.  From the ad it looks like they throw in all the cranes and loading equipment as well, surely some scrap value there.

So what's my point?  The point is the location is in a bad neighborhood, an area with past problems so bad the city took over homes and demolished them.  An area with such a high industrial overcapacity that much better facilities can be found down the street for almost nothing.  These things don't mean that Hickok can't do well, but the odds are stacked against them.  Workers reporting to work drive past all of these things everyday.  I worked in a metal stamping shop in college, and the surroundings affect the workers.  Seedier parts of town don't attract the best talent, simply put.

The problem is none of this stuff is visible from a balance sheet, but it would be clear to a potential owner.  A potential owner would visit and see the location and start to think about having to move, or worrying about protecting the cars in the parking lot.  These are intangible costs, or intangible hurdles to an acquisition.  Sometimes as investors we wonder why a company isn't being bought out when everything appears in their favor, maybe there's a physical intangible known to everyone who visits but unknown to those of us who only read financial statements.

Summary

This has been a bit of an odd post, maybe different from most I do.  My point is that demanding a margin of safety isn't some sort of theoretical thing, there's a real world purpose to it.  If we demand a large margin of safety on our investments it compensates for some of these factors that are unknowable without local on the ground knowledge.  Some investments look incredibly risky from a financial statement point of view, but from a local knowledge standpoint might be entirely safe.  Other times something might look very safe on a 10-K but a bit of unknown local knowledge could make it terribly risky.

By definition a value investment is cheap, there is always a reason for cheapness.  I think most of the time we don't dig deep enough to understand or know why.  Understanding why a company might be cheap helps determine the margin of safety required.  I think understanding both of these points well is really the foundation of avoiding losses.  Many investors are surprised by events that shouldn't be all that surprising if we really understood what we were invested in.

Disclosure: No longer live in Cleveland, not a Browns fan, will cheer for the Indians if they make a playoff run.

Investment strategies for a devaluation

The idea for this post came from a thread on the Corner of Berkshire and Fairfax message board asking about Portuguese investment opportunities, and then a follow on email conversation with a blog reader.  One of the questions the reader asked was what were my thoughts on a devaluation in Portugal.

The question was interesting, and I've been thinking about this for while and wanted to put together some thoughts I have on it.  Mainly this would apply to European periphery countries right now but could really be any country at some point in the future.

If anyone has access to the data I'd be interested in knowing how companies that matched my criteria in Argentina back in 2001 did after the devaluation.

What is a devaluation?

Simply put a devaluation is when some sort of event takes place that makes a countries currency suddenly worth less.  On Monday 100 units of currency are required to buy an item and suddenly on Tuesday 150 units of the same currency are required to buy the same item.  This isn't inflation, it's when the currency is deemed to have less value.  The mechanism for this to happen isn't always the same, in the case of Portugal a devaluation would most likely occur if they left the Euro and began to use the escudo again.  In the case of a Portugal the country would be using the Euro on Monday, and suddenly on Tuesday all Euro deposits would be replaced by some escudo deposits possibly at a reduced rate, or at a much higher conversion rate.

How to invest?

The general idea is to find a company that will be unfairly punished in a devaluation, or a company that might benefit from a devaluation.  Here are a few bullet point thoughts on what might be good to look for.

• Most important, the company needs to be export driven, most sales should come from out of the devalued country, greater than 75%.
• The company should have a solid earnings stream, this closely relates to the above bullet.
• Avoid companies that are cash heavy unless the cash is foreign denominated (and even still be wary).  
• Avoid companies with large receivables in the new devalued currency.
• Look for companies with payables in the new currency.
• High debt isn't always bad if it's in the new currency, is devalued and can be paid off with export sales in a foreign currency.
• Look for some sort of competitive advantage, or brand.  Will an exporter have a stigma attached because they operate out of a devalued country?  Global recognition should mitigate this risk.
• Put limited emphasis on assets, these will be worth much less after a devaluation.
• The exception to the above bullet is if the assets are extremely rare and supply is limited.  A priceless asset might apply as well.  

A devaluation could be a catalyst for a generally marginal business.  If the business has local denominated debt, local labor and exports their suddenly strong earnings stream will be able to quickly reduce debt and margins will increase with their new lower labor costs.

Here are two possible investments in Portugal

A decent business with a good earnings stream likely to be unharmed:

Corticeria Amorim, written about here , here and here.

A marginally profitable exporter that could be helped by a devaluation:

FISIPE website, financials

Disclosure: Long COR

SeaEnergy, lots of cash but no energy business....yet

SeaEnergy (SEA.UK)

Price: 26.25p (2/22/2010)

This is a stock I kept getting mentioned on Twitter and I finally got around to looking into it recently.  SeaEnergy is a Scottish company that used to own an energy company which they sold for £38.6m back in June of 2011.

When I first looked over the company's interim report I was a bit confused.  I kept seeing pictures of boats yet the long term asset account was non-existant.  I then looked for leases and didn't find that either.  I looked at the pictures closer and realized they were computer drawn, not real boats.  I surfed their website a bit more and discovered that the company is currently a shell of cash, and they hope to get into the business of servicing offshore wind farms with a fleet of service ships.

Balance sheet

SeaEnergy is a really simple company to understand, they're a pile of cash, plus a 24.68% stake in listed company Lansdowne Oil and Gas.  This is simple enough I'm just going to show my net-net worksheet below:

Looking at the spreadsheet there's obvious value here.  The shares are trading at 26.25p against a discounted net asset value of 45p and net cash of 42p.  What's attractive about SeaEnergy is that almost all of their assets are completely liquid.

What's really interesting is that management mentions with their interim results that they've restructured the balance sheet so they can return some of the cash to shareholders in the form of dividends or buybacks.  Management plans to make an announcement once the audit of 2011 results are complete, so I'd expect something in a few months.

Looking forward

The big selling point to SeaEnergy is the pile of cash that management has indicated they intend to return a portion of.  What I haven't discussed yet is the business plan that should soak up the rest of the cash.

Sometimes a value thesis will rest on a pile of cash and the fact the company is selling for less than cash, a thesis similar to the one for SeaEnergy.  The flaw with this is that unless the company plans on liquidating that cash has little purpose.  I prefer to buy businesses that are cash heavy, or selling below NCAV/cash, but rarely cash shells.  The problem with a cash shell is they either need to enter a business (using the cash), or liquidate which I mentioned is unlikely.  A typical net-net is just a dumpy business that has hit hard times and is trading at an absurd valuation.  A cash shell is similar to a venture firm, they have raised investment funds and are planning on launching a new business.

SeaEnergy has chosen to do a bit of both, give back some cash and use the rest to start a new business.  They have identified that offshore wind farms have some hurdles in maintainability that they feel could be solved with a fleet of service ships.

SeaEnergy plans on building ships customized specifically to service wind farms on the North Sea.  Conditions on the North Sea are rougher than other locations where wind farms currently exist making current servicing fleets ineffective.  In the shareholder letter they state that they plan on being in operation by 2014 but they are testing their concept this winter with a trial ship.

There really isn't enough information for me to go in depth on the potential for the business.  Management has put out a few slide decks discussing the problem and their potential solutions.  I like that they're taking on the servicing aspect of the renewable market.  Servicing isn't as capital intensive as constructing and maintaining the farm itself.  SeaEnergy has also talked to potential customers and they've expressed interested in their business model.  I want to press the pause button here to mention one thing. I've been involved in startups, and known a lot of startup guys, and let me state that ALL entrepreneurs talk to potential customers, and ALL potential customers express interest.  The problem is when payment is required that sudden expression of interest is more of a nice to have rather than a necessity.

What I don't like

The one thing that I really didn't like is that SeaEnergy is highly promotional, not unlike many US biotech cash shells.  The biotech's always have the next greatest drug that will cure the world of all disease with limitless profitability.  Unfortunately for most investors biotech's almost universally have two outcomes, 1) a buyout (rare, but good outcome) 2) management burns the cash, pays themselves well and investors are diluted to nothing.

SeaEnergy's website is all geared toward potential investors with lots of charts and news releases about how the company is poised for growth.  I'm not sure what the goal is outside of moving the share price.  I would think the management team would be intensely focused on the design of their ships rather than the share price.

Another intangible is that if management knew how explosive this potential servicing business was why aren't they happy to have the company selling below cash while they scoop up shares like crazy.  Instead they seem very concerned about the market discounting their share value.

This stock isn't without a conspiracy theory either.  There was a regulatory filing saying some third party was trying to scam shareholders into giving up shares or entering into phony warrant transactions.  I don't know how the UK works, but stuff like this in the US is always a red flag.  Since I'm not as familiar with the UK markets I'm going to just go yellow flag on this one.  This could be a result of the sometimes wacky investors who form a cult following around stocks like this.

I know these are intangible items, and for most investors these things might not matter much, but for me they're things I try to consider before an investment.

Summary

My last few paragraphs might have seemed a bit overly critical, but it's not common to find a company that's selling below cash without some sort of negative.  If there wasn't a negative aspect I'd be worried!

In short SeaEnergy is like buying into an overcapitalized venture investment.  There is too much cash for the future servicing business so some of it will be returned.  Future gains will be made as a result of the success of the servicing business.  The nice kicker here is that this is different from investing in a venture fund that's returning capital because this isn't your money that's being returned, it's someone else's initial investment being returned to you.

I'm going to watch SeaEnergy play out but hold off on an investment.  I don't know enough about the offshore renewables servicing business to take a gamble on it, and I haven't done very well investing in cash shells.  Some of the intangibles concern me as well.  I think this would be a great investment for someone who is more knowledgable with UK energy investments.

Talk to Nate about SeaEnergy

Disclosure: No position