Ok - here is a "why" question, that doesn't have a specific answer. It concerns Buildmax - BDM - to use an example. But you can apply it to others as well. My question isnt around whether I should buy or sell. but rather how the market values a company.
At current price around 18 cents, BDM has a market cap of around 30 mill. In their last set of financials, their tangible NAV is around 247 per share. So TNAV with just over 181 million shares in issue gives a cap of around 447 million.
This raises my value question.
Is the business model so bad, that any semi-wealthy joe soap could afford the entire company (buying on market)? Or is the market missing something. At what point, in a rubbish share's life, might it turn - or will it continue its slide to 0. Will the market start buying a share like BDM again?
BDM is now worth half the market cap of what it was worth, when I first bought a tranche in about 2004. It had a cap of around 60mill, then.
Surely this has to be the contender for current dog of the JSE.
After 7 years of hope I finally sold my position in BDM.
not sure I would trust Standard Bank's NAV calculations IMO. BDM's biggest current asset is trade receivable - biggest current liability ? Trade payable. The latter being bigger than the former. So debt takes out the current assets easily. So what else makes up the NAV? Well, the value of the fixed assets - but here the trick is to find out if the depreciated value is actually reflecting the real value of the asset. Since the bulk of it is revenue generating mining equipment - only way to know for sure if there is value there is to analyze this kit. And then, you would want to know when the company would be liquidated (only way forward in a value play) - because each year of losses and depreciation = reduction in value of the capital equipment plus increased working capital financing - so the longer they keep burning cash, the faster your value play will deteriorate. As I mentioned in a previous post, the only people who can really capitalize on this type of investment strategy are the types that can buy enough to shut it down and chop it up into parts. You and I will only ever be bottom of the pecking order spectators in a scenario like that.
She employs nearly 2000 noble workers. Her clients are the mines - mainly south African coal mines as I recall- and they are in dire straits. She has no cash. She has over R170 million of overdraft. She is not generating any cash worth mentioning. The question to ask is: "What are her assets worth upon liquidation?" Then allow for the costs of the liquidation. I would suggest that a lot of ageing yellow metal is worth pennies in the rand. The market is pricing her for failure.
I feel for you. The worst thing about these microcaps is that they turn and fly away with absolutely no notice.. Since you ARE Mr. Market - you will usually have capitulated and sold at the bottom. Alternatively- you will capture a nice little bounce (after sitting still for years) - just to see the share take off into the stratosphere. Some advice:- (a) Dont' look back; (b) Force yourself to buy a variety of small caps no matter how much you may think you are onto THE winner; (c) Avoid South African labour. If its any consolation - BRAIT got this one badly wrong too. T
My position was so small it was irrelevant. And the loss can be written off against my other gains, so at least I get something. Yes, I wonder if the Brait Directors are worried a touch - although whats a couple of hundred mill in value lost to Brait - pocket change. I like small caps and have done well with others.