Recap
CSLMF is a cash rich Canadian microcap holding company which has recently divested its two deficitary holdings (Distinctive and PolyAir), uncovering substantial hidden assets. The resulting entity I argued would have a book value of $16.05M or about $3.16 per share - most of it in cash/equivalents and short term investments. This would be revealed in their annual report to be filed in March. The stock had traded around $1.40.
Recent Events
The company did report Friday after the close and its annual report can now be retrieved at sedar.com. So lets see how accurate the estimates were and whether there is still an investment case to be made.
The New Balance Sheet
The balance sheet shows cash/equivalents at $11M, short term investments at $5.5M and $0.8M in notes receivable (this is the Distinctive debt) which has already been repaid subsequent to the report for a total of $17.4M in liquid current assets.
On the liability side we have $0.7M in accounts payable (management did grant itself a very generous $0.5M bonus for the successful PolyAir sale - and yes, it was a good sale) and $0.8 in income taxes for a total of $1.5M. Subtract $0.1M for the preferred shares and we come to $15.8M in liquid assets net of liabilities. This gives us $3.11 per share in cash and short term investments net of liabilities.
Additionally the company has $0.4M in long term investments. Accounting for the secured note CSLMF received as part of the Distrinctive divesture (remember 10 yearly payments of $100k) hides much of the value of this note since it is recognized over time. So you'll find a $420k deferred gain offsetting the discounted present value of the note ($457k). As I said before I'm not sure that the company will receive more than say $300k in present value from this note.
How did we do?
In total for the current market price of $1.60 per share you get $3.11 in cash/equivalents/short term investments and about $0.13 in long term investments and the Distinctive note. Overall our previous analysis of $3.16 per share was resonably close.
Still a Buy?
Buying dollars for 50c generally seems like a good idea - but could this be a value trap and just stay underpriced?
One way to get an answer to this question is to look at relative pricing of similar stocks. A filter of all US listed stocks with market cap > $5M, price/book < 1, share price > 10c and cash/equiv/short term investments net of liabilities more than 1.5 x market cap with positive earnings returns 2 companies:
APNI - in which the picture is distorted by massive dilution (2x outstanding shares)
ETLT - which is a shady company which has most of its cash in "restricted" form in China (this may be a fraud as has been hypothesized elsewhere)
In other words even at around $2.10 (vs the current $1.60) per CSLMF share there is no other solid US traded company that is this cheap by the metric of cold hard cash.
Rationally given no operative assets you would value a company like CSLMF at NAV with a premium/discount commensurate with the value added by management vs their cost. Depending on your assumptions you might come up with a range. This is analogous to closed end mutual funds which currently trade within NAV-15% and NAV+15% (excluding some extreme examples like the cornerstone total return fund which seems to employ strategies to inflate its share prices returning capital under the guise of dividends and comes at a +50% premium).
Following this approach and using the adjusted NAV of $3.24 a reasonable range for the company value may be $2.75 - $3.72. In this light and in my personal judgement this remains one of the most promising opportunities I have seen.
Caveats
Please consider all risks I highlighted in my previous post. In particular if you do buy use limit orders since the issue is traded thinly at times.
Disclosure: The author is long CSLMF.
