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Paternoster - at a c50% discount to NAV surely the shares are cheap? er...no

By Tom Winnifrith, The Sheriff of AIM | Sunday 9 July 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


My attention is  drawn to the curious way that Paternoster Resources (PRS) communicates information to its long suffering shareholders and prompted to ask if the shares are as cheap as they look. Of course they are not.

Oddly the company published a Q1 calendar 2017 trading statement almost three weeks before its calendar 2016 numbers;. Given that Q1 was dire I suppose this is a matter of getting the bad news out of the way first. But as at march 31 the Net Asset Value was £3.057678 million - the market cap at a 0.15p mid is c £1.6 million. So on the face of it the shares are dirt cheap. But hang on Henry....

Look at the Q1 trend and let's start with cash. At at December 31 it was £648,165. Three months later it was £555,450 suggesting that this company - whose PLC expenses are not immaterial and have been boosted by the hiring of Amanda "the related party" van Dyke as a director, needs either a fund raise or a big realisation windfall in 2017 if its current year accounts are going to get signed off. That is strike 1 - a good reason for the shares to trade at a discount to NAV

Strike 2 is that total NAV plunged from £3,592,682 at December 31 2016 to £3,057,678 three months later. Cripes, to lose 15% of your NAV in three months is pretty good going, even the share tips of Chris Oil (where is he these days?) do better than that. As I noted when discussing Jim Mellon's FastForward (FFWD) hound the other day, shares in investment companies can trade at a premium if there is every reason to believe that NAV will head higher and generally past performance IS a good guide to the future. But where past performance has been piss poor shares should trade at a big discount to NAV as the odds are that NAV will keep falling. Strike 2.

But is the NAV real or realisable? As at December 31 just £392,149 of the Paternoster NAV was in unlisted investments. That is AIM stocks which had gone wrong and been booted off ( New World Oil & related party howler Glenwick) or private companies that had either done so badly they had not tried to IPO (Elephant Oil) or whose IPO had flopped badly (Bison Energy). By March 321 £522,149 was in unlisted ( that is Glenwick being booted off the casino). As of now that number is even higher as Alecto - another major punt gone wrong - has also been booted off the casino. These investments are not realisable in a rapid or orderly fashion and their value is ...in the eye of the beholder.

Worse still Paternoster also has large stakes in utterly illiquid listed plays such as Pires Investments. There is no way on earth that such stakes could be realised at anything remotely close to the book value. As such this is a third very good reason why the shares should trade at a vast discount to NAV - strike 3.

Strike 4 -what is the NAV as at now? Paternoster could, if it wanted tell us what it was at June 30th. The odds are, with MX Oil shares halving in Q2 the odds are that June 30 cash will be down again, NAV will be down and - after July 11 when Alecto leaves the casino - the percentage of NAV in unlisted investments will be up to 40%. All of that is bad news.

And finally the spread is 0.14p-0.16p. that is a not insignificant spread in percentage terms and that is another reason why the shares should trade at a steep discount to NAV. Strike 5.

The reality is that Paternoster is another sub scale, pointless AIM Casino listed investment company. Chairman Nick Lee owns just 1.6% of the equity but hauls out £72,000 a year for "managing" a portfolio, nearly all of which is in 12 stocks of which 5 are now unlisted so never trade. Miss van Related party picked up £20,333 for just under 9 months of value creating work in 2016.  And it is not as if this portfolio is doing terribly well. It looks like easy money for Lee & Miss van Related Party but for shareholders there is no El Dorado in sight.


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