Even with the recent volatility in the stock market, let's face reality: value is scarce. Looking for a company trading near the value of its assets? Want a good company with a P/E in the low single digits? Pickings are slim these days. I expect value investors will understand why I was relieved to see a news release yesterday about a billionaire investing in Levon Resources (TSX: LVN) (OTCQX: LVNVF).
Here is my brief outline of this value trade.
1. An ideal value play: 80% of the company is cash. (The company has about $40 million in cash with a market cap of $50 million.)
2. The stock is just $0.04 higher than the most recent private placement. Yesterday, the company raised $5.4 million at C$0.22 per share and closed at C$0.26 per share.
3. The company owns 100% of a silver and precious metals project in Mexico. This asset more than accounts for the remaining $10 million (C$0.04 per share) of enterprise value, and also has the potential to increase by hundreds of millions if the price of silver rises. In the meantime, the asset costs shareholders nothing because the company is wisely deferring most development costs until the price of silver improves.
4. The lead investor in this week's private placement at C$0.22 is Dr. Phillip Frost. Dr. Frost founded and sold Key Pharma for $587 million, and then founded and sold Ivax for $7.6 billion. (Again, shares are just C$0.04 more expensive than Dr. Frost's cost basis.)
5. The announcement was positively validated by the market but is still under the radar. The news is just one day old. Trading volume hit 1,943,582 shares, about four times higher than average daily volume. The share price also increased 15%. Overall, Levon Resources received real-world validation of yesterday's news, yet the price is still ideal for value investors who want early access to a de-risked trading opportunity.
Reviewing the company's history, I am also comforted to see shares never in five years dropping below C$0.20 per share. Indeed, at C$0.20 per share, common shares would be essentially 100% backed by cash. The fact that shares have never fallen lower than this level further validates and de-risks this trade.
Also, of particular appeal to readers should be the fact that Dr. Frost's shares cannot be immediately sold, as completion of the private placement is subject to the approval of the Toronto Stock Exchange. This means that nimble shareholders like me can buy and sell quickly, even before any overhang comes into the stock. Not that an investor like Dr. Frost is interested in anything less than triple-digit returns anyway, but even still, value investors are conservative, and this adds just one more positive on top of this already appealing situation.
I believe Levon Resources is a time-critical value opportunity with limited downside, strong institutional support, near-100% backing from cash and assets and attractive pricing near yesterday's private placement. Of course, no investment is certain, and investors should consider the risk-reward profile of this company for themselves. Nevertheless, I hope this quick update on a unique situation is helpful for readers –Â especially frustrated value investors like me who rarely see opportunities to invest alongside institutional players.
