Back again for another AIM IT Project post. I am going through and valuing all the investment companies listed on the Alternative Investment Market (AIM) of the London Stock Exchange. As usual the home page of the project is here, and the spreadsheet covers the performance. Let’s get to it.

Argo Group (AIM:ARGO)

Dedicated followers of my blog may know that I already own shares of Argo Group, an asset manager that has a significant amount of its own capital invested in its funds. It has net current assets of £16.7m yet a market cap of £9.5m. The shares also trade at a dividend yield of 10% yet it still manages to keep its book value stable, or even grow it each year because the investment management fees it earns from its client funds cover the dividends.

2008 2009 2010 2011 2012 H1 2013 Book per diluted share 0.53 0.58 0.59 0.57 0.38* 0.38 Adjusted Book per share 0.53 0.58 0.59 0.57 0.59 0.59

*Goodwill impairment of $14.9m, all book value now tangible / adjusted excludes impairment

This stability in NAV isn’t driven by stellar performance of their funds either. Take a look at recent performance, most of Argo’s own money is in the Argo Fund.

Whilst I am content to hold a share paying 10% dividends with no end in sight, and backed up by equity, I still feel it would be beneficial for shareholders if the company instituted a large share tender offer below book value. In theory it could withdraw £10m from its own fund, and buyback almost all its own share capital. Unfortunately given limited liquidity of shares and despite shareholder pressure that doesn’t look likely to happen. Neither does a return of capital. I’ll value this at NAV yet it could be worth more as the net assets are surplus to a profitable operating business. But also note there is a problem with realising its fees from the real estate fund, not easy to sell 1% of a building to collect your dues.

Share price: 13.8p

NAV per diluted share: 23.2p

Valuation: 23.2p

Upside: 68%

International Mining & Infrastructure (AIM:IMIC)

One company has suddenly popped up among the lowest Price/Book stocks (only 16% apparently) in my list, and that probably has something to do with its latest interim’s being recently released and a big debt being converted to equity. It was previously know as India Star Energy (in case you didn’t notice, AIM investments co’s love changing their name, probably so its harder to track their performance). In 2013 the chairman was “delighted” to present record results – losses of £6.1m, over 4 times those seen in previous years. If that makes the chairman delighted, I wonder what he’d say if the group actually recorded some revenue!? Or maybe he’s delighted with his £225k salary…for doing naff all.

IMIC owns just one junior Iron Ore company, Afferro. Its main strategy “contrasts with that of other companies focused on Africa” (apparently) in that its starting point is recognition of the importance of infrastructure in the monetisation of African iron ore reserves. This infrastructure is expensive, typically costing several billion dollars, and is therefore the primary barrier to the growth of the iron ore industry in Africa (I wonder why more companies haven’t been falling over themselves to get into this…). IMIC is creating a solution for the delivery of this infrastructure, which may pay off in the long term if they control valuable infrastructure assets, but at what cost to shareholders now?

IMIC has no revenue and operating costs of £2.4m. They recently underwent a big equity raising so probably wont need to do another this year. Its recently acquired subsidiary may have some value but could easily have none. I’m going to value this at net current assets, which is substantially negative – the company’s worthless.

Share price: 29.5p

NAV per diluted share: 44.8p

Valuation: 0p

Upside: (100%)

Emblaze (LSE:BLZ)

A commenter asked about Emblaze Group (LSE:BLZ) a couple of weeks ago, and although its not listed on AIM anymore, I thought I may as well cover it in here as it is essentially an investment company.

Emblaze is an Israeli holding company with quite a complicated little set up whereby it owns a controlling interest in Formula Systems (NASDAQ:FORTY) which in turn owns stakes in three other listed companies. The earnings of these companies are consolidated in Emblaze’s accounts so there isn’t much need to go digging into them. They make substantial operating losses of $3.5m each year and the company as a whole only makes a profit because of VAT rebates from HMRC in the UK. But what it does have is net cash and short term investments of $143m versus a market cap of $91m. May seem like a good Graham style investment then, however the plot thickens…

On 3rd March the company announced a major acquisition and asked for its shares to be suspended. It will buy a controlling interest in G.Willi Food Corp (NASDAQ:WILC) for $76.6m via a holding company in Israel (buying 60% of the holding co, which controls 58% of WILC). It has paid a pretty hefty price equivalent to about $17 a share of WILC – its shares traded on the NASDAQ at around $8 at the time. So a huge premium for control of the company, and more importantly Emblaze’s net cash is now below its market cap so it is no longer a Graham style net net. In fact that $76.6m, if now valued at the NASDAQ quote has more than halved.

Let’s say the control is worth an extra 30% over NASDAQ price, so the fair value of its cash and quoted assets is now more in the region of $115m. Considering the operating company is losing $3.5m pre tax I think a value of $110m is fair.

Share price: 44p

NAV per diluted share: 98.8p

Valuation: 47.4p

Upside: 8%

I would honestly rather own shares of G Willi Foods directly than Emblaze given the big discount they are trading at in comparison. I may do a separate post on WILC in the future.

Disclosure: ARGO – long / IMIC, BLZ – no position