Thursday, September 11, 2008

Value In Action: Trimin Capital Corp.

Reading through some 2005 annual reports I came across the company Trimin Capital Corp. The company is a management company that makes investments in operating businesses and strives to bring shareholder value through its corporate management and by identifying strong operating businesses and management for investment. The price of the stock in April 2006 was $2.60/sh and it had a market cap of $41.6M. I chose the price in April 2006 to allow a few months for the December 2005 annual report to be readily available in public hands.

The company has a very easy to understand balance sheet and has the least amount of liabilities I have ever come across in an annual report. The only reported liability item is the combined line item of accounts payable and accrued liabilities! The significant assets and liabilities (there is no off-balance sheet operating lease) from the 2005 annual report are as follows:
If you include the impact of outstanding stock options (I used the Black Scholes method) the net asset value per share drops a bit to $3.25/sh. Long term investments is a significant portion of the valuation and requires some analysis. Looking through the notes to financial statements reveals that the long term investment of $22.23M is made up primarily of Trimin's proportionate share of three operating companies, namely, Snack Alliance, TravelCLICK and IPC. The notes regarding long term investments seem clear and straightforward.

After doing the appropriate diligence, if you come to accept management's assumptions, the fair value per share for Trimin Capital Corp. is $3.25, but the market was offering it up at $2.60/sh on April 2006. Apparently management believed in their numbers because James Meekison, the chairman, president and CEO bought the remainder of the company and took it private in early 2007.

Value investors doing the same simple analysis as I have shown would have been happy to own the stock at $2.60/sh on April 2006, since Meekison bought all the outstanding shares for a price of $3.25/sh in Jan 2007 representing a 20% gain in 8 months. I must admit, I found the purchase price and my quick valuation calculation quite encouraging!

This example demonstrates how effective balance sheet analysis can be. Reading annual reports including all the notes and doing company valuations is a great way to identify value plays in the public stock markets.

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