This website presents my analysis of macro economics trends and individual companies.

Sunday, August 21, 2011

Pinetree Capital (TSX: PNP)

Closed-end funds that trade at significant discounts to their net-asset-value are always valuable places to find deeply-discounted investment prospects.  Around this time last year I pointed out Aberdeen International (TSX: AAB) which worked out as a short-term double for me.  Now, one year later lets re-live that trade but this time with Pinetree Capital (TSX: PNP).  Like Aberdeen Int. they invest in other publicly traded companies mainly within the Canadian junior resource sector with a bias towards exploration stage precious metal companies.

Quantitative Highlights:
  1. P / B = 0.46 (based on the NAV = $3.46 /sh as of Jun. 30, 2011 & share price of $1.67 on 19-Aug-11)
  2. PNP is nearing the cyclical low on a share-price to gold-price ratio. (see chart below)
  3. Avg.  SGA Expense (w/o performance bonus comp.) / Assets = 2.2% : So they are like a hedge fund that charges 2% of AUM and performance fee of 10% of gains above high-water-mark.
  4. Debt of 17% of assets is composed of a convertible debenture & margin debt due to broker.  There is no mention of any debt covenants that could cause immediate problems.


Qualitative Highlights:
  1. CEO owns  8% of shares
  2. CEO compensation is: $1m base salary & 10% of gain in book-value over the course of the year or from high water-mark.  Since the high water-mark was reached at $4.14 / sh the CEO will probably not be getting a bumper bonus until the share-price goes up 150%.  In 2010 he received $32m in bonus.
  3. Gold itself is breaking-out to new all time highs while the precious metal stocks are being pulled down by the stock-market in general.  This is creating a very attractive entry point for taking a position in this intrinsically undervalue stock which in addition also has a tail-wind to propel their underlying investments higher.  
  4. PNP has initiated a share buyback program as announced recently.
  5. Because Pinetree Capital would be considered a PFIC in the US, one should take this into account if investing in it.
Pinetree Capital is a balance sheet based deep-value investment opportunity that has a good chance of a double or triple.  An exit point could be when the share price is P/B~0.8 or based on the indicator of PNP price / Gold price ratio.

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About Me

Los Angeles, California, United States
Chris Rutherglen is a scientist and engineer by profession and pursues financial & investment analysis on the side. In 2011, he completed lever 3 of the CFA program.