Rasmala – Investment Manager trading at less than net cash

New position – 9% portfolio weight.

It has a market cap of £25.9m and a NAV ex goodwill of £94.3m.  Simply getting to this implies a 200%+ return…

Rasmala (formerly known as EIIB – European Islamic Investment Bank) is an asset manager.  It used to be a bank but has recently re-focussed on asset management.

 

• On the balance sheet (June 2015 linked here) there is:
• £9m Cash
• £19.2m available for sale investments  – Really cash or pretty cose
• £28m assets at fair value through P&L – seed investments in funds.
• £15.7m due from financial institutions – Again close to Cash
• £17.7m Private equity assets (Liquidating)
• £1.1m Property
• £1.6m FX
• £5.4m Financing Arrangements – again close to cash
• And a few other bits

Total Liabilities are £11.5m.

Ex goodwill this gets us to a NAV of £94.3m.

A red flag is the change in auditor a couple of years ago.  It changed from KPMG to BDO Stoy.  It was never really flagged or highlighted or explained.  Still I have no evidence of anything strange going on and after the change in auditor they returned £20m to shareholders.  There were also changes of the board which were a touch abrupt.  I have asked for an explanation from the company but have not received an answer.  It isn’t enough to make me not buy in but gives me a bit of pause and limits the weighting a touch.  It is a UK regulated investment manager so that makes me a little happier that the accounts are accurate.

The company has recently decided not to be a bank – and to give up its banking license.  This should cut costs although I dont know how much by.

It is really difficult to estimate how far away from profit they are…If I look at commission, income from investments and other operating income subtract all operating expenses I get to a loss of £1.6m at the half year, double it then £3.2m is the underlying loss – excluding movement in funds and private equity.

This is a little unfair – some of the cost will be associated with the private equity portfolio – which will hopefully achieve a gain, and did at the half year… If one looks at a straight unadjusted P&L at half year they made £0.5m.

I dont know how much not being a bank will save.  I would recon between £0.5m and £1m a year are plausible figures…  Pushing FY unadjusted to £1-1.5m or adjusted to -£2.7m or -£2.2m.

P&L doesn’t really matter to the case though.  Let me re-iterate for £25.9m worth of market cap you get £94.3m worth of assets, much in cash.

I think what may be confusing the market are that lots of the cash is in wakala deposits and such like – this is pretty much cash but structured to get around the Islamic prohibition on charging interest.  It reminds me of Islamic strictures on prostitution.  They aren’t prostitutes, they are wives for just one night…  Apparently its allowed…  Instead of interest – they do things like promise to buy at a higher price at a later date of structure things as contracts with guaranteed profit margins – basically its all interest but is skirted around…

The fund management business actually seems to be doing rather well, though there is little sign of AUM growth…

See links here and here also here (FT.com)

Apparently they have also won awards

http://rasmala.com/2016/01/27/rasmala-winner/

also

http://rasmala.com/2015/10/28/rasmala-investment-bank-regional-fixed-income-manager-rasmala-egypt-asset-management-equities-manager-of-the-year-2015-by-the-global-investor-isf/

Not sure how prestigious they are but I can see that there is some success here…

They increased distributable reserves to £40m in 2014.  I can’t really tell how much they have left of that, £20m was paid in 2015 but they have made losses so any future distribution will be less than that.

In reality ceasing to be a bank means Rasmala will have more free capital so can distribute more – the reserves are little more than a footnote…

The management are typically overpaid – almost £700k a year across all of them… The chairman holds 18% via a company…

The share price has fallen quite a bit from 140-150 a couple of months ago to 85 now.  There is no known news driving this – I suspect its just down to sentiment against middle east related stocks and illiquidity.  Often I have found the best time to buy smaller cap stocks is when their illiquidity pushes them to lows….

The other shareholders are very dispersed –

• Al Salam Opportunities – 8 %
• Vallford Limited 7.5%
• IIB European 7.38%

There appears to be a bit of investor activism via Wexboy, this should hopefully prevent management lifting my money….

Ultimately this does lack catalysts somewhat but it is very, very cheap. The management have shown themselves willing to return surplus capital – and it has plenty of that.  Losses are highly manageable and likely to diminish if AUM increases following good performance. Eventually if things done improve I hope shareholders liquidate the company and return cash.

My hope is a further return of capital will drive a re-rating but it could easily be bought by a bigger player or management themselves. A rise in the oil price wouldnt hurt either….