time for this baby to move, page-26

I see this thread was started in April when the share price was 31.5 cents. At the time of writing the price is 22.5 cents. This baby’s share price has moved alright – down by 28.6 percent. I do think though that the title has a good chance of coming good in this climate. If you look at some of the other similarly dreadful performers such as Gunns, Bluescope and Paperlinx you will see that they have all recently moved up in share price. BSL is up around 30 percent from its low a couple of weeks ago, Gunns is up 23 percent on the last four days and PPX is up 20 percent just in the last two trading days.

As a result of the strong bounce backs from PPX and BSL, I went looking for a similar stock and API is the one that I came up with. Using Comsec’s advanced search facility, I did a search of stocks with current assets greater than $1 billion and price/book figures greater than zero (in other words not negative) and less than 1. Here are the first four on the list with their figures:

Company ____________ Current Assets___________ Price/Book Ratio

Paperlinx ______________$1.54 billion ________________ 0.09
Gunns ________________ $1.22 billion ________________ 0.12
API ___________________ $1.05 billion ________________ 0.19
Bluescope _____________ $3.22 billion ________________ 0.35

API is the only one of this group that hasn’t had a bounce in share price in recent days and that is what has brought me here. All four price/book ratios are extraordinarily small. In API’s case you buy a dollar’s worth of assets for 19 cents. The net tangible assets are 72.2 cents. Companies selling at such a small fraction of their tangible assets have room to move and adjust when times are tough compared to those that are buried in debt.

But it is not just the assets that look cheap. The market cap of API is $109.8 million. The operating cash flow in the first six months was $40.9 million. At that rate, the company’s shares are selling at little more than one year’s cash flow. API had revenues of $1,846 million in the first half so assuming a similar second half, its market cap is around 3.36 percent of its annual revenues. The only other similar sized company that I have seen selling at such a low fraction of its size is Paperlinx. Paperlinx has the complication of some $276 million of preference type shares in a complicated arrangement with Paperlinx SPS Trust. API only has ordinary shares and no such complication in its capital structure.

The dividend over the last twelve months was 2.5c fully franked or a yield of 11.1 percent ignoring the franking. Five years ago the company regularly paid annual dividends of 13 cents which is more than half the current share price. Earnings per share in 2006 were 15.3 cents. This is a company that has gone totally out of favour and I take the view that like many similar stocks, the fall has gone too far.

In the time since this thread was started in April, API’s main opponent Sigma’s share price has gone up 90 percent while API’s has fallen 28.6 percent. I know that API appears to have got on the wrong side in its relationship with Pharmacy Alliance but surely this won’t go on forever and the relative moves in the share prices of API and SIP seem extraordinary to me.

API is due to report its preliminary annual results by the end of the month and there is the temptation to hold off until then. Clearly the reporting of those results could have a significant influence on the share price but with what has been happening in the markets in recent days, waiting until then risks missing out on the cream of an overdue rise. I am taking the punt that a little bit of support at this point in time can result in a rise of 20 percent or more in the share price leading up to the annual report. The bulk of shareholders all run to the same side of the boat and as I write this, it is somewhat lonely on my side of the boat at API. I hope some of you will consider joining me. A trickle can turn to a flood. If you are interested, have a look at my recent posts and you will see what took place at one of these other companies that I have mentioned. It is my view that all it took was a post like this and a bit of buying support and many shareholders turned and ran back to the other side.

GPASAS