Analyzing Bargain Stocks

Most investors have low tolerance for deficiencies in corporate governance. Ferrexpo is a classic case of an excellent business soiled by corporate governance issues. The company is the world’s third largest iron ore pellet manufacturer and supplier to the steel industry with an 8% market share. Its assets are in Ukraine and listed on the main board of the LSE. Its iron ore reserves would last another 55 years at the current rate of production. The controlling shareholder appeared to be close to the previous political regime in Ukraine. He is now subject to several investigations into his businesses even resulting in a Ukrainian court ordered freeze of the company’s 50.3% stake in a subsidiary. This only prohibits transfer of the shares and doesn’t affect the operations of the business. Such are the political risks associated with Ferrexpo.   Prior to this, the company’s troubles began with the discovery of questionable donations of $120m to a Ukrainian charity named ‘B

The opioid crisis in the US claimed many lives and the US government went after pharmaceutical companies manufacturing drugs for opioid recovery with a vengeance. Indivior, an LSE listed company, was one of them. It manufactures buprenorphine-based prescription drugs for opioid dependency and related mental disorders. The US Department of Justice (DoJ) is suing the company for $3bn in damages, which would more than wipe out the equity of the company. Its current net worth, adding back provisions of $438m for the case, stands under a mere $650m as at December 31 st , 2019. Further, its blockbuster drug ‘SUBOXONE’ went off patent in February 2019, which spawned generics competition, and was the main reason for decline in revenues from US$ 1bn to $785m in 2019. Operating profits before taxes fell from $292m to $178m. Management has indicated further revenue losses in 2020 to US$ 525-585m with losses of $20m to $50m – primarily to grow market share for its two recently approv

The UK construction industry has taken several blows in the recent past – once Brexit uncertainties were beginning to lift, it has to deal with a pandemic. Costain plc is a UK-focused technology-based construction company serving the transportation and natural resources segments. It has an illustrious history of UK construction and serves primarily large customers. 2019 was a sub-normal year for the company owing to contract delays, cancellations, adverse arbitration judgments and other one-off factors. Previous to that, it generated pre-tax profits of around GBP 40m. Operating cash flows were adversely affected recently due to prompt payments to suppliers required by UK regulations. Other cash flow squeezes by customers requiring greater financial strength from their contractors - partly as a result of recent failures of other large contracting firms (e.g. Carillion) – has prompted the company to propose a rights issue of GBP 100m, which is fully underwritten by bankers and

The House always Wins. Plus500 offers online trading services for ‘Contracts for Difference’, which are essentially bets between two parties on the value of an underlying. It’s listed on the main board of the London Stock Exchange. They offer contracts on 2,800 underlying financial instruments (including cryptocurrencies) across eight developed market regulatory jurisdictions excluding the US. As the broker, high trading volumes and high volatility (that attracts speculators) are good for business. It appears to hold a strong competitive position in transparent regulatory regimes, which bodes well for the stability of future earnings. It’s a rare business that thrives in a pandemic, and all indications are that Plus500 is having a better year in 2020 than 2019. The company’s revenues declined substantially from 2018 to 2019 as a result of EU regulations crimping its operations. It lost 34% of its active customers and 25% of average revenue per user (ARPU). 2019 was th

Hydrocarbon assets in a geo-political warzone isn’t high on desirability – especially one that doesn’t pay dividends. Regal Petroleum plc owns licenses to operate in three gas fields in eastern Ukraine – the MEX-GOL, SV, and VAS fields. Together there are over 60m barrels of oil equivalent (MMboe) in proven and probable (2p) reserves lasting until 2038 at least. The company is AIM listed and there’s less than 10% public float. It generated profits before taxes of GBP 17m in the recent past (with equivalent cash flows) and sells for a paltry valuation of GBP 49m at recent prices of 15.3p per share. This amounts to less than the net current asset value per share (a proxy for liquidation value) – mostly comprised of cash of GBP 53m. Half of the substantial cash balance is held in Ukraine currency, which is subject to substantial devaluation. The balance, however, is held in US$ in British banks. The current valuation doesn’t count the substantial oil and gas production asset

Gold is certainly glittering. The shiny metal hasn’t seen as much speculative interest since 2011. Trans Siberian Gold digs out the gold (along with silver - though it accounts for only 3% of revenues) from the Asacha deposit in Eastern Russia with a license to operate to 2024 (extendable). In 2019, it obtained a 20-year license to mine the nearby Rodnikova deposit for $3m. Measured, incurred, and inferred gold reserves for the Asacha deposit are over 553,000 ounces. Estimated reserves for the Rodnikova deposit are over 1m ounces. Current production runs at about 45,000 ounces (with cash costs of $672 per ounce per the latest interim report). If the estimates prove out, there’s over 30 years of gold to be mined. The real value to investors, however, would come from management’s ability to acquire further mines at reasonable (or cheap) prices. The company is listed on the London AIM exchange at sells for GBP 53.6m or 60.5p per share. The current market capitalization is back

The construction industry is notoriously cyclical, and isn't exactly helped by a pandemic. Titon plc is an AIM listed manufacturer of ventilation systems. It derives 74% of its sales of GBP 27m from old-fashioned trickle ventilation systems and the balance from newer mechanical ventilation systems. The company serves the UK (55% of sales) and Korean markets (30% of sales) along with the EU and US. It holds a dominant 75% share of the Korean market in trickle ventilation systems and this is reflected in a 14% pre-tax margin in Korea versus under 6% in the UK. The company holds 51% in its Korean subsidiary and a 49% stake in its primary distributor there. Management reported a decline in sales in the year ended September 30 th , 2019 and the business has faced headwinds ever since. The Korean market is challenged by government policies to restrict lending and construction activity. In addition, higher pollution levels are raising demand for mechanical ventilation systems. T