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.
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.
- 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.
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.