MMA.AX Offers Dollars For Fifity Cents
I just turned 42. As guys approach middle age they often make desperate bids to retain their youth. They buy a motorbike, a fast car and or have an affair with a younger women. While all those options sound attractive, the reality is I can’t even handle my sons skateboard let alone a motorbike or fast car and my wife is still way to sexy for me to bother looking else where. So yesterday in a desperate bid to stay eternally young dived into the Gen Y short attention span world of twitter. There I came across Tim Beyers and this illuminating piece of advice,
Pitch a story rather than a company. I write about companies, sure, but it’s the context that matters.
With that quote front and centre let me tell you a story.
When travelling through the USA we made a detour to Las Vegas. It’s an amazing place and the free drinks while gambling is a killer proposition. We walked into one casino which was almost empty. I sat down and watched a few hands being played. It was a really strange game. For every 45 cents bet the dealer topped up my chips to one dollar. The game appeared to have no end and my bets had to be long term. As with every wager there was a chance of losing money, but the odds were so skewed in my favour that as a patient investor I made out like a bandit. Most people were confused by the game and did not have the patience to sit and wait, but I sat back and said “keep those free drinks coming”.
I might need to practice my story telling and my memory of the casinos is definitely hazy due to those free drinks, but hopefully you get the idea. Sometimes it is possible to buy a dollar for 45 cents. MMC Contrarian (ASX Code: MMA) shares offers exactly the same investment right now. This Australian listed funds management company’s strategy is to create and invest in unlisted boutique fund managers in various asset classes. They aim to generate income from two primary sources; returns on their own managed funds and recurring earnings from each manager they create or acquire.
With the recent sale of their 50% stake in Contrarian Global Asset Management MMC Contrarian has reverted back to their orginal single fund manager self, MMC Asset Management. As the name alludes to, MMC is a value based fund. Their main fund has around 45% in cash.
As of Jan 31 2009 MMA had $102 million in Net Tangible Assets, NTA, of which $78.9 million was in cash, $11.8M in listed securities and $11.3M in deferred tax assets. The NTA per share before tax was 65.3cents and after tax 75.3 cents. The after tax figure is higher due to deferred tax asset of $7.9M and carried forward loss of $3.1M.
MMA last traded at 34 cents a 55% discount to NTA. You’re buying $1.00 in tangible value for every 45 cents. If you are incredibly conservative you’re getting 56.6 cents in cash for every 34 cents invested a 40% whopping discount to cash.
As my NTA tracking spreadsheet for MMA shows the average discount to NTA over the last year has been 23% to 31% to the respective monthly high and low, with numerous opportunities to sell with the NTA discount in the low teens.
MMA was cash flow for the first half of fiscal 2009. This is not a cash burning biotech. The current model gives investors plenty of time for the market to re-weight shares and close the NTA discount. Australian funds management is an attractive business with government mandated growth due to the 9% superannuation levy.
The risk to reward profile on investments like this is outstanding due to the huge discount to NTA and large discount to cash there is very little likely downside, while there is plenty of upside. I calculated a 1:6 risk profile.
What to know more?
- MMA Half Year Results
- Jan 2009 NTA Statement
- MMA at Google Finance
- MMA at the ASX for all filing and some details
- MMC Contrarian Limited website
- MMC Contrarian Share Buy Back
I indirectly own a small parcel of MMA shares and am considering buying more.
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