Tuesday, September 30, 2014

Aberdeen Is Asking For It

Aberdeen International (AAB) trades at half of book value. You can't blame investors, as the company's capital allocation history has been approximately horrendous. But the company recently agreed to sell what looks like the vast majority of its assets. Could this be an investment opportunity?

The company has seen its book value fall from $136 million in 2011 to just $34 million at last check. This is a return of -33% *per year*, which is a feat that is likely difficult to accomplish even if you were *trying* to lose to the market.

Fortunately for management, they have made out like bandits. A number of executives have averaged annual compensation of over $1 million over this period while holding a minimal number of shares. Because few people are left with any confidence in the firm, the company trades today for just $14 million.

The company's assets are made up of junior and private mining companies, so it's hard to be sure that they are even worth what the company says they are worth. But in a recent news release, the company announced that it would be selling $29 million of its assets. That means it will have cash net of liabilities of at least $28 million soon, while trading for just $14 million.

Unfortunately, "Aberdeen intends to use substantially all of the net proceeds from the sale of the Assets for future investments in pre-IPO and/or public resource companies with undervalued high quality resources, in keeping with the current business model of Aberdeen," because the strategy is obviously working so well! As such, passive investors may want to avoid this heap. However, this situation may be ripe for an activist of the right size. Someone who is able to take control of this company would stand to make some coin, and do something good for society.

Disclosure: No position

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