ACHL – some thoughts

ACHL Asian Citrus is a CHINESE company listed on AIM. I don’t keep a track of it very often, but I see it is being discussed on Twitter.

I last wrote about it in Sep 2012 (http://is.gd/HUJiGo). I said: “ROE of 6.5% is very low, and existing/prospective investors should regard this is an inadequate return. … I’m going to stick my neck out here and say that the next set of results shows a reduction in ROE.”

I never did follow that up, but I see on Sharelock Holmes did actually increase. Go figure. I was wrong on that score. I was, of course, bearish, and since then the share price has fallen from 29p to 21.92p. So, despite my mistake on the ROE, ACHL has underperformed the indices by a huge margin.

My concerns are pretty much what they were when I last wrote, and all the times before that, so I wont rehash the arguments.

@smarkus (Steve Markus) tweeted recently: “Yes, and then the recent FD departure. Plus China factor. Disease, China, director sales and departures, not for me.”

Ah, the joys of Twitter, all those fundamentals in under 140 characters or less.

Some other interesting tweets by @conkers3 and @SharesMagDan: “Liberum issues a note highlighting that Asian Citrus’ net cash is expected to be £240m at June y/e results = 90% of its market cap!”, “at 21.75p = mkt cap of £266.5m. Cash = 19.57p. Plantations & Juicing ops value = £26.5m. Yet Ops made profit of £75m.”, “Is this a buying opportunity or trap? Is there more to the canker problem & underlying -sentiment towards”

ACHL may be cash-rich, but that hasn’t stopped its shares sinking 27% YTD. That’s one deuce of an underperformance. The high levels of cash didn’t stop the share price fall then, and shows the dangers of these kinds of arguments in justifying valuation levels.

The canker problem is news to me, and is an obvious negative factor. I think, though, that the companies problems run deeper than that. For example, for 2012 accounts, turnover was £179m, against a prior year of £136m. Operating profits went the other way, though, falling from £108m to £77m.

It is often tempting to construct valuation arguments to explain why share prices are too low, but sometimes, when you smell that distinct smell of fish associated with foreign-list AIM stocks, it is best to stay out. Just ask the holders of GNG, RCG, and many others that don’t readily spring to my mind just now. In 2008, Stockopedia had a discussion article “This still looks cheap” (http://is.gd/D6EVOv). Notwithstanding that, on a 5-year basis, ACHL is down a stomach-churning 92%, compared to a rise of 10% for the Footsie.

The shares could go up in the short term, of course, but basically, the whole company is a mess.

Avoid.

21.90p

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About mcturra2000

Computer programmer living in Scotland.
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