Advent Wireless (CVE:AWI) $1.93

Advent Wireless is a small company that operates as a wireless retailer. It operates stores selling phones and plans for Rogers and its Fido subsidiary. With $13 million of net excess cash and a $23 million market capitalization, the company is selling at an enterprise value of $10 million. And with TTM (trailing twelve months) net earnings of  $1.6 million, you're buying the operating business for a 6x effective price to earnings.

The biggest risk to the company is that all 24 of their retail locations are dealers for Rogers and its subsidiary, so a loss of that dealer contract would functionally require the shutdown of the company, or at least a severe dislocation while they revamp to sell phones for a different carrier, or as a multi-line dealer. The Rogers contract expires in May 2014, and I would expect it to be renewed due to the fierce competition among Canadian telecoms for new subscribers and the distribution used to acquire them. The bigger risk is that Roger's squeezes Advent's margins by reducing commissions paid for plan sign ups. This risk is difficult to quantify. I would comment that the company's locations in a number of Asian specialty malls and ability to market to Asian centric populations gives it a competitive edge in certain areas of Toronto and Vancouver, and Rogers may want to keep this edge.

The company also has some downside protection from owned real estate. It has 24 stores, and only 20 leases, implying the remaining 4 stores are in owned commercial space. The have land and buildings on their balance sheet, and at the end of 2011 the depreciated cost was $1.8 million. Although I don't know the acquisition date of these stores, I'd be comfortable valuing them at their depreciated 2011 values in a liquidation scenario. The copmany is also purchasing commercial bays in both Vancouver and Toronto to move 2 of its stores into owned space in the near future. This transition to owned real estate will lower their expenses and provides some downside protection.

The company's stock is very illiquid. Although it currently trades at $1.93, volume is very low. I purchased my position (partial fill only) for $1.75, and still have a limit order outstanding. At that price the business is being purchased at more like 5x earnings, for additional safety. While the company has some downside risk if Roger's screws them, I think its more likely that they continue earning strong profits for some time, in which case the valuation at current prices in undeniable.

Disclosure: Long AWI

Disclaimer: The content contained in this blog represents only the opinions of its author. I may hold long or short positions in securities mentioned in the blog, and no updates to the disclosure above will be made. I may buy or sell securities at any time. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author

New Topic: Book Reviews

For those using a reader to access the blog, you may not have noticed the new section at the top of the home page. I'm going to start reviewing books on an irregular basis. (IE. whenever I read something I think is worth sharing). The first review is here.

Pure Industrial REIT (TSE:AAR.UN) $4.26

Pure Industrial REIT is a Canadian REIT with a 7% yield, a reasonable payout ratio, and long term leases/fixed rate debt. It's a conservative income play, which isn't my usual fare on this blog, but it is something I own personally. I wrote it up on Seeking Alpha, and the article will be permanently available at: http://seekingalpha.com/article/1746802-pure-industrial-reit-safety-at-7-yield

King George Financial (CVE:KGF) $0.375

King George Financial is a micro cap company based in Vancouver. The company's primary business is real estate development. The company has a market capitalization of $14.8 million at its current share price of $0.375, and cash and cash equivalents of $23.4 million as of its last financial statement. That makes it a net-net trading at 63% of net cash as of the date on the financials.

The company reported two events subsequent to these financial statements that reduce this cash balance, as the company invested approximately $6.75 million in joint ventures to develop real estate in Singapore and Malaysia. The company has previously had success with real estate companies in Malaysia, so management is credible on this issue. Cash pro-forma for these acquisitions will still exceed the companies market cap.

The company also has $4 million of assets on its balance sheet for real estate under development. These assets are land in Surrey, British Columbia. One parcel is approved for development into high rise condominiums, and the other is in the zoning application stage. These land assets have upside value, and the company has the cash resources to participate in the development if they view it to be prudent. The company had one of these land ventures on the books in 1999, so significant appreciation above book value is possible.

The company is extremely illiquid, which can be considered a risk factor. In fact, when I put in a buy order, there was no "ask" price listed on the exchange. It took about a week for my limit order to fill. This is a situation that requires, limit orders, patience, and not investing money you might need on short notice.

Disclosure: Long KGF

Disclaimer: The content contained in this blog represents only the opinions of its author. I may hold long or short positions in securities mentioned in the blog, and no updates to the disclosure above will be made. I may buy or sell securities at any time. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author

PhosCan Resources TSX:FOS $0.28

PhosCan resources is a development stage mining company with a Phosphate project in Ontario. The company has $58 million in net cash on their balance sheet, and they've suspended operations on developing their project, so cash burn is very low. At the current price of $0.28, the market capitalization is $45 million, so the company is trading at only 77% of its net cash asset value. (NCAV).

The company's mining project is something I generally consider myself unqualified to evaluate, but they have built some infrastructure into the area, and the nearby Agrium phosphate mine closed this year as it reached the end of its mine life. Agrium has experience in mining phosphate in the area and might be a potential acquirer for a FOS' similar resource. Agrium has a contract with a company from Morocco to purchase phosphate until 2020, and would likely be able to build this mine in that timeframe to avoid disruptions to its fertilizer manufacturing operations. That adds potential upside, although I still believe the primary reason to buy shares in the company is the chance to buy $1.00 for 77 cents.

Disclosure: Long FOS

Disclaimer: The content contained in this blog represents only the opinions of its author. I may hold long or short positions in securities mentioned in the blog, and no updates to the disclosure above will be made. I may buy or sell securities at any time. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. Read that last line again. Also, this blog is not a solicitation of business. The content herein is intended solely for the entertainment of the reader and the author