Canaf Investments: cheap nanocap with assets in South Africa
Shares of Canaf Investments are traded on the Venture Exchange in Canada under ticker symbol CAF. I bought these shares in February 2021. Since then the stock price more than doubled. At 0.26 CAD the shares are still cheap based on multiples like EV/EBIT, P/E (below 6), and EV/Revenue.
This is a very small company, with a market cap below 10 million USD. Trading volume in the stock is low, predicting high returns on average.
Recently I investigated this company again and bought some more shares. My analysis here is based on information in quarterly filings over the three months ending on 30 April 2024 and annual filings over the year ending on 31 October 2023.
Canaf Investments processes coal in South Africa. It processes coal into calcined anthracite, which is a substitute for coke (necessary to produce steel). In addition the company owns 7 investment properties primarily in the suburbs of Johannesburg, South Africa. Their value was 802k CAD (10.4 million ZAR) on 31 October 2023.
The company says it is on track to increase its property holdings to a value between 15 and 20 million ZAR at the end of October 2024.
There are 47.4 million shares and no other instruments, so no employee/director options. I have not found any dilutions or payouts during the last 10 fully reported financial years.
The balance sheet is strong with low leverage, a high current ratio, lots of cash and no debt. Reporting is in CAD, which was changed from reporting in USD on 21 April 2023.
At the end of April 2024 book value was 0.213 CAD per share.
Substantial shareholders: the CEO Christopher Robert Way 16.39%.
Except for management compensation the company has not reported any related party transactions. In 2023, the CEO earned 198k CAD including a bonus of about 20% of his salary for his performance in 2022. He got about 3 times more than the CFO, the next best paid executive.
There are 4 directors including the CEO and the CFO. The two other directors are formally independent directors. One of them, the chairman, is also director for a couple of subsidiaries.
Searches on the company name and keyword “fraud” and on the name of the CEO and keyword “fraud” did not reveal any relevant information.
According to the Canadian auditor the company depends on the cash flows from coal processing and depends on very few customers. A key audit matter was revenue recognition.
My take: well managed coal processor trying to reshape itself into a South African property investor or maybe something else. Illiquid nanocap. I have not found any governance issues. A problem is lack of payouts. All in all a good stock for a small position.
Hello Ruerd, thank you for sharing.
I checked the reports but don’t find their coal sale volumes over the years. Is this available? Or do we need the annual reports of Southern Coal ltd, if available..
Coal is not really at a low price and could come down more.
The stock sold between 0.5 p/b and 1.5 during the last 10 years. It is at 1.2 now.
But another risk I see is their 2 customers account for 89% of the revenues. Losing one would but a disaster. I would need more information.
At first sight I think the upside potential seems not enough compared to the downside. But maybe I miss something.
The current ebit/EV is cheap indeed, but ebit might come down.
If I look at the average FCF over the years, it seems correctly priced for a company without growth with some risks.
Gr Johan from Belgium