Analysis of Cathedral Energy Services (TSE:CET)

In my continuing exploration of the deepest P/B decile i have perhaps found another bargain.

From google finance: “Cathedral Energy Services Ltd is a Canada-based company, which is engaged in the business of providing selected oilfield services to oil and natural gas exploration and development entities in western Canada and the United States. The Company carries on its activities in Canada and the United States under the name Cathedral Energy Services with operating division Directional Drilling. The Directional Drilling division provides horizontal, directional and underbalanced drilling services. The Directional Drilling division has approximately 60 Measurement While Drilling (MWD) systems in Canada and over 80 in the United States.”

Management owns approx 6% of the outstanding shares and 40% is owned by Franklin Resources which perhaps is not optimal due to its big size. The company have in the last year reduced its debt down to zero through sale of assets but also by issuance of new shares.

  

Also, the share issue this year is the first on at least 10 years (without taking consideration of management options).

  

Unfortunately the company have heavy leasing obligations on 35M CAD. It mostly refers to buildings.

  

The company has mentioned that the outlook looks much better this year than the year before and the first quarter have delivered positive returns and operating cash flow. Even though EV/OCF don't look great it is actually mostly the last quarter that contributes to it.

I’m having trouble to understand why they needed cash so much that they would issue shares. They have had some trouble the last couple of years and perhaps some trouble with the banks. I'm not certain that it was a last resort solution which makes me more reluctant, but on the other hand the money did not go to a bad cause like financing salaries for the management, but to reducing debt to zero. And it did happen in the worst year of the company history.  

Now the financial situation looks a lot better. Unfortunately there is still the leasing obligations that makes the financial position a little bit unfair.

The stock trades a lot higher from its all time low 0,3 CAD in the last spring compared to today's 1 CAD, but the situation has also changed alot since then. The financing issue is solved, cash flow is positive and the outlook looks good.

In this range of P/B companies everything will not be perfect. You can't have it all.  My thesis is that the risk of losing money on this investment is low and that the upside is bigger than the downside. With the new financial situtation i don't expect that it will be necessary with any more capital injections the coming year. With once again positive cash flows as a trigger and no outstanding debt i think this stock looks like a bargain. Bare in mind that i hold my positions only one year and that’s how far i “predict”.

What do you think about this case?

I am long Cathedral Energy Services

China Digital TV Holding - Money back guarantee with topping

(OTCMKTS:STVVY former NYSE:STV)

A special situation net-net.

“China Digital TV Holding Co., Ltd. (CDTV Holding) is a holding company. The Company is a provider of conditional access (CA) systems to the People's Republic of China's (PRC) digital television market. The Company is engaged in the provision of cloud-based application platforms and CA systems. The Company's CA systems, including smart cards, head-end software for television network operators and terminal-end licensing for set-top box manufacturers, enable digital television network operators in the PRC to control the distribution of content and value-added services to their subscribers and block unauthorized access to their networks. The Company sells and provides integration service of digital television applications, such as electronic program guides (EPGs), and subscriber management systems (SMSs), to digital television network operators with certain hardware. It also sells other products sourced from third-party suppliers, such as surface-mounted device chips.”

At first sight this company may seem risky with its operations in China and that it just got delisted from NYSE. However, in contrary to the typical chinese fraud listings, this company have actually provided substantial value through dividend several times during the last ten years. Also, the company was forced to delist from the NYSE because of the sale of its major holding Beijing Super TV.  

STV recently announced the sale of the holding Beijing Super TV, and with it, the announcement to pay a dividend of 1,5 USD  per share. Today the share price is 1,51 USD, meaning a money back guarantee investment. However, that is not all assets one gets, as net cash per share is close to 2 USD, meaning STV is traded at a 25% discount to NCAV.

It is not clear what will happen with the rest of the cash but according the last quarterly report the management intends to acquire assets or businesses.

Also, there might be other undisclosed assets in the company. This was stated in the fourth quarter management statement:

“Mr. Zhenwen Liang, China Digital TV’s chief financial officer, stated, “We are glad to end 2016 with robust growth in our cloud business. Additionally, in December 2016, Beijing Cyber Cloud Technology Co., Ltd. (“Cyber Cloud”), a subsidiary of China Digital TV, received a RMB33 million strategic investment for 10% equity ownership in our cloud computing business. After the capital injection, China Digital TV now maintains 58% ownership of the subsidiary’s equity. Looking ahead, we are committed to developing new growth opportunities and generating further value for our shareholders.”

That means that the “Cyber Cloud” subsidiary was valued to 330 M RMB, equivalent to 50M USD, of which 28M is held by STV. That’s net assets of 0,5 USD per share added to the margin of safety.

Disclosure: I am long STV.

Note that the dividend record date is expected to be on may 31.

Analys av Five Star Quality Care (NASD:FVE)

För en tid sedan så kikade jag på RMR group som uppmärksammats av ett gäng värdeinvesterare, bland annat på VIC och AquirersX. RMR group förvaltar fastigheter åt fyra större fastighetsbolag, alla med 20 årskontrakt. Under en tid när RMR var rädda att tappa kontrakten så gav de i princip bort aktier till fastighetsbolagen mot att de signerade långa förvaltningsavtal. Bakom detta innovativa upplägg och succé ligger mr Barry Portnoy, som är VD och huvudägare.

Av en slump såg jag att Barry Portnoy och hans son Adam sålt 50% av sina aktier i RMR group nyligen och tagit position i ett annat bolag, nämligen Five Star Quality Care (FVE).

Om bolaget: Från Google Finance: Five Star Quality Care, Inc. operates senior living communities, including independent living communities, assisted living communities and skilled nursing facilities (SNFs). The Company operates through senior living community segment. In the senior living community segment, it operates for its own account or manages for the account of third parties independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents. It operates over 270 senior living communities with approximately 31,420 living units, including over 240 primarily independent and assisted living communities with approximately 28,610 living units and over 30 SNFs with approximately 2,800 living units. It owns and operates over 30 communities (approximately 3,210 living units), it leases and operates over 180 communities (approximately 20,010 living units) and manages over 60 communities (approximately 8,190 living units)

Bolaget handlas till P/B 0,77 och måttligt EV/OCF på 6,5. Bolaget har haft det lite tufft de senare åren. Detta mycket på grund av hårdare lagstiftning. Och just där hittar ni även bolagets potential.  Det finns en chans att de regleringar som Obama infört kommer att lättas upp och därmed kommer stora kostnader att luckras upp. Det finns garanterat också pengar att hämta i att växla ner tempot i nyetableringar. Det är alltid en kostsam uppstartssträcka i nyetableringar och dessa kan förhoppningvis dämpas. Det allra mest intressanta är att RMRs savior Mr. Portnoy precis har köpt 36% av bolaget till en kurs på 3 USD per aktier, totalt aktier för svindlande 54m USD. Min förhoppning är att han kommer att driva bolaget mot att vara mer lönsamhetsorienterat snarare än tillväxtorienterat samt att han kommer att börja realisera fastigheter för att synliggöra eventuella dolda värden.

Tillgångarna består framför allt av fastigheter men också en hel del cash. Tyvärr är bolaget ganska skuldsatt, vilket inte är optimalt men som såklart kan förklaras av fastigheterna. Dock har fastigheternas värden inte justerats under åtminstone de fem senaste åren.

 

I min mening har Mr Portnoy redan bevisat att han är en

skicklig entreprenör samt värdeorienterad och får gärna förvalta en del av mina pengar, speciellt när bolaget även passar in i min portfölj.

Här kan ni läsa mer om RMR-group och Portnoys https://www.valueinvestorsclub.com/idea/RMR_GROUP_INC/137988

Discolsure: Jag äger aktier i bolaget.