August 20, 2017

On Friday, the S&P 500 was down 0.2% and Toronto was down 0.5%.

Ceapro, a tiny Edmonton biotechnology company was down 12.7% to 69 cents after releasing Q2 earnings. An d this decline is in addition to a steady slide in the share price. I had mentioned on June 20 and June 7 that it could continue to decline. The report and comments here have indicated that I had some concern about disclosures.

A quick look at the Q2 report leads me to even more concern about disclosure. They say:  “The 35% difference in product sales volume relates primarily to lower sales of beta glucan.” And I think that is all the disclosure they give. No discussion of what customers have slowed their buying or why. I would have to look it up to see what product the beta glucan was going into.

At the moment I am not inclined to add to my position in this company.  It was always going to be a risky company. But increasingly I fear it is not being candid with investors.

Regarding Melcor, I have had some email discussion with management. I put it to them that with the stock trading at 50% of book value there are two possibilities. 1. The stock price is irrationally low and the problem lies with investors not valuing the stock properly. I hope this is the case and that management can work harder to communicate the value of the company including by buying back some shares or raising the dividend (rather than buying more land for $1.00 that the stock market then seems to value at 50 cents); or 2. The stock price is reasonably correct and Melcor has effectively turned each $1.00 of share owner equity (mostly retained earnings) into about 50 cents. If so, that is certainly a failure on the part of management. I hope by putting this to management (and I used extensive quotes from Warren Buffett where he indicated that it would be a fail if his stock sold much below book value especially for an extended period of time) that I can get management to realize that having a stock that trades at half of book value is not acceptable in the longer run. I don’t think they should not be patting themselves on the back and awarding bonuses while the stock is so far below book value. Either the stock is irrationally low, or the assets need to be written down in value. I think it is the former.