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Mortgage Oil  Corp (MGAG) - An illiquid pink-sheet with a 12.8% div yield  trading at 1/3rd of estimated fair value.

10/7/2018

9 Comments

 
Today's stock is another pink sheet  from the Walker's Manual of Unlisted Stocks (2002-2003 6th Edition).

First things first, Mortgage Oil Corp (MGAG) isn't an oil company, it's a real estate investment company with some cash and investments on its balance sheet.

Walker's informs us that the firm was spun off in the liquidations of Mortgage Guarantee Company and Mortgage Service Co. in 1946 and 1949   respectively. The mineral, oil and gas rights that the firm once possessed were distributed out to shareholders as dividends in 2005. Since 1991 the company has been primarily engaged in investing in Real Estate Limited Partnerships and LLC's.

How exciting I hear you say!, bear with me as it gets interesting.

Let's look at some numbers;

Market Cap = $2,864,050

Shares outstanding = 40,915

Price per share = $70

Spread = 54.43%

Dividend per share = $10

Dividend Yield = 12.82%

Now to the company's most recent financials to take a look at the balance sheet;


Picture
Picture

What do you notice?

I see the following;

a) Investments in marketable securities marked at cost, what's their current market value?

b) Investments in real estate partnerships and LLC's being carried at negative value, what is their true value?

c) Investment in a privately held corporation carried at cost, what is it's current value?

d) Land in San Bernandino County carried at $1, what is this land and what is it actually worth?

Lets see what the notes to the financial statements tell us;


Picture

As you can see, the current fair market value of these securities is  over 7x the cost price. 

If we amend the stated Book Value to account for this unrealized gain we get a figure of $1,038,449

Now to the investments in the partnerships and LLC's


Picture
Picture

 MGAG is carrying these investments on it's balance sheet at a value of -$549,257 despite the fact that it's original cost price for the combined entities is $5,137359.  This is a result of the fact that MGAG has received distributions in excess of the income of the Partnerships and LLC's, as such the company must decrease the amount carried on the balance sheet  to account for this. In 2017 alone MGAG received $1,084,915 in distributions.

Now the question arises, what is the true value of these investments and what is the future likely income?

It can safely be said that their value is not -$549,257 given they returned over $1 Million in 2017. Assuming a value of $0 takes the adjusted BV up to $1,587,706. Now assets that are generating $1 Million a year are worth more than $0!

If we back out the  current assets of $916,673 from the current market cap we see the market is valuing the partnership/LLC investments at around  $1.9 Million. That's about 1.9x current annual distributions. This seems like a major mispricing to me.

Assigning a P/E of 7-8 which is common for a no growth stock (The distributions are growing but lets be conservative) we'd get a fair value of $7-8 Million for the partnership/LLC assets, well in excess of the current market cap of $2.86 Million.

Now to the investment in the private corporation and the land;


Picture
Picture

After digging around to try and find some info on Debisys Inc I came up empty handed so I'm not sure what the likely value of this investment is. As for the land, given it's only 0.3 acres it is probably not worth a great deal but certainly a lot more than the $1 it is carried at.

All in all, I think a fair value for MGAG is probably in the $8-10 Million range given the cash, marketable securities and interest bearing assets it owns.


You knew it was coming, now for the bad news,

This stock is illiquid, really illiquid!

The last trade I could find was 200 shares in July 2010!

What a sad ending to such an interesting story. Maybe not, things can change, volume can spike based on sentiment, markets can crash creating panic, the internal situation at companies can shift if insiders or majority owners seek change.

What's to be done?, wait and watch or put a GTC limit order in and keep your fingers crossed.

Thanks for reading,

David


Disclaimer: The author (unfortunately) holds no ownership in MGAG at the time of writing



9 Comments
Damian T.
11/1/2018 09:28:30 pm

Hi David,

I started reading and learning about investing some months ago. I found Preston Pysh's courses and this took me to Preston and Stig's website.
While reading the forum content this week, I found you and inmediatly got interested by what you write, even do I often have to read it many times to fully understand it.
In this case, there's a couple of small details I don't get (they may not be very important, or they may be very basic):

1. Why is the market cap $2,864,050 ? 40,915 shares outstanding x $78 per share = $3,191,370

2. When you take out the current assets ($916,673) from the current market cap, you say we get a value of aprox $1.9M solely for the investing in parnertships and LLC. But, shouldn't that $1.9 value at first also include the investing in a privately held corp and the land in San Bernardino county, before valuing them as not calculable? What I'm trying to guess here, is why you did it in that order. There's maybe something I'm missing...

Thank you in advance.

Damian

Reply
David
11/2/2018 06:13:37 pm

Hi Damian,

Thanks for pointing out the error I made with the price per share. It should be $70 and not $78. I'll correct that.

With regards to your second point. Since the investment in the land is only $1 and the investment in the private corp is around $52,000 I didn't bother mentioning them. So, yes they are a part of the $1.9 Mil but only a tiny fraction of it.

Thanks for taking the time to read my blog, I really appreciate it!

Regards,

David

Reply
Damian T.
11/2/2018 09:39:26 pm

Thank you for sharing tour knowledge, and for your quick response!

Best regards,

Damian

Reply
Peter Q
11/23/2019 05:02:27 pm

David,
This stock has resurrected. From last trade in 2010 going to a few recent trades and Bid of 205 and Ask of 290. Financials show a slow but steadily moving forward company. Any ideas on how this stock resurrected? Current price seems too high.

Thanks for all the time you spend sharing your ideas on this blogsite.

Reply
David
11/24/2019 10:21:29 am

Hi Peter,

Do you have a link to a site showing the recent trades?, I can't find them. If the stock has been trading then I'm guessing someone had a GTC order that got filled.

Reply
Peter Q
11/24/2019 02:20:51 pm

https://web.tmxmoney.com/quote.php?qm_symbol=mgag:us

TMX.com is a nice site for viewing the last 25 trades of a company. It is especially good for thinly traded stocks because it can show you months/years of trades, if they number less than 25. Also, if you click on Price History tab you can see daily totals of trades one month at a time. Also, level 2 quotes show the current Bid/Ask I referenced above, so it was not just some rogue market orders.

David
11/24/2019 09:11:57 pm

Thanks for the link Peter, that is very useful indeed.

Looks like it might be worth putting a GTC order in on this one after all.

Reply
Eric Schleien link
1/31/2020 06:26:15 pm

Almost wonder if an insider or large shareholder used your post to sell out...stock has gone from 70 - 300 pretty quickly :)

Reply
Cuckold Blackpool link
5/7/2024 08:10:22 am

Nicee post

Reply



Leave a Reply.

    David J. Flood

    UK based Investor. I focus
    ​on Net-nets, Pico/Nano caps, AIM/OTC/Dark stocks & Special Situations. Balance sheets & Long-range price charts are my guide. Looking for inflection points. Do not construe my blog as investment advice, always conduct your own due diligence.  Caveat Emptor!


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