stockpotentials march 26, 2010 - investor ideas, … · stockpotentials march 26, 2010 . . . . . ....
TRANSCRIPT
eResearch Corporation www.eresearch.ca
StockPotentials March 26, 2010 . . . . . . 3
ABERDEEN INTERNATIONAL INC.
Price (March 26, 2010) $0.40
52-Week High-Low $0.52 - $0.18
Shares O/S 87.5 million
Market Cap $35.0 million
50-day Average Volume 126,200
200-day Average Volume 234,600
Year-End January 31
Symbol TSX: AAB
Website www.aberdeeninternational.ca
Financial Data
eResearch Analysts: Bill Campbell, B.Comm.
Bob Weir, B.Sc., B.Comm., CFA
eResearch Corporation
56 Temperance Street, Suite 501
Toronto, ON M5H 3V5
Telephone: 416-643-7650
Toll Free: 877-856-0765
Note: This report was prepared with public information only.
Source: www.bigcharts.com
THE COMPANY
Aberdeen International Inc. (“Aberdeen” or the
“Company”) is a Toronto-based, global investment and
merchant banking company focused on small capitalization
companies in the mining, energy, and agricultural
commodities sectors.
The Company seeks to acquire equity participation in pre-
IPO and early-stage resource companies where it can
provide value-added managerial and board-level advisory
services as well as financial support.
Aberdeen’s goal is to generate triple-digit returns on its
investments over an 18-to-24-month holding period. The
Company’s management team has raised over $1 billion in
the past five years.
INVESTMENT CONSIDERATIONS
Strengths Management team and board of directors have extensive
mining experience;
Proven ability to raise funds; and
Diversified portfolio of attractive investments.
Challenges Political risk in some areas in which the Company
invests;
Investment portfolio geared to volatile mining sector;
and
Share trading fairly illiquid.
Aberdeen International Inc. eResearch StockPotentials
eResearch Corporation www.eresearch.ca Page 2
BACKGROUND
Aberdeen had originally operated as a Canadian exploration and royalty company. However, in July 2007, it
completed a Change of Business transaction into a publicly-traded global resource investment and merchant
banking company. In anticipation of its Change of Business, the Company raised $60 million through a private
placement in June 2007.
INVESTMENT PORTFOLIO
The Company’s investment portfolio continued to grow through the fourth quarter of fiscal 2010 (three months
ended January 31, 2010). As at January 31, 2010, its total value was $0.78 per share compared with $0.66 per
share at the end of October 2009 and $0.40 per share at the end of fiscal 2009. A summary of the Company’s
holdings is shown below:
Investment Holdings (January 31, 2010)
Publicly-Traded
Symbol millions
Crocodile Gold Corp.
TSX: CRK $12.0
Sulliden Gold Corporation Ltd. TSX: SUE $7.3
Avion Gold Corporation TSX-V: AVR $5.4
Other
$14.4
Total Publicly-Traded
$39.1
Private
$7.7
Non-Trading Warrants Crocodile Gold Corp.
$4.9
Allana Potash Corp.
$1.1
Dacha capital Inc.
$1.0
Other
$3.2
Total Warrants
$10.2
Loans Receivable
$7.9
Cash
$3.3
TOTAL
$68.2
Source: Company
Aberdeen International Inc. eResearch StockPotentials
eResearch Corporation www.eresearch.ca Page 3
NET ASSET VALUE
The following table indicates the Company’s net asset value (“NAV”) since its conversion to an investment
and merchant banking company in the third quarter of fiscal 2008.
As shown in the table above, the Company’s NAV grew rapidly from the third quarter of fiscal 2008 to the end
of the second quarter of fiscal 2009, before declining significantly in response to the collapse in equity markets
and virtual elimination of credit for mining development.
With the recovery in equity markets in 2009, increased availability of credit, improved economic prospects in
many areas and an astute investment performance, management achieved a strong recovery in the Company’s
NAV to its pre-market crash level (on a per share basis) by the end of the third quarter of fiscal 2010 (October
31, 2009).
CONTINGENCY
The Company engaged a leading South African law firm and, in July 2009, filed a claim against Simmer and
Jack Mines, Limited and First Uranium Corporation in connection with a US$10 million loan and gold royalty
agreement which it had made with Simmer in late 2006. Simmer filed a statement of defence in November
2009. The Company anticipates that court proceedings will begin before the end of its current fiscal year.
FINANCIALS
(1) Q3/F2010 versus Q3/F2009
For the third quarter of fiscal 2010, the Company reported earnings of $0.06 per share compared with a loss of
$0.46 per share for the same period in fiscal 2009. The dramatic improvement reflected improved conditions in
the mining industry in the latest period, which enabled the Company to achieve an unrealized gain on its
investments of approximately $13 million compared with an unrealized loss of $47.6 million in the year-earlier
quarter. The Company also benefited from a decline in the unrealized loss on its Simmer and Jack royalty and
loan to $0.4 million compared with $19.2 million in the third quarter of fiscal 2009.
The Company is financially strong with working capital of $71.7 million and no long-term debt as at October
30, 2009 .
Salient statistics are shown on the following page.
Aberdeen International Inc. eResearch StockPotentials
eResearch Corporation www.eresearch.ca Page 4
($000s) Q3/F2010 Q3/F2009
Net Investment Gains
9,395 (49,473)
Other Revenue
(1,103) (16,761)
Total Revenue
8,292 (66,234)
Pretax Income
7,886 (64,082)
Pretax Margin
95.1% na
Net Income
5,098 (44,639)
Net Margin
61.5% na
EPS
$0.06 -$0.46
Shares OS (million)
87.5 97.6
(2) 9Months/F2010 versus 9Months/F2009
For the first three quarters of fiscal 2010, Aberdeen reported earnings of $0.09 per share compared with a loss
of $0.31 per share for the first nine months of fiscal 2009. As was the case in the third quarter, the improved
results reflected the benefit of unrealized gains on investments in the latest period of $28.2 million compared
with an unrealized loss on investments of $40.9 million in the year earlier period. The unrealized loss on the
Simmer and Jack royalty and loan declined to $8.5 million in the latest period from $16.4 million in the fiscal
2009 period.
($000s) 9Mos/F2010 9Mos/F2009
Net Investment Gains
23,509 (35,617)
Other Revenue
(7,607) (8,288)
Total Revenue
15,902 (43,905)
Pretax Income
13,202 (44,039)
Pretax Margin
83.0% na
Net Income
8,593 (31,217)
Net Margin
54.0% na
EPS
$0.09 -$0.31
Shares OS (million)
90.5 100.7
Aberdeen International Inc. eResearch StockPotentials
eResearch Corporation www.eresearch.ca Page 5
OUTLOOK
Following the significant rebound in commodity prices which took place in 2009 and an increased availability
of financing for mining companies, prospects for the global mining industry are now on a sounder footing.
Although commodity prices are not expected to rise significantly in 2010 as they did in 2009, they should
continue to have moderate growth, fuelled by continued strong demand from China and sustained recovery in
industrial countries. In this environment, we expect that the demand for financing of new mining projects will
continue to grow, providing opportunities for Aberdeen International to provide funding for new small-cap
resource companies.
In a recent presentation, the Company indicated that the value of deals being evaluated for near-term
investment was approximately $5 million. In addition, the Company will benefit from further significant
growth of its existing investment portfolio. Based on consensus estimates of the 12-month target prices of its
three major holdings - Crocodile Gold, Sulliden Gold, and Avion Gold – the Company’s share positions in
these companies would provide gains of at least $20 million over the period. This excludes the impact of any
warrants that Aberdeen has in these companies.
VALUATION
We have chosen two merchant bank/mining investment companies to provide comparable valuations for
Aberdeen. They are Endeavour Financial Group and Pinetree Capital Ltd.
As shown in the table below, these companies are trading at an average 29% discount to their net asset value
and at 1.2 times trailing 12-month earnings. Aberdeen is trading at a 63% discount to its net asset value and at
1.1 times trailing 12-month earnings. As investors become more aware of Aberdeen over time, we believe that
its discount will narrow, providing significant capital appreciation potential.
CORPORATE COMPARISONS
Stock Shs. O/S Mkt Cap EPS P/E NAV Discount
Company Symbol Price (million) (million) (ttm) (ttm) P.S. to NAV
Endeavour EDV $2.48 94.6 $235 $2.51 1.0 $3.41 27%
Pinetree PNP $1.73 132.3 $229 $1.19 1.5 $2.53 32%
Avg 1.2 Avg 29%
Aberdeen AAB $0.40 87.5 $35 $0.35 1.1 $1.08 63%
Source: eResearch
Aberdeen International Inc. eResearch StockPotentials
eResearch Corporation www.eresearch.ca Page 6
MANAGEMENT
George Fraught - CEO
Mr. Fraught has over 25 years of senior management experience in the natural resource, financial services and
pharmaceutical industries.
David Stein - President & COO Mr. Stein was previously a senior partner and equities analyst at Cormark Securities, having joined Sprott
Securities, Cormark’s predecessor company, in 2001.
DIRECTORS
Stan Bharti George Fraught David Stein Hon. Pierre S. Pettigrew
Mike Hoffman Dr. Bernard Wilson Bruce Humphrey
CORPORATE INFORMATION
Aberdeen International Inc.
65 Queen Street West
Suite 815
Toronto, ON, M5H 2M5,
Telephone: 416-861-5899
Website: www.aberdeeninternational.ca