Kevin Scully, executive chairman of NRA Capital.
File photo: CompanyOn the day that Blumont shares were relisted as designated securities, I was approached by two investors to ask what they should do about Blumont shares. The two investors were in totally different positions:
Investor 1
Investor 1 was an existing shareholder of Blumont who bought the shares at a high price (I didnt ask the level but I presume it was before the suspension) for cash but had pledged some blue chip shares as collateral for his investment in Blumont. His question to me was is there more downside to Blumonth shares now ?...
Investor 2
Investor 2 was an opportunist who didn't own any Blumont shares. So his question to me was - "any value in the shares now ?......hmmm at these levels they should be worth a bet...."
Commentary
Both investors are asking me the same question - what is the intrinsic value of Blumont now that the dust is settling. To answer this question we must go back to fundamentals - its profit and loss statement and its balance sheet.
What are Blumont shares worth today ?
Let's look at its rights issue prospectus for its recently concluded 1:2 rights at S$0.05. In the prospectus, the proforma post rights issue NAV of Blumont shares is S$0.0417. This figures doesn't seem to include the rights issue proceeds of S$43mn which would give an NAV of S$0.058. But S$0.043 of this NAV is "fair value" of listed financial assets. We don't know what these assets are but if they are investments in some penny stocks which have collapsed - this S$0.043 may not be realised. So on a very conservative basis assuming that the fair value of these listed investments is marked down, say 50%, then the base NAV would be S$0.041 and if the fair value of investments is marked down, say by 90%, then the base NAV would be S$0.021.
These are conservative starting points.
New Investors in Blumont
Since the designation of Blumont shares, there are two proposals for investors to note:
a) On 7 October 2013, Blumont announced the appointment of Mr. Alexander Molyneux as Chairman designate. Mr Molyneux also agreed to acquire 135mn shares in Blumont from two existing shareholders. The 135mn shares, would comprise 5.2% of the enlarged share capital after the rights issue, will be placed at a price of S$0.40 - subject to adjustments but with a floor price of S$0.20.
b) Last night Blumont announced the issue of a US$200mn convertible bond issue to Platinum Partners Value Arbitrage Fund L.P. The bond issue will be in four tranches of US$50mn and subject to a number of conditions. The bond subscriber can convert the bonds to new shares in Blumont between a price of S$0.20 to S$0.40 at his own discretion. The bonds carry a coupon rate of 8%. The proceeds will be used to complete acquisitions such as its $100mn in Discovery Metals. Please read the announcement for more details. If all the bonds are issued and converted at S$0.20, Platinum could emerge as a 32% shareholder if it holds onto all its shares.
My advice
My advice to both investors was that I didnt have enough information to find the floor or intrinsic value of Blumont shares using their balance sheet because a large part of their NAV was fair value of listed investments but a reasonable floor seems to be about S$0.04 cents.
If the two new investors above actually make their investments - a new floor would be created at the S$0.20 level but the first step in a normalisation of the Blumont share price would be the SGX lifting it as a designated stock. The latter is also one of the conditions for the subscription of the US$200mn convertible bond by Platinum Partners. Let's wait and see if both materialise.
So for Investor 2, his level of entry would probably be when the forced selling of Blumont shares stops. For Investor 1, he might see a better price if he can HOLD his shares until the designated securities restriction is lifted and then hopefully the shares could reach the S$0.20 level. Beyond that fundamentals from more discerning and cynical investors will set its final price.
This article was first published last Friday on www.nracapital.com,and is republished with permission.
Comments
Stay away unless u are in the loop.
As I did not do a detailed in-depth study of Blumont's financials for the last reported quarter nor its annual accounts I would not dare to venture into giving a fair opinion on the intrinsic value of this counter.
However, from what I've gathered from some cursory reading of material available in the market, I believe some analysts have given it a NAV of about 6-7 cents at current operational level. This of course does not include any intrinsic value of the group because it is still in a stage of metamorphosis as future potential value attainable from those companies in its takeover target list are not yet realisable at this moment pending their completion and a host of other operational factors such as successful mining production yield, etc. Take for instance the ASX listed Cokal which is still in exploratory stage of mining for coal. What it has is the several licences from the Indonesia for exploratory rights in a few locations.
Sorry I can't be of any further help in your query.
1. "This figure doesn't seem to include the rights issue proceeds of S$43mn which would give an NAV of S$0.058..."
It's $43 m divided by 2.571 billion shares post-rights issue = 1.67 cent a share.
Add 1.67 cent to NAV of 4.17 cent = 5.8 cents.
2. "But S$0.043 of this NAV is "fair value" of listed financial assets."
Under 'current assets' on Pg 49 of the rights issue prospectus, the figure for financial assets at fair value is given as $109.8 m.
Divide $109.8 m by 2.571 billion shares = 4.3 cent a share.