atans1

Perils of buying on NTA II

In Investments on 18/03/2010 at 5:33 am

It was reported in Today that ” Minority shareholders of Lion Asiapac are making another push for the company to pay out special dividends. Previous calls for such distribution were ignored.”

‘Mr Mano Sabnani, a Lion Asiapac shareholder, said: “The company has got more money than it needs. It can easily pay out 20 cents a share and still have a big cash hoard for new businesses.

‘Shareholders had previously petitioned Lion Asiapac’s chairman Othman Wok, calling for the distribution of special dividends to boost the stock price, which is trading at a heavily-discounted 33 cents to its cash value of 47 cents.”

The problem is that the company is a subsidiary of Lion Group, a M’sian listco, which means that Lion Group has the votes to block any such resolution.

Buying on a deep discount to NTA only works if the value investor can see some catalyst that will unlock value. Where there is a controlling shareholder or shareholders, this catalyst often does not exist. Witness Haw Par http://atans1.wordpress.com/2009/12/11/hidden-tiger/,

Chemoil http://atans1.wordpress.com/2009/12/16/when-a-controlling-stake-goes-at-a-massive-discount/ and

UE http://atans1.wordpress.com/2009/12/17/the-perils-of-buying-on-nta-calculations/

And bear in mind that such a discount could also be a sign that investors are concerned that the cash or assets  could be used up in unprofitable businesses, rather than given back to shareholders. Again where there is a controlling shareholder or shareholders, this is more likely to happen.  Not because the shareholder wants to screw the others but often because his time horizon is very, very long.  And he has other reasons for his holdings say sentimentality.

Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders. They were right.

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  1. UIS,incidentally another wee holding also trade at discount to NTA. however, it is less likely to engage in unprofitable investment. shareholders have been calling for better performance too

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