‘Extraordinarily cheap’: The ASX share where 77% of its value is cash

Ask A Fund Manager: Cyan Investment Management’s Dean Fergie reveals two shares that are absolute bargains at the moment.

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Dean Fergie, Cyan Investment Management fund manager

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Ask A Fund Manager

The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Cyan Investment Management portfolio manager Dean Fergie discusses two micro-cap ASX shares he currently loves.

Hottest ASX shares

The Motley Fool: What are the two best stock buys right now?

Dean Fergie: We own shares in a listed investment company (LIC) called Touch Ventures Ltd (ASX: TVL), [which] is an Afterpay-backed investment or venture capital vehicle. 

Obviously, a huge amount of heat has come out of the buy now, pay later sector. Valuations are being crunched, and I think this has hurt this as an investment vehicle. 

MF: Even though Touch Ventures itself doesn’t have anything to do with buy now, pay later?

DF: They have a buy now, pay later operation in China, which is kind of a double whammy.

But that equates to about 5% of its value. And they have a newer buy now, pay later business in the UAE, which again maybe has some issues with respect to its ongoing valuation. They’ve got investments in a logistics business Sendle, open market data platform Basiq, and the like. 

But most importantly, this stock’s gone from a listing price of 40 cents back to, it’s currently trading at, 13 cents. They have, in net cash, 10 cents per share on their balance sheet. And it was trading at 10.5 only at the end of June. 

So you’re literally getting all their investments, which they’ve paid more than $100 million for, for almost nothing. And so we think that, as a pure value play, it’s extraordinarily cheap. It’s trading at 50% of its NAV [net asset value]. 

There might be some risk of its NAV, but you’re not going to mark down the value of cash on your balance sheet. So we think it’s a great opportunity.

MF: Did you buy in during the initial public offering (IPO), did you?

DF: We did, yes, unfortunately.

We also owned shares pre-IPO, which was at 20 cents. So we did see reasonable uplift when it IPOed, but then there’s been a lot of, I guess, value destruction on the way down.

MF: Fair enough. What’s the other stock you like at the moment?

DF: The other one we quite like, and I think it’s a bit topical, is a company called Mighty Craft Ltd (ASX: MCL). So they’re a boutique brewer and spirits company. And they’re also in a few venues. 

They bought a company called the Adelaide Hills Group just at the start of COVID, so early [2020]. And that sort of equates to its whole market cap at the moment. 

But probably most excitingly, they own 40% of a product called Better Beer, which is pretty much taking the market by storm in Australia. They just signed a distribution deal in New Zealand. They expect they’ll do next financial year something like 12 to 14 million litres of beer in this one product alone. 

So it’s just got a huge amount of growth and at a very, very tiny valuation. I think the total market cap of Mighty Craft now is about $50 million. So we think, again, it offers incredible value given their ongoing asset base and their products.

MF: The share price has about halved this year, hasn’t it?

DF: That’s about right. I think it’s gone from about 30 to 15 odd [cents].

So it’s capped out at about $50 million, which we think is tiny, given the amount of products that they’ve got under their banner.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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