The 12 Best, Largest Net-Nets That Can Be Traded With Interactive Brokers

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Includes: ADVM, BWLVF, CREQF, DCOHF, DCOHY, EPRJF, FUAIF, FUAIY, KALV, MFCB, MSN, OIGLF, ORWHF, OTTEF, PHG, QUPPF, SHOS
by: Ruerd Heeg

Summary

Stocks that trade at a large discount to the current assets net of all liabilities are investments with superior statistical returns.

Usually, these companies are very small and therefore uninvestable for large investors However, larger net-nets with a large margin of safety do exist.

Just as in my January article, I focus on loss making net-nets for larger returns.

Below, you will find the 12 largest global net-nets in the red that can be traded with an InteractiveBrokers account.

This article has been published first as part of my premium research on Seeking Alpha.

This is a follow-up of my article on large loss-making net-nets published in January. In that previous article, there is lots of background on why I am interested in non-profitable net-nets. I will give an extremely short summary here:

  1. Investing in large loss-making net-nets is one of the highest returning stock picking strategies.
  2. Large non-profitable net-nets are actionable for both small and large investors. So, they are available for everyone.

I will keep this article intro short this month. Instead, I will concentrate on new stocks in the list and on what has changed for the other stocks.

1. Watchstone Group (OTC:QUPPF)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

LON:WTG

3

2.22 GBP

102 GBP

5.1

6.7

January 2016 and before: Watchstone Group was formerly known as Quindell Plc. In 2014, the company was accused of doing many highly unprofitable acquisitions from related parties. As a consequence, it got new management. Among others, the CEO left. Then, the company sold its Professional Services segment for 637 million GBP plus a contingent payment. That transaction was completed, so there was value in the company after all. In December 2015, the company paid out a one-time dividend of 0.9 GBP.

The company still intends to pay out 0.1 GBP at the end of 2016 from the proceeds of the disposal.

April 2016: Watchstone Group PLC went down from 2.56 to 2.22 GBP.

So far, I thought that the value of the remaining business would be zero. But I do not think anymore it is that bad. The remaining business is a collection of 7 smaller businesses. These are a life and disability insurance broker, a company operating rehabilitation clinics in Canada, a car insurer focusing on young drivers, a software company with products for healthcare clinics, a B2B energy brokerage in the UK, a price comparison website comparing financial and insurance products, and a broker for life and disability insurance.

The large discount to NCAV is a screener error. The screener does not take the dividend paid in December into account. After paying a dividend of 414 million GBP, my guess is that NCAV is about 220 million GBP, so the NCAV/Market cap is around 2, but I could be wrong.

Last year, on December 30, 2015, a non-executive director, Richard Nose, bought 100,000 shares for 2.57879 GBP per share.

The company disposed of 2 subsidiaries. One subsidiary will save between 1.5 and 2 million GBP per year. The sale of the other, also non-profitable, subsidiary was for 1 million GBP.

Recently, it has received a non-cash draft offer from a private company, but Watchstone Group rejected this offer.

2. Emperor Watch & Jewellery (OTC:EPRJF)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:887

4

0.178 HKD

1200 HKD

3.2

January 2016 and before: Emperor Watch & Jewellery is a jewelry chain from Hong Kong. At Emperor, over 80% of the revenue comes from watches. In the Netherlands, companies like this one have to buy a full collection of Rolex, Cartier etc. They then sell the less wanted watches to smaller traders for large discounts, who then compete with, for example, the Dutch equivalent of Oriental Watch shops. The result is that the margins of the well-established shops have decreased to a point where it gets difficult to survive.

In Hong Kong, there are several companies with "Emperor" in the name. The chairman of the Emperor Group, Albert Yeung, has been convicted for "perverting the course of justice", running an illegal bookmaking syndicate, and insider dealing. This webpage more or less accuses him of being a leader in organized crime. The CEO, Cindy Yeung, owns 52% of the shares via a family trust with Albert Yeung.

54 of the 88 stores are in the PRC, and 24 in Hong Kong. The company has a very large inventory, which is probably typical for this type of business. Therefore, this net-net is not as undervalued as it seems from the discount to NCAV.

Since 2008, no share options have been granted to employees.

During the last 6 months, revenue decreased and the company made a small loss. It has announced a reorganization of the Hong Kong stores and has been trying to improve the balance sheet: there is now less inventory, more cash and less debt. Total assets have decreased.

Despite fundamental and perceived corporate governance problems I think this stock is too cheap to ignore. That said the current assets are less worth than those of some other net-nets because of the large inventory.

April 2016: Emperor Watch & Jewellery went up from 0.163 to 0.178 HKD. The Piotroski score went down from 5 to 4. The company published an annual report. Still about 3 quarters of the current assets consist of inventory, but this has decreased.

In the recent annual report, I saw that value investor Brandes Investment Partners L.P. now owns 7% of the shares. On their website, Brandes Investment Partners write they invest according the principles of Benjamin Graham. Note how different this is from investing according to Graham's pupil, Warren Buffett. Would Buffett invest in companies connected to people involved in organized crime?

I do not own this stock because I own a similar stock instead: Oriental Watch Holdings (OTCPK:ORWHF, HKG:398). The reason that I chose Oriental Watch Holdings over Emperor Watch & Jewellery is that the latter was profitable at the time I invested in the non-profitable Oriental Watch Holdings. Did I make the right choice? Both stocks are down compared to one year ago, but Emperor Watch & Jewellery is down much more than Oriental Watch Holdings.

3. Funai Electric (OTCPK:FUAIY, OTC:FUAIF)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

TYO:6839

3

1023 JPY

37000 JPY

2.2

3.4

January 2016 and before: Funai Electric is an electronics company. It manufactures TVs, DVD recorders and players, and printers. Usually, it sells such consumer electronics under a brand of someone else. For example, under the Emerson brand (NYSEMKT:MSN).

The LCD TV business had a bad long-term forecast because of ever-increasing competition. So, Funai Electric tried to diversify and ventured into inkjet printers. The company invested in a new factory in the Philippines. But now, the LCD TV business is suffering a lot (sales 19% down) and the inkjet printers sales haven't replaced it yet. Funai still plans to expand its printer factory in the Philippines.

This company has to defend itself from a patent claim and also from a claim related to an acquisition of certain parts of Philips Electronics (NYSE:PHG) that it did not complete. So, this is an event-driven investment, I suppose with a large margin of safety, although there is a hidden liability of up to 183 million euro (counterclaim by Funai of 312.3 million euro).

I own this one. Owned for 44.93% by its founder Funai AkiraRyo, and certain affiliates. Wellington Management owns about 10% of the shares.

April 2016: Funai Electric went up from 871 to 1024 JPY.

The company published a new quarterly report. Heavy losses continued, and the inventory decreased.

The screener overestimates the market cap by about 5.5%. This is because the Thomson Reuters database does not take the treasury shares into account when computing the market cap. The company owns over 4 billion JPY of shares in other (listed) companies, categorized as non-current assets, and about 6 billion JPY of land. The claim from Philips Electronics is about 23 billion JPY. So, even when taking the stocks, the land and the claim into account, a reasonable estimate of the stock's liquidation value is about 70 billion JPY. If we adjust for the 48 billion JPY inventory, however, then the stock does not trade far below its liquidation value.

Over last 4 quarters, Funai Electric's operating loss was around 9 billion JPY, and that is another reason for its cheapness. BTW it is also cheap because the founder reduced his stake by a small amount last year.

Brandes Investment Partners now holds 5.17%. My personal question is whether I should sell or hold. I own this stock for 2 years now. So, according to Graham, it is time to sell. On the other hand, it might be better to wait for a turnaround or events related to the litigation with Philips Electronics.

I have to take this decision, because I invested in Funai Electric when it was cheap but also still profitable. In other words, I bought a net-net that was relatively expensive, especially when subtracting Philips' claim from the NCAV. Instead, I should have waited until the losses started to show, or invested in another net-net. Then, I could have bought it for a much better price.

Alternatively, I could have sold in December 2014. At that time, I could have sold it for almost 50% profit. That price increase caused this net-net to become expensive among its peers. However, at that time, I did not make lists like this one, so I did not know how expensive it really was.

4. Dickson Concepts International (OTCPK:DCOHF, OTC:DCOHY)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:113

4

2.18 HKD

830 HKD

1.9

2.7

April 2016: Dickson Concepts sells luxury goods (leather, lighters, watches, etc.) in its own shops in Hong Kong, the PRC, Macau, Taiwan, Singapore, and Malaysia. See the annual report over 2014. It has a large board, which is bad for stock market returns. There are only independent non-executive directors in the 3 committees except for the nomination committee. The nomination committee is chaired by Dickson Poon, who is the executive chairman.

Dickson Concepts is buying back shares. 65% of 2014's sales came from Hong Kong. The company might have suffered from the Occupy movement. It is opening new shops at a high rate: over 10% new shops in 2014. EV/cash flow from operations is about 5.

The executive chairman and founder, Dickson Poon, owns 45% of the shares. He also owns a French company, S.T. Dupont Group (DPT:FP) for 73%, which is one of the suppliers. So, there are lots of related party transactions. Dickson Poon owns competing companies as well.

Over 2014, less dividends were paid than the year before, because the company made a loss. When the business turns around, I expect the dividends to increase again. The share count has increased a little bit because of scrip dividends.

In December 2015, Dickson Concepts published interim financial results. The company made a loss of 116 million HKD, or 0.305 HKD per share. The operating loss was smaller than over the same period last year.

About 35% of the current assets are inventory. Among the non-current assets, there are also 98 million HKD of listed stocks and 40 million HKD of listed debt securities. With a market cap of 853 million HKD and NCAV of 1568 million HKD, the real NCAV/Market cap ratio is exactly 2 when including these liquid assets.

Only a small fraction (11%) of the revenue comes from the PRC. About 65% of the revenues come from Hong Kong and 20% comes from Taiwan.

The company bought back shares in October and November 2015 and in January and February 2016. In 2015 and so far in 2016, it bought back 10 million shares or 2.5%. (See also here and here.) According to the interim report, most shares (6 million) were bought back in October 2015, at an average price of 3.18 HKD per share. According to the interim report, Brandes Investment Partners L.P. owns 8.07%.

5. China Rare Earth Holdings (OTCPK:CREQF)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:769

0

0.6 HKD

1400 HKD

1.6

January 2016: China Rare Earth Holdings manufactures rare earth products and also refractory products, such as high-temperature ceramics products and magnesium grains. About 2/3rd of sales are rare earths and about 1/3rd are refractory products.

In August 2015, the company did a rights issue of 2 new shares at 0.60 HKD for every 5 existing shares, with net proceeds of 390 million HKD. It intends to use the proceeds as general working capital. That is very strange since the company had already 1.3 billion HKD of cash. From the interim one might conclude that China Rare Earth Holdings may need the money for "research on a mining of magnesium ore project" and for "early penetration into upstream business". The rights issue was heavily oversubscribed. The main shareholder and founders, the Yanying family, did not subscribe for excess rights. Their stake remains at 31.8%. They have 2 directors in the board: the chairman and his wife. There are only independent non-executive directors in the 3 committees.

Since the screener does not take the proceeds of the rights issue into account, the NCAV/Market cap ratio is really about 2.4.

Another problem with this company is that it is producing below its cost price. So, the gross profit is negative, which is pretty rare and bad. See also the interim report over H1 2015. Furthermore, the company is exporting to Japan, Europe, and the US. I think this decreases the probability of extremely bad corporate governance, i.e., fraud.

April 2016: China Rare Earth Holdings went up from 0.445 to 0.6 HKD. On my January article, I got a critical comment on this stock. This price increase confirms what I have seen already many times and is confirmed in statistical stock research: you earn more money with investing in despised stocks.

The company announced results and published an annual report over 2015. Losses increased due to higher expenses, lower revenue, and impairments. The impairments were on the inventory and on property, plant, and equipment. Also, over the second half of 2015, the gross profit was negative.

China Rare Earth Holdings gets 64% of its rare earth revenue from the PRC. It suffers on account of declining prices of rare earths. The company is doing the research for a magnesium ore project in Northeastern China.

Do you still like commodities? Are you excited about the expected demand increase for rare earths? Then this stock is probably the cheapest stock and the highest returning, at least on a statistical basis. Again, I am not joking: the stock has gone up by 33% since January. Despite this undeniable positive, there are still no other large shareholders than the chairman and his wife.

I expect this company to do better than last year. Other commodity prices are increasing again, so why not the rare earths? It is certainly much easier to sell inventory for a profit after impairment than before.

A red flag is still that this company has no debt. It does not need to borrow, because it has plenty of cash. But it may also mean no bank is willing to borrow China Rare Earth Holdings anything.

6. Sears Hometown and Outlet Stores (NASDAQ:SHOS)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

SHOS

6

6.56 USD

149 USD

1.7

January 2016: Sears Hometown and Outlet Stores is a retail chain spun off from Sears. Both the free cash flow and the cash flow from operations have been positive over the last 12 months. Guru investor Eddy Lampert owns slightly less than half of the shares.

I owned this one briefly, but sold it again for a nice profit upon earnings release. Now it is cheap again, although it is expensive for a net-net. To be more precise, it is relatively expensive in terms of NCAV/Market cap. In addition, almost all current assets are inventory. Inventory usually cannot be liquidated at book value, so the value of the current assets is probably much lower than their book value.

What makes this stock very interesting, however, is that Eddie Lampert bought a lot of shares in December 2015. It is comfortable to be a net-net investor if you are an insider yourself. There are a couple of good articles on SA on the stock, see here and here.

April 2016: Sears Hometown and Outlet Stores went down from 7.38 to 6.56 USD.

I now see that in March 2015, someone published a Top Idea on Seeking Alpha, suggesting the stock would go to zero. I wonder whether this investment thesis is still valid. This month, a new, balanced bearish article on the stock was published.

The company published results for the fourth quarter and for the year. The last quarter was pretty bad, mostly due to write-offs of franchise receivables. In addition, comparable store sales decreased by 0.5%. The Piotroski score increased from 5 to 6. See also the 10-K.

The write-offs on the franchise receivables are a one-time event. The company reacquires franchise stores to restore the performance of these shops. Related to these acquisitions, there are these write-offs. So, some franchise stores almost went bankrupt, and the company bought them out.

7. Avalanche Biotechnologies (AAVL)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

AAVL

5

5.64 USD

152 USD

1.6

January 2016: Avalanche Biotechnologies develops a drug for wet macular degeneration, AVA-101. The supposed benefit of AVA-101 is that it has similar efficacy as competing drugs, but that its administration requires fewer painful injections in the eye.

The first results were very promising, but then Avalanche did a small Phase IIa trial to establish the safety profile of this drug. In June 2015, these Phase IIa results were not satisfactory. The stock went down a lot on the news, and even more in the months after, but I think not everything is lost for AVA-101. It is very well possible that larger Ava-101 trials will show better results. The company plans to do larger trials, but it first wants to better determine the optimal dose and delivery. Furthermore, it has some other drugs in development.

Avalanche hired a new CEO with an investing background. He is trying to reduce the cash drain by reducing the head count. If he succeeds in restructuring the company, i.e., setting the right priorities, then holders of this stock have good chances to see high gains. It helps that the current cash position should give this company several years of runway. So, if you are a biotech investor attracted to net-nets or a net-net investor attracted to biotechnology stocks, do not miss this opportunity. See also this great article.

April 2016: Avalanche Biotechnologies went down from 6.38 to 5.64 USD.

Four large investors had to file their positions. Israel A. Englander filed a 13G for 1.5% with his Millennium Management funds, Fidelity owns 15%, Cadian Capital Management owns 5.9%, and Zygtech owns 9.1%.

I suppose smaller biotechnology investors were not attracted to this net-net. And few net-net investors are attracted to this biotechnology company, because for a net-net, it is expensive. When is a biotechnology company cheap enough? I guess Carbylan Therapeutics (CBYL) was cheap enough when I bought it for 0.58 USD. Then its NCAV/Market cap ratio was more than 3.

Because Avalanche Biotechnology was relatively expensive, it did not meet the criteria for discussing it in my monthly premium article on net-nets in January 2016. But I did discuss the company in the premium article I published at the end of February 2016. At that time, the NCAV/Market cap was 2 and the share price was 4.8 USD.

Avalanche filed a transcript of its recent conference call. Such a transcript statistically predicts a lower return. In this conference call, the company discussed the acquisition of the Annapurna Therapeutics, an unlisted French biotech. One question was not answered: the question on the pipeline of Annapurna. Well, the company answered some of it. Initially, it said there were 3 products in the pipeline. During the conference call, it turned out there is only one product in the pipeline.

The company also announced results over the fourth quarter of 2015. For full-year results, see the 10-K.

At the moment, there are 25.86 million shares. This is an all-stock transaction for 17.6 million extra shares. Based on the balance sheet of December 31, 2015, the NCAV is 249 million USD. Based on the current price of the stock and taking into account the extra shares, the NCAV/Market ratio will be just above 1.

Back in February, I did not buy it, and neither did I recommend it to the subscribers of my premium research for 3 reasons:

  1. The all-stock acquisition causing the discount to NCAV to disappear.
  2. Avalanche had not been entirely transparent on the pipeline of the acquired company.
  3. The fact that the company filed a transcript of its conference call.

This situation has not changed since then.

8. China ITS (Holdings) Company

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:1900

3

0.54 HKD

894 HKD

1.6

January 2016: The full name is China Intelligent Transportation Systems. This company provides systems, solutions, and professional services and operations services for transportation systems, such as highways, railways, aviation, and urban transportation. This seems to be an infrastructure construction company operating in the PRC. About 2/3rd of the revenue is related to railways and about 1/3rd is related to highways.

The chairman, Mr. Liao Jie, owns 7.86%, and the CEO, Jian Hailin, owns 43.11%. So together, they have the majority of the shares.

There are only non-executive independent directors in the 3 committees. About 40 million options (2.5% of the number of shares) are outstanding, with an exercise price of 1.05 HKD. This company used to be dilutive, but had a stable share count during the last 4 years and has redeemed convertible debt in February 2015.

The quality of the current assets seems relatively low: about 60% is in "Construction Contracts" and "Prepayments, deposits and other receivables". This net-net is more leveraged than other net-nets, with a ratio Total Tangible Assets/Tangible Equity of 2.7.

April 2016: China ITS (Holdings) Company went down from 0.62 to 0.54 HKD. The NCAV/Market cap ratio went down from 1.8 to 1.6 as well.

The company announced results over 2015 and published an annual report. The railway segment is growing, and the revenue of the urban transport and the highway segments is decreasing. The company expects that the railway segment will keep growing.

On March 23, 2016, China ITS (Holdings) Company announced a disposal. The buyers are executive directors, together with other beneficiaries of a trust holding shares in the companies. The buyers did not participate in the approval vote in the extraordinary shareholder meeting. Of the other shareholders, about 20% voted against this transaction.

The company is selling the highway and the urban traffic segments for 980 million RMB. These businesses have booked pretty heavy losses during the past 2 years. The book value of the two businesses is 859 million RMB, excluding non-controlling interests. The original investment, however, is 646 million RMB. After netting receivables and transaction costs, the proceeds will be 758 million RMB.

The company does not provide enough information to determine whether the disposal is profitable or not. Based on the pro forma balance sheet of the sold companies and the remaining group at December 31 2014, and the losses over 2015, I estimate the loss at about 100 million RMB.

What will the company do with the money? 50% will be used to repay a loan, 28% is for investing in the railway segment, 8% is for investing in the civil aviation segment, 4% is for building decoration, and 10% will be general working capital.

Such big financial events can cause a lot of uncertainty among shareholders. Therefore, I think this is a good bet. I think the company's balance sheet will improve as a result of the disposal. Fixed assets and low-quality current assets are being sold for cash. The reason I do not invest in China ITS (Holdings) Company, however, is that the company is too expensive in terms of NCAV/Market cap.

9. China Ting Group Holdings

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:3398

5

0.375 HKD

788 HKD

1.6

April 2016: China Ting Group Holdings is a garment manufacturer and also a branded fashion apparel retailer in mainland China. The company exports to the US, among other countries. Over 2015, 1.2 billion HKD non-branded products were exported to the US and over 200 million HKD to other countries. In the PRC, the company sells branded products via a retail network. It has 3 brands of its own and sells apparel under 2 licensed brands as well.

In 2014, China Ting Group Holdings lost 160 million RMB when 2 other Chinese companies defaulted on their loans: the Zhongdou Group and the Zhongdou Shopping Centre. These borrowers went bankrupt. See also the annual report over 2015.

The core business is profitable. This year, the loss can be attributed to several impairments as well: on goodwill and on a loan. Some of these impairments seem to be related to transactions with related parties. In addition, some of these impairments are on assets that have been impaired in 2014 as well.

The company is run by the Ting family with the 4 executive directors in the board. An independent non-executive director, Dr. Cheng Chi Pang, was involved in a recent accounting scandal. The Disciplinary Committee of the Hong Kong Institute of Certified Accountants reprimanded him with a penalty of 100,000 HKD plus the costs of the proceedings. According to China Ting Group Holdings' annual report, there was no allegation of fraud or dishonesty by Dr. Cheng and his accounting firm.

Three members of the Ting family together own 70.96% of the shares. They are Chairman Mr. Ting Man Yi, CEO Mr. Ting Hung Yi, and Mr. Ding Jianer. Otherwise, there are no large shareholders.

About a third of the current assets consists of inventory, and another third consists of accounts receivables.

10. Everchina International Holdings Company

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

HKG:202

6

0.233 HKD

1400 HKD

1.5

April 2015: Everchina International Holdings Company has several assets. It owns stocks, mostly in the overvalued Heilongjiang Interchina Water Treatment Company (SHA:600187). It owns real estate in the PRC and a non-operating manganese ore mine in Indonesia. The P/B ratio is about 0.32. Recently, the company bought real estate (shops) in Shanghai for 733 million HKD. This related party transaction will cause the NCAV/Market cap ratio to decrease to 1.

The executive chairman, Jiang Zhaobai, owns 28.66% of the shares. Another executive director, Shen Angang, owns 3.09% of the shares.

Everchina International Holdings Company was a pretty dilutive company until 2 years ago.

11. Bowleven PLC (OTCPK:BWLVF)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

LON:BLVN

2

0.2175 GBP

71.2 GBP

1.5

November 2015: Bowleven PLC is an oil & gas exploration and development company with assets in Cameroon, Kenya, and Zambia. In March 2015, the company farmed out the Etinde asset in Cameroon to Lukoil (OTCPK:LUKOY). The CEO, Kevin Hart, said the following about this deal in the last conference call:

We signed the deal at $110 oil we closed the deal at $54 oil which probably tells you one or two things because we did a really bad deal to start with or possibly more importantly I think LUKOIL and New Age both really liked the assets because if they didn't like the asset they had every opportunity to walk away from it and I think you will see when David touches on Etinde just worth reminding everybody why LUKOIL liked the asset and why we think it's a world-class opportunity in terms of the Intra Isongo.

The company owns still 20% of the project. Lots of work still needs to be done in this project.

At the moment (end of October 2015), Bowleven PLC has 120 million USD in cash and 80 million USD in receivables. My estimate is that NCAV is about 185 million USD, so the NCAV/Market cap ratio is 1.7. The recent announcement of a proposed dilutive deal in Tanzania for 28 million USD in cash, shares, and contingencies lowers the NCAV to 175 million USD, increases the market cap to 85 GBP, and therefore, lowers NCAV/Market cap to slightly more than 1.5 (if I have correctly understood the announcement!).

The other assets seem to be still in an early stage of exploration. During the conference call, the CEO said that during the last 9 years, the company never drilled an empty well. Directors own some shares, but not many. In August, one independent director bought some extra shares: his stake is now 0.05%. The CEO owns 1% of the company. Two investment funds hold shares as well: 5 and 10%.

December 2015: Down from 0.245 to 0.223 GBP. The company issued an operations update with favorable test results for the Bomono well in Cameroon. See also the annual report for the 12 months ending June 30, 2015.

January 2016: Down from 0.223 to 0.2 GBP. Bowleven issued again an update on the Bomono well onshore in Cameroon. The well will be developed if the company can agree with a nearby electric power generator on the price of the gas from the well.

February 2016: Bowleven went down from 0.2 to 0.192 GBP. The company announced it is not acquiring a share in 2 projects in Tanzania.

May 2016: Bowleven went up from 0.192 to 0.2175 GBP. In March, I bought a couple of shares just below 0.2 GBP. JPMorgan Asset Management reduced its stake from 10.09% to 9.9%.

Just as many other oil companies, this stock is an option on the oil price. But it is a very cheap option.

I invested in 2 other oil & gas net-nets: Otto Energy (OTC:OTTEF) and Chariot Oil & Gas (OTCPK:OIGLF). These 2 stocks went up by 50% very fast. When that happens, I usually sell. After all, what is the probability that a stock goes up a lot more when it has already gone up 50%? So in January, I sold Otto Energy after a month, and more recently, I sold Chariot Oil & Gas after 4 months.

I expected Bowleven to go up with the other 2 oil-related net-nets. So, what makes it different then? The problem with Bowleven is that the discount to NCAV decreased because of ongoing losses. See also the recent interim results.

So, as a net-net, it is expensive now. If Bowleven PLC does not go up in the next 2 years, I will sell it. In hindsight, I was right buying Otto Energy and Chariot Oil & Gas first. They had larger discounts to NCAV when I bought them.

Apart from the discount to NCAV, this stock has another statistic predicting great returns: sharply decreasing Total Assets. Most of the decrease can be attributed to a large impairment, though.

12. MFC Bancorp (NYSE:MFCB)

Ticker

Piotroski

Score

Share price

Market cap

in mlns

NCAV/

Market cap

Yield

(%)

US:MFCB

?

1.8 USD

117 USD

1.5

May 2016: MFC Bancorp is formerly known as MFC Industrial, with ticker symbol MIL. The stock is well discussed elsewhere on Seeking Alpha. See here for a recent article, for example. The company is in the business of providing services for commodities. These are not very profitable. But in the past, MFC Industrial and its predecessors also made profits trading commodity assets. Investors thought the previous CEO, Michael Smith, was a great asset allocator. But most of these profits turned out to be just on paper. In 2015, the company impaired many assets it had bought in the years before. See also the recent earnings release.

Peter Kellogg has reported to own over a third of the shares, but Clemens Scholl has pointed out he has been selling without proper disclosure. In addition, Lloyd I. Miller III is in, both at much higher prices than today.

Disclosure: I am/we are long FUAIF, BWLVF, CBYL, MSN, LUKOY, MFCB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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