Decama Capital: Israeli net-net with property in the UK
For my analysis of Decama Capital Ltd (ticker DCMA in Tel Aviv, Israel) I had a look into the annual report over 2021 and at the interim report over the first half of 2022. Disclosure is in Hebrew. My analysis depends on the accuracy and readability of software translations. It was challenging to understand the translations from Google. So, do not rely on my analysis. Do not expect it to be accurate.
One of the problems is that names can be translated in multiple ways. For example, Google Translate transcribes the company name as Dakma Capital. Furthermore the name of the CEO and controlling shareholder has been transcribed as “Mr. Tel Loratzi” but also as “Nathaniel Lorenzi” (page 48 interim report). Another problem was that in the translation sometimes numbers have to be read from right to left instead of from left to right.
The company invests in real estate in the UK. This is a building in Milton Keys with offices, 10 parking spaces and industrial storage, approximately 50 km northwest of the center of London. The project was competed in August 2019. At the end of 2021 it has 82% occupancy and 877.21 thousand ILS of book value. At the end of 2021 it was independently valued at 5.2 million GBP.
The company also used to own real estate in Hungary (near or in Budapest) but has sold these assets in 2021. Furthermore the company mentions providing mortgages in the UK as another main business activity. Based on the amounts involved this is really a minor business, however there might be an unknown hidden liability related to the sale. However according to page 47 of the interim report the company received final approval for liquidating the Hungarian subsidiary on 24 June 2022. Therefore I assume either there is no significant liability anymore or this has already been fully included in the balance sheet.
I estimate the liquidation value at about 55-62 million ILS at 0.36 ILS per share. At that price the market cap is about 7.5 million USD. My estimate for Liquidation Value/Market cap is somewhere between 2.0 and 2.5.
According to the annual report the company also owns 76% of Refuel Limited. Refuel Limited probably develops reversible fuel cells based on hydrogen fuel cells. The company licenses intellectual property from the Bar-Ilan University in Israel. The main researcher on this project at this university seems to be Mr. Lior Elbaz. He is co-inventor of 2 patents and apparently also the Chief Technology Officer of Refhuel (not my typo) since February 2022. The company does not mention this as a main activity.
This cooperation comes with a liability. The company has to invest at least 3.2 million USD in continuing development of this technology and in its productization. I estimate running this subsidiary costs at least 1.0 million USD per year. Also the agreement is complex. At a later stage the university might get extra shares of the subsidiary and it is also possible the company exercises a call option for 5 million shares at 1 USD per share.
According to note 3 of the interim report this intellectual property adventure seems to have ended. So no liability anymore, 2 employment agreements ended and the license agreement ended as well, at the end of June 2022. So no more cash drain from this but no upside either.
I think there are 68.66 million shares. In addition there are, or the company will issue 2.6 million warrants to the new chairman, Mr. Boretz. It seems the exercise price of 650k warrants is equal to the share price on 20 August 2022. This first batch will expire on 31 December 2026. There are or will be 4 batches of warrants: the strike price of another 650k warrants will be 33% higher and these warrants will expire at the end of 2027 and so on. Again, this is just my interpretation of the Google translation. Mr. Boretz also gets 70k ILS of monthly salary plus a moderate bonus depending on performance.
Main shareholder: The CEO and director, Mr. Tel Loratzi or Nathaniel Lorenzi, owns 95.57% of the shares. So, if I have understood the reports correctly, the public float is extremely small.
Red flag: the company and the CEO/controlling shareholder are subjects of an “administrative enforcement procedure according to the Securities Law” (page 51 interim report). It seems the enforcement procedure is about a delay of 3 months in reporting a violation of a loan agreement. I think this is related to the impairment of most of a mortgage asset in the UK.
In addition in June 2021 a shareholder started a class action against the company. I think the claim is for 4.2 million ILS of damages.
The company had an investment portfolio in 2021. The investments were delegated to professionals. At the end of July 2021 they had lost 1.0 million USD, I think this loss was mostly from short positions. This made the CEO and controlling shareholder replace the people investing for him. He is now one of the 3 members of the investment committee. The class action might be related to the investment loss.
Red flag: Mr. Amichai Lorenzi, so probably someone with the same surname as the CEO/controlling shareholder, signs off the financial statements “due to the fact that at this time the company does not have an officer in charge of the finance area” (page 46 interim report).
In 2018 and especially in 2019 the company did big dilutions. I have not found any significant dividends or repurchases.
Red flag: On 17 March 2019 the company changed its name to its current name. I could not find the previous name in the annual report.
My take: Extremely vague business probably with weak disclosure and weak management an probably also with weak internal control practices. But it is still a business with real assets. Moreover it is cheap based on NCAV/Market cap and because of substantial non-current property in the UK it is even cheaper based on Liquidation Value/Market cap. I think stocks like this one will have good returns, but only on a statistical basis.
Disclosure: long shares of Decama Capital.