Aberdeen is a publicly traded global investment and merchant banking company focused on small capitalization companies in the resource sector. In general, the Company’s investment philosophy is to acquire equity participation in:
- pre-IPO and/or early stage public resource companies with undeveloped and undervalued high-quality resources;
- companies in need of managerial, technical and financial resources to realize their full potential; and
- companies undervalued in foreign capital markets.
Aberdeen provides valued-added managerial and board advisory services to these companies in addition to investment capital. The Company’s strategy is to optimize the return on its investments over a 24 to 36 month investment time frame. Aberdeen also has access to key experts in the mining and financial sector who can provide further assistance in evaluating and monitoring companies and their progress. As part of its business model, Aberdeen’s officers and directors take active management, director and ownership roles in a significant percentage of companies in which Aberdeen invests.
This also gives a somewhat reasonable explanation of the presence of Stan Bharti on the board of so many companies. Aberdeen has a portfolio of various stocks, warrants and debt in resource companies, and it owns 1.2M shares of Dacha Strategic Minerals. Just like DSM the company is trading at a big discount to NAV. The company reported that NAV/share was $1.31 as of 31 October while the current share price is CA$0.57, resulting in roughly a 55% discount (NAV is $114M).
Just like Dacha Aberdeen is also buying back the maximum legal limit for the current fiscal year (so far 2.4M shares have been bought back with 5.0M shares remaining), and in addition to this they are also paying a 2 cent dividend: resulting in a 3.5 percent dividend yield at current prices. These policies show that shareholder interests are being considered. Insiders own 17% of the common stock, but there has been some insider selling this year.
The company has a large amount of warrants outstanding with a strike at CA$1.00. The company has 86.8M shares outstanding, 6.9M options and 37.5M warrants. The warrants have a strike significantly higher than the current share price, and will expire on June 6, 2012. It does limit the upside a bit in the short term, but given the strike and the expiring date it is not a big issue.
Expenses also seem not totally unreasonable at first sight. Operating, general and administration expenses for the past nine months were 3.6M while NAV was 114M, translating to a 4.2% expense ratio. That would be pretty high for a CEF, but AAB is a bit more like a real business since it is a merchant bank.
I haven’t completed my research yet, it looks promising so far, but there are some items remaining on my checklist. I do want to take a look a historical performance, take a better look at the expenses, calculate the current NAV/discount and look if there is something noteworthy with regards to insiders or related parties. What questions do you think that need to be answered?
Some old write-ups on Aberdeen can be found at FreeNPV.com