Tejoori (TJI.LON) – Liquidation – 66% upside

Current Price – $0.384

Expected NAV – $0.63

Upside – 60%

Expiration Date – TBD (expected in H1 2017)

This is a microcap opportunity in London AIM Market. Tejoori has sold all of its assets and currently stands as a cash shell.  Management announced intention to distribute part of the proceeds to shareholders. Currently TJI trades at 40% discount to cash on hand and this gap is expected to close once the distribution is announced.

LSE Filling

 

Background

Teejori Limited is Sharia compliant investment company. Following the recently announced asset divestitures it will be a cash-shell selling at deep discount relative to cash on hand.

On the 5th of Jan, 2017 Tejoori announced that it has agreed to sell the last remaining land plot for net cash proceeds of $5.7m. This finalizes the sale of investment properties (3 land plots in Arjan, Dubai + Bekon business) that so far have netted $10m cash proceeds in 2016. Latest sale will lift this figure to $15.7m.

At the same time management communicated a number of times that:

“The company intends to return to shareholders a certain portion of the cash generated from the sale of the plots undertaken to date and intends to finalize these details following the sale of the third Arjan Plot”.

Any announcement with regards to distributions might be imminent.

 

Net Asset Value

As of June 2016 (latest available financials), Teejori book value stands at $16.7m or $0.6/ per share. I make the following adjustment to estimate BV following all divestitures:

+ Add cash from sale of two land plots – $3.57m + $5.7m = $9.27

+ Add cash generated by Wakala deposits (something similar to bonds) at 5% per annum = $0.055m in 6 months

- Deduct BV of Investment properties as these have been sold -$6.6m

- Deduct operating expenses for 1 year -$0.2m (over the last two years OpEx was $0.17 and $0.18m)

- Deduct the whole of receivable as it is unlikely to be turned into cash -$1.7m. TJI already credited $2m against this receivable after the first land lot sale, so would expect the same to happen with the latest sales, potentially fully eliminating the receivable.

With these adjustments I arrive at BV of $17.5m or $0.63 per share, which is 66% above current market price of $0.38.

Even if I deduct the whole of $2.2m of Wakala deposits (extremely conservative, management expects these deposit to be fully recoverable), NAV per share still stands at $0.55 or 45% above current price.

 

Risks

- Sale of the last land plot might not close – so far only MOU has been signed and no cash has been received. However, successful closure of the two previous land plot sales gives confidence. The second plot took two months to fully close. Also from the perspective of price per square foot, the latest sale is the cheapest of the three – so even if this sale does not close there should be other buyers at similar prices.

- It is not clear yet what part of cash will be distributed to shareholders. My guess is that this will be a significant portion (>50%). Directors own combined 16% of stock (valued at $2.8m at estimated BV) and their combined remuneration is only $30k year. So the right incentives are clearly in place.

- Undistributed cash might be re-invested in some other projects – management has not communicated anything with regards to strategy going forward (review seems to be ongoing). Over the last few years management has served in the interest of shareholders well – operating expenses have been reduced and available cash was not wasted in some questionable projects. My expectation is that Teejori will be fully liquidated eventually, but that might take some time depending on liquidity/contractual agreements on Wakala deposits.

- Delisting from LSE AIM – management put out a note that delisting considerations are part of the ongoing review. While I do not mind holding a delisted company that is being liquidated, I am not as keen on having a delisted operating business in my portfolio. Any announcement of delisting in absence of full liquidation might put a pressure on share price.

- There might be some tax liabilities relating to 3 land lot sales. These properties were acquired for $13.5m consideration in 2012 and net sale proceeds will be $15.7m, thus a potential profit of $2.2m. Company has accumulated substantial losses over the previous years, so my guess is that this profit should be more than covered.

 

Bottom Line

TJI trades at huge discount to cash on hand and the main reasons for this seems to be lack of investor awareness or ability to invest (size, liquidity and traded through UK brokers only). Management has already communicated willingness to distribute cash to shareholders and have incentives to carry this out. Downside is well protected and at the moment I can not think of any other ways to loose my capital here, besides management taking 180 degree turn and deciding to invest the whole cash balance into questionable new projects.

I am expecting announcement on distributions over the next few months.

13 COMMENTS

  1. Joe Hill

    Forgive me if this is a dense question, but how should I go about getting a local UK brokerage account? Thanks!

    1. dt

      Well, I had mine from earlier years when I used to work there – so my only real advice would be to physically travel to UK and open one. This idea is more targeted to those already based in UK.

      Having said that, there might be some other alternatives:
      - UK brokers that would allow foreigners to open account online;
      - Or US brokerages that allow trading on AIM non-electronic book.
      But I am not able to give you any names in particular.

  2. Iljaas Abdoella

    Hi thanks for this idea. I think the operative word here is “certain portion”. For me that means 100pct no liquidation – and a big risk of rollover in other projects.

    1. dt

      Certainly a risk here and you might be proven correct. However, I believe that even small distribution will lift up the share price.

      Let’s conservatively assume that only 20% of NAV is distributed, which is equivalent to $3.5m or $0.13/share. Shares currently trade at 40% discount to NAV. Ex distribution NAV would be $0.5 and share price at $0.25 – the discount increases to 50%. Do not think that kind of discount for cash-shell is appropriate.

      Also you have to take into account the fact that management was sitting on a large pile of cash for the last couple years and so far managed to preserve it instead of putting it into some questionable projects. Management’s actions so far point towards liquidation or at least material (>50%) distribution.

      But I fully agree with you on the wording of the statement – certainly keeps all the roads open.

  3. dt

    Tejoori published interim results. Pro-forma for the sale of the last land slot, NAV per share still stands at $0.63/share vs. $0.34 share price. Thus upside is even larger than when I posted this idea.

    Few take-aways from the report:
    - Cash burn from admin expenses is likely to be minimal going forward. During the H2 2016 admin expenses were only $167k and the biggest part of that ($156k) was for professional and legal fees, which I assume related to the sale of the land plots.
    - A further portion of cash was invested in Wakala deposits. Company does not disclosed the counter-parties for these deposits and therefore it is not possible to assess the credit risk, or likelihood of the fraud.
    - I was correct to exclude receivables from the NAV calculation as further portion of these was credited against land slot sale proceeds.
    - In previous annual report it was indicated that Wakala deposits carry 5% interest rate. The interim report now says that Wakala deposits earn only 2.5% p.a. No explanation is provided for the change.
    - Most importantly, no real update on return of cash to shareholders yet. However, management says they are progressing on the matter.

    “As previously announced the Company intends to return to shareholders a certain proportion of the cash generated from the sale of the Arjan Plots and is considering, in conjunction with its advisers, the most effective and efficient manner in which to return to cash to shareholders. As part of this exercise the Company is also continuing to evaluate the merits of remaining on AIM. Further updates will be made by the Company at the appropriate time.”

  4. Scott Lee

    Has anyone contacted management to clarify this issue? How many shareholders are in this thread?

    IMO it is very hard to say what happens from here but it seems according the AIM rules, the company has to notify or ask for shareholder approval if they are to make any acquisitions from hereon. The rules also say that the company has to delist within 6-12 months time if nothing is done.

    Given this dynamic, i think it will be interesting to take watch what happens.

  5. Scott Lee

    All, for anyone who’s interested. I am soliciting votes to put forward a resolution to get management to return capital to shareholder.

    Please kindly fill in the form if you hold shares in the company. The link is at: https://goo.gl/forms/9ILC79JwsIKv6i1I2

    Thereafter, i will circulate updates whenever there is some progress.

    Thank you.

    1. dt

      Great initiative. It has already been 5 months since the sale of the last plot has been completed, but no news from management on the distribution.
      Not sure how much of an effect can activism have on the AIM market – e.g. minority shareholder pressure on Argo Group has not really produced the expected results and management still behaved the way they wanted.

  6. dt

    Tejoori is finally liquidating and returning cash to shareholders. Per share cash value is unchanged at $0.63 (assuming zero liabilities and minimal liquidation costs – actual liquidation value will probably end up slightly lower).

    “Tejoori Ltd said on Tuesday it will propose the cancellation of its shares on AIM to shareholders at a general meeting on November 22.

    Shares in the Shari’a-compliant investment company were up 1.0% at 0.399 pence on Tuesday.

    Tejoori has been realising its current existing portfolio for the last twelve months, selling its last plot of land in Arjan in February. The company’s current sole asset is a cash balance of AED64.7 million, or USD17.6 million at the prevailing exchange rate.

    Therefore, Tejoori stated that cancelling shares on AIM is the most effective method to return cash to shareholders, however the resolution requires no less than 75% shareholder approval at the meeting to go forward.

    If passed, share cancellation is expected to take effect on December 6.”

    http://www.londonstockexchange.com/exchange/news/alliance-news/detail/1510069464532122600.html

  7. Vincent

    I’m a bit worried about how to receive the money after cancellation of the shares on the exchange. They say the CREST facility will be cancelled, so I am not expecting the money to be deposited automatically into my broker’s account. Does anyone here have experience with this kind of situation, or an idea of how the money will be distributed?

  8. dt

    Delisting has been approved and TJI shares will be delisted on 6th of Dec.
    http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TJI/13441006.html

    Aside from the question on how liquidating distributions will reach current shareholders, there is also a risk that management screws everyone after delisting. Another meeting will need to be arranged to vote for liquidation and so far no timeline has been indicated. It is strange and suspicious that the vote on liquidation was not coupled together with the vote on delisting.

    What gives a bit of assurance is that 67% of shareholders voted for delisting (management owns only 16%) which kind of indicates relatively active shareholder base. This might be quite helpful if management drags the liquidation procedure too long.

  9. Juan

    Was any one successful in opening a UK brokerage account for this trade? Preliminary search suggests that for US residents opening a local UK account is particularly difficult.

    1. dt

      I still had an account from the time I was staying in UK, so not able to advice how hard it would be for US residents to get access.

      In any case the shares have already been delisted so there are no more possibilities to acquire the position. Now we just need management to carry out on its promises to liquidate the company and distribute the proceeds.

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