Deep Value (Literally) Underground
A German Microcap Net-Net, Trading at Just 39% of Book Value, 53.5% of NCAV, P/E of 8, with 3% Dividend Yield.
A Friendly Reminder:
Before you start reading today’s article, I thought I’d let you know that, after the recent +100% price spike some weeks ago (roughly to 1x NCAV, during which I liquidated the position entirely, as recently mentioned on Twitter), Bowim S.A. (one of my other net-nets) is now back to 2/3s of NCAV (at ~4.5 PLN), as a result of the Trump tariffs’ selloff.
What’s more, even though the first 9 months of 2024 resulted in a loss of over 14 million PLN, the last quarter brought approx. 3.7 million PLN in (surprisingly) net income, instead of net loss this time:
While it’s still a net loss for the FY2024, it’s not as large as some expected.
Even though the issues in the industry are still very much present, Bowim’s shareholders could, as Buffett said it himself, ‘unload at a decent profit’, due to a ‘hiccup in the fortunes of the business, even though the long-term performance of the business may be terrible’.
Bowim is now a net-net once again (even after considering last year’s losses), and I plan to buy more shares in the next few days.
I’ve put a lot of time and effort into today’s writeup, and I truly believe you’ll find it valuable and interesting to read.
I hope you enjoy it as much as I enjoyed putting it all together!
Stonks
I’ll be honest with you.
Most net-nets suck.
They’re either zombie Chinese ADRs with CFOs who may or may not exist, or some cash-burning biotech that used to be a pizza chain.
Sometimes, you get a dying retailer with a balance sheet full of “right-of-use” garbage and store leases in malls no one’s walked through since like 2012.
But every once in a while, I come across some really promising opportunities…
In the introduction to my last article about One of the Cheapest Net-Nets I’ve Ever Seen, I briefly mentioned this small German company that had quietly undergone some major changes. A profitable and underfollowed business, trading well below liquidation value, and boring in all the right ways.
At first, it looked modestly cheap, screening at around 84% of NCAV on Bloomberg, which, let’s be honest, doesn’t exactly get a guy like me out of bed anymore.
Except, as it turned out, that number was off. Way off.
See, in the balance sheet of this €37M German microcap, there was €23 million in equity investments disguised as fixed assets, which were (obviously) completely ignored by NCAV screeners.
However, as of last Thursday, that stake has been fully consolidated, following the acquisition of a majority interest by a buyer who paid over a 50% premium to where the stock trades today.
And just like that, the numbers started reflecting reality, and finally revealed how cheap the stock actually is. This changed the story from “looks kinda cheap” to a textbook case of a cigar butt.
However, the market didn’t seem to care much (or maybe missed the memo), as the price barely even moved.
Meanwhile, this company is now trading at just ~53.5% of its NCAV, 39% of book, and around 8x forward earnings.
It has a clean balance sheet, almost no debt, freshly reinstated dividend (~3% div. yield), and just uplisted to the most transparent and regulated segment of the stock exchange to improve its visibility.
Not bad for a stock trading at such a dirt-cheap valuation…
I bought shares myself before the market could figure out what just happened.
And honestly? It still hasn’t.
Caveat Emptor: This is an illiquid net-net, with an average daily volume of around €15k (best suited for smaller portfolios), and carries some geopolitical risk. It’s part of my net-net basket, but as a small position at the current prices (2-3% of AUM).
This is not investment advice.
Without further ado, let me introduce you to…