Sunday, August 8, 2010

Value in India Equities Fund shell company

I've always taken an interest in companies that are more or less an asx listed shell awaiting a further direction.  The majority of the time these companies eventuate because the company has recently gone into administration and possibly a deed of company arrangement has been executed with the company to back door list a new resources project or a complete a change in focus.  Other times a company has been underperforming and so the company is sold off leaving a shell with a bit of cash to buy into some hot new project.  I love this scenario because there is a few catalysts for share price appreciation and these include speculation as to what the new focus will be followed by an announcement that determines what new project or company that is acquired.  If the project is a good one there's a high chance that the share price will continue to rally too.

So what is a shell worth?  I would usually say about $3 to $4 million.  The reason for this is because the costs involved in listing a company on the ASX dont come cheaply.  I think that India Equities Fund (INE) is an interesting one.  The company recently sold down it's portfolio of Indian shares in order to find some value and complete a capital return to shareholders.  I would recommend taking a look at the announcement made to the ASX on 30/07/2010 by the company that details this information.  In summary the company has just over $80 million in cash, will be paying out 90% of that leaving about $8 million.  To wind the company down will cost another $2 - $3 million leaving the value of the company at about $5 - $6 million.  The last traded price at $0.047 gives the company a market cap of $6 million.  If management play their cards right and use the shell effectively we could potentially see a $0.07 - $0.08 share price.

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