Will be interesting to see, for once our views are very divergent, i found the risk to be overwhelming with little chance of reward.
Does that really seem plausible to you? That these investors would sell an asset for less than the cash at bank, on 2x earnings and with an implied dividend yield of 10-15% just because they couldn't possibly wait any longer to get out? IMO, that takes a fairly large leap of faith.
Have you worked out how long have these minority owners been holding?
Does that really make sense?
P.S. CFO just resigned. Ooops.
Not that I want to start second guessing things, but "personal circumstances" I call BS. He's 28 and has been given a pretty plum job of being CFO of a, albeit, small publically listed company when his only real experience was in audit and assurance (employed by SBB's auditor no less).
Even more hilarious is he will stay with the company until the 4th of August to "assist with the transition". Is there some sort of all night supermarket that sells CFOs?
Thanks everyone for your feedback on SBB. A big thank you in particular to McLovin and skc, your previous posts on the company have been extremely helpful.
And I have to say that I fully agree with everything you say, the odds of losing money is very high here. What I disagree with is a risk/reward ratio. SKC proposed 3/1. That would mean that as long as the company has greater than 33% chance of being legitimate, the odds are good. Plus margin of safety, of course.
A very good point that this only works when investing in a group of such companies - but that's exactly what I'm doing. Most of my portfolio is in stocks that are depressed for various reasons and I expect a high failure rate. Because I buy companies at such low prices, all of them have very good reasons for concern and most times I have to close my eyes to them and trust in the average outcome.
Keep in mind that my approach is different from most - I don't really pick individual companies. I invest in all the ones that meet my criteria, but I allow for manual overrides for situations where a fully automated strategy may lead me into trouble. SBB fits perfectly well in my buying criteria. And so, I ask myself - is this a situation where a manual override is necessary?
There are 3 things that are concerns with this stock:
1. Minority holders selling out at any price.
2. CFO resigning.
3. A bunch of small things that essentially add up to - It's Chinese, and there been frauds with Chinese companies before.
All 3 are warnings flags, but none add up to odds of 67% looking at hard data. That's where my manual override analysis stops - it's there to prevent overloading risk and obvious traps, nothing else.
The 3 things listed above happen all the time, and ideally I would have statistics from previous cases so that I could calculate odds properly. I don't, but I am confident the odds are in my favour.
While not part of my decision, for the discussions sake, I will go on further, in reverse order:
3 - yes, there's been Chinese companies committing fraud. I haven't seen anything that definitely proves it. Almost any company can be made to look suspicious with enough effort and I haven't seen anything beyond that. Assigning a base rate risk to it makes sense, I don't know what it is, but I suspect it is less than 10%. This is a standalone risk, however. 1, 2 and this should not be treated together - it doesn't make other factors more suspicious, as this company will always be Chinese. 1 & 2 together are more alarming than on their own, but not 3.
2. Happens all the time. Often followed by profit downgrades/writedowns. Occasionally by bankrupties. Most of the time, it's just a person moving on to another job.
1. Happens as well, but not often in these quantities and for an illiquid stock. There's many explanations, good and bad. I won't try to guess which one, but I will tell a tale of a friend of mine. He owns a private company, incidentally deals a lot with China. Very profitable. He wanted to sell it for a very long time, but finding buyers is difficult. He recently sold a small percentage of it (<10%) to another private investor, at a price roughly equals to a PE of 2. There was no market for his shares and he wanted/needed the money. He could either sell at that price or wait two years, but he made this "illogical" decision, because he had no choice.
His company is a little smaller than SBB and he spent the last 4 years trying to take it public on a major stock exchange. A major one, because he would likely get a higher valuation on it. Certain rules and regulations and his company's individual circumstances has made it a very long process. I am sure that once he lists, he would be happy to sell out at a very cheap price quickly, because he is sick and tired of doing the same thing for the last 20 years.
While this is obviously not the same scenario with SBB, it rhymes. So in my mind, I can very well see a scenario where holders sell out at such prices.
I don't think it is possible to fully trace who the real owners/benefitors of the minority holders are. SKC, did you find something? Looking forward to your upcoming post.