Small Cap Value Report (18 Feb 2015) - NBU, MPAY

18th Feb '15 by Paul Scott

26 comments 14615 reads

Good morning! It's very quiet for news again today. Although the floodgates are about to open next week, as we start to get the 31 Dec year end results coming through.

Naibu Global International Co (LON:NBU)

(shares suspended since 9 Jan 2015)

Update - there's never really been any doubt in my mind about the likely outcome with this small Chinese company which listed on AIM. For starters, there was no logical reason why it needed to list on AIM at all - why would a profitable company, with plenty of cash, which operated on the other side of the world, need to list its shares in London?

Also, there was wave after wave of selling from insiders - numerous large blocks of shares were dumped on the market in secondary placings, at below the prevailing market price, irrespective of how irrationally low the valuation got. Again, a massive warning sign that things are not what they seem.

The answer seems to have been that the company realised that listing its shares in London would be a good way to extract money from gullible investors. The truth is, if you buy shares in a Chinese company, you don't really know what you're getting at all. You are just getting a piece of paper (or electronic equivalent) which purports to show that you own part of a business in China that you have never seen, and can't even be sure exists at all.

Anyway, after today's announcement I suggest that shareholders get their Naibu share certificates framed, and put them on the loo wall as a reminder not to be so gullible in future.

As for shares in any other UK-listed Chinese companies, my stance is totally clear - I would dump the lot. You can't rely on the accounts, you can't rely on management, and one should be highly suspicious of why these companies came to list in the UK. All too often I'm afraid the reason is far from honourable. Maybe there are some legit Chinese companies in the UK market, but how on earth do you identify which ones are, and which ones aren't? And why take the risk at all?

This statement today makes it abundantly clear that the game is up;

I had a lot of abuse thrown at me due to my consistently bearish view on this …

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Paul Scott

18th Feb '15

Beginner,

Well said! Whenever you challenge companies like Naibu, the bulls always counter with things like this (with my responses in brackets);

- But the accounts are audited!
(doesn't matter a jot!! Audited accounts mean nothing - the testing is minimal, and a determined conman can drive a coach & horses through audited accounts).

- The NOMAD & Non-Execs have checked it all out, surely! Are you saying they are all fools?!
(Yes! They're greedy/fools - who were really only interested in earning fees, and were either too stupid to notice the warning signs, or turned a blind eye as long as the pay cheques kept rolling in).

- xyz Institition(s) bought shares - they must have done extensive due diligence!
(probably not actually. Many Instis do remarkably little research, and there's no correlation I can see between companies that fail, and Institutional holdings. Instis are just a collection of people too, and they do things that are just as daft as the rest of us!)

I could go on, but you get the drift!

Regards, Paul.

janebolacha

I must mention the tremendous work that has been done by Tom Winnifrith on "Share Prophets" to expose fraud companies and directors, including many Chinese outfits. His site is worth reading daily.

I agree Jane. Tom Winnifrith may not be everybody's cup of tea in terms of his style (or elements of his previous history - where he openly admits he's made mistakes), but his investigative work on a number of companies in the last year has been outstanding. The people who listened to him carefully have steered clear of a bloodbath in most of the stocks he has warned us about. So very much someone to listen to, in my opinion.

P.

john bradney

i too was discouraged by paul from investing and grateful. BUT
why not establish a list of nomads and failures?
the problem is that there is no reputational damage from this - they even changed the nomad late last year and i can't remember who it was before.
so lets have a list of those that acted in the 12 months before suspension ?

jb

Rusty2

Not surprised about bulletin boards, I have had experience of them, very bias, most are just investors talking up the shares for their own gain, best avoided, I only go there to see if any news when shares move considerably. Im surprised that a certain Investors Chronicle tipster picked NBU and Camkids in his Bargain shares of the Year, last year. Its good there are people like Paul exposing companies, pity I did not know about him sooner.

Mrx9000

Nice 1 Paul in regard NBU. I reckon though I spotted it was a bad one before you though ;)
Another example to use and interesting to see what early warning signs there were along the way.

Signs
- Increasing debtors, year on year
- Not many institions onboard, however Hargreave Hale had 6% and they are normally good!
- No director buying on the way down
- Free cash flow reducing quite substantially
- Foreign, with one broker and a crap one at that in my view.

Other signs are misleading as they paint a rosier picture than it actually is e.g.
- Z Score of 4.2!
- Current Ratio of 6!
- Tangible book value of around £117m!
- Cash of some £46m!

nevilleaustin

helping to safeguard readers' interests here is more important than anything else, and on that front I can pat myself on the back and say "job well done!" -

Absolutely Paul, job well done, and don't stop saying it as you see it !

My gut instinct as well on seeing the PE of 1 and the 10% divi was that it can not be true, and probably dodgy. So the only Chinese that I buy are the spicy noodles !

With kind regards, Neville

Calalily

From back in 2011.
http://www.growthcompany.co.uk/features/1681068/investing-in-chinese-companies-on-aim.thtml

Job well done Paul, good report as always.
"Share Prophets" Jane, can see what they are trying to do but not a fan of the colourful language and a bit gung-ho for my taste.

The only chinese co. listed on the Aim I know of that maybe OK is HCM. Im not a holder as I generally do not trust chinese companies. One well known fund manager is a large investor and is the reason why 2 of his funds did well last year.

OsullivanB

I've got to the point where I think of a ST recommendation as a red flag.

Yes I know what you mean but to be fair he does find a few good ones. But I will be not be renewing my subscription to IC.

I find the online version useful for printing out past articles about a company that interests me. It's also the only source of ideas I know apart from this invaluable series and Small Company Sharewatch. This may or may not be an appropriate place to ask, but I would welcome suggestions for other publications I might find helpful.

Yes its a good question, I don't know so I would welcome other suggestions. My problem with IC is they seem to be all about the good points in a company and little emphasis on the bad. Also when sp is falling hardly ever issue sell tip on one of their buy tips until its gone right down.

One of the more useful things in the IC, though underemphasised, is the column of "bear points" which they place under or opposite the (usually, of course, much longer) column of "bull points" at the head of each new main recommendation.

VegPatch

Well done all those that spotted Naibu was a "wrong'un" (me too as it happens)

I felt today's FT was v interesting on Hanergy Thin Film (566:HK), the Chinese solar group, quoted on the HK exchange
$23bn USD mkt cap (bigger than the 3 largest US solar companies mkt caps combined...)
100% of the quoted company's revenues come from selling to Hanergy Group (ie the parent company). Related party transactions are never a favourite.
FCF negative, trades on 50x PE
receivables were >1.4x the prior years revenues.
The solar sector is v competitive yet Hanergy declares EBIT margins of >50% yet other solar pees don't break into double digits. Slightly reminds me of the Muddy Waters demolition of the Quindell margins, where Quindell was claiming margins over double those of the rest of the industry.
However you can declare margins of whatever you want if you are not actually getting paid in hard cash (because it's all fantasy profits)

I guess will the oil price coming down will negatively impact margins (as wholesale electricity price falls as a result), yet the shares have been inversely related to the oil price.
Major shareholder owns a fraction under 75% so thinly traded : great on the way up....
The company has been accessing the shadow banking system for capital at above market rates.

For me its about red flags. And this is a veritable semaphorist's dream
I will get a contact to run the numbers through the James Montier Holy Trinity screen

Anyway I think this is one to have a closer look at as a short. Sometimes they just stare you right in the face.

Here is a recent WSJ article
http://www.wsj.com/articles/solar-giant-hanergy-requires-extra-sunscreen-1420444057

Brilliant Leader

19th Feb '15

Regarding 'where to find share ideas'. I rarely look at tipsters these days, although there are some commentators and posters who suggest shares that pique my interest - Paul Scott being a good example.

With the screening tools provided by Stockopedia, I find this to be a much better starting point for shortlisting share ideas than tipsters. I don't make a mechanical investment decision but the mechanical screen at the start of the process tends to throw up solid candidates for further research.

marben100

You might find Shares Magazine worth a look. The quality is above average, IMO - though I don't subscribe myself, at present. I tend to find that I get too many ideas to look at, rather than too few!

Cheers,

Mark

Yes but their rarely mention debt and if they do they think its fine, x8 profits is nothing to worry about, never ever seen them mention pension deficits. To me its like a share premotion mag. like a hifi mag. Their sell advise is poor as well. A few recently, BP and Tesco, both are well up on their tip sp.

My thanks to all who made suggestions and observations.

Although I do not subscribe (its rather pricey at £299pa) I have been told TechInvest is a decent source of info. Taking a look at the sample report available I see its lists a number of shares mentioned by Robbie Burns including ACM, TUNG, and UTW amongst others. As does Small Company Stock Watch (SCSW you already mentioned) which has in the past sample highlighted PRES, NANO, SERV plus others. The latter is £129.50 pa.

Small Cap Value Report (18 Feb 2015) - NBU, MPAY

Naibu Global International Co (LON:NBU)

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Paul Scott

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