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Counting the Shares of IFM Investments Limited (CTC)

March 23, 2011 | About:

IFM Investments Limited (CTC) is the exclusive franchisor in China of the CENTURY 21 brand, making money by broking real estate in China. What’s traded in the NYSE under the symbol “CTC” are the American Depositary Shares (ADS) that each representing 15 of its class A ordinary shares.

The shares started to trade in January 2010 at prices around $7 per share and has been declining since then. Currently it is traded at $3.70 per share, or about 60% of its Ben-Graham Net-Net value, according to GuruFocus Benjamin Graham Net Current Asset Value Bargain Screen, based on a 12.49 million shares outstanding.

But that screening result may require further investigation. The first thing one needs to look into is the total number of shares. GuruFocus data shows that the total number of shares outstanding is 12.49 million. Yahoo! Finance shows total shares number of 45.81 million; and Google Finance shows a yet different number of 3.05million.

In trying to find the truth, let’s go to the sources – company’s SEC filing and company's press releases.

Company filed a F-1, Amendment No.2 on December 06, 2010, in which existing shareholders (not the company) sold additional ADSs. On page 2, it states that after the offering, company has 28.232 million shares of ADSs, representing 423.483 million Class A ordinary shares after the offering. Prior to this offering, the company had 12.665 million shares of ADSs.

But that is not the whole story for not all Class A shares are represented by the ADSs. In the same F-1 form, page F-2, the Unaudited Interim Condensed Consolidated Balance Sheet, it states that as of June 30, 2010, the company had 666 million shares of class A shares outstanding.

One may inclined to stop here, however, that is still not the whole story. The company has another class of shares – Class B. Page 32 states:

The share capital of the company is divided into ordinary shares of two classes, Class A ordinary shares and Class B ordinary shares and one class of preferred shares. The Class A ordinary shares and Class B ordinary shares shall carry equal rights and rank pari passu with one another other than as set out below.
Going back to the same balance sheet (Page F-2) , you will find that the company had 81 million shares of Class B outstanding.

For our purpose, we consider Class A and Class B equal to each other and calculate the number of shares outstanding if all of them are represented by ADSs: (666+81)/15=49.8 million shares.

However, that was the number for June 30, 2010. Just as I think I have put the issue to bed, the company released its fourth quarter and annual 2011 unaudited financials on March 7, 2011. If you scroll to the very bottom, it listed the total number of ADSs used in calculating GAAP/non-GAAP net income per ADS. For the three months ended on September 30, 2010, the number is 45.813 million; for the three months ended on December 31, 2010, the number is 45.652. Those are quarterly average numbers.

The press release also stated that:
As of December 31st 2010 and February 28th 2011, the Company repurchased an aggregate of 965,114 ADSs and 1,393,891 ADSs respectively.

The stock repurchase may explain the difference between the quarterly average share counts. And the company is continuing to repurchase shares.

It appears that GuruFocus data of total number of shares is outdated; Google Finance number is baseless (or based on sources that I have not found yet); and Yahoo! Finance number is the closest to the truth --- still off by a couple of hundred thousand shares.

Using the average shares outstanding number provided by the company for December 31, 2010 quarter of 45.652 million, and the balance sheet in the March 7 press release, the company’s net-net value per share is $1.68, far less than the current stock price of $3.70.

CTC may be cheap when evaluated on other criteria; certainly it is cheap as compared to the IPO price; but it is not a Ben-Graham Net-Net stock.

Case closed.

Disclosure: No position.

Rating: 3.5/5 (4 votes)


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