1. Capitalised at just $A42mil - thats a EPS of 12c a share, or a PER 3x
2. Net profit of $12.9mil - down 46% from the previous year
Granted that the drought might not end for more than a year, there other compelling reasons why this stocks is a buy:
1. Takeover: If Qld Cotton was a good buy, then NAM at these prices must make alot of sense as a bolt-on business to Qld Cotton.
2. Asset value: Net tangible asset backing of 100c, when the share price is 42c
You would think that the depressed NAM share price would be a smoke signal to international cotton producers interested in diversifying their production base. I dont see this as the case because:
a. The strong $A - albeit alot of these commodity producing countries also have strong currencies
b. High cost output - If you were to buy production capacity, then you would want NAM to be doing the buying of lower cost capacity in third world countries. Unfortunately for shareholders it didn't do that like Qld Cotton.
c. Unreliable water supplies in Australia - this is perhaps the big problem for Australia. There has been a decision to allocate more water to the environment. Given the value of farming land, I wonder whether the high water consumption intensity of cotton would justify shipping the cotton gins to third world countries and transforming cotton farms in Australia into wheat, which requires less water.
- Andrew Sheldon www.sheldonthinks.com