Description

I will keep this short as the investment thesis is fairly simple and can be expressed in single sentence – Tejoori has disposed of all its assets and currently trades at 40% discount to cash with management promising to distribute part of the funds to shareholders. Tejoori is an illiquid nanocap listed on London AIM market - so idea is applicable to PAs only.

Tejoori is Dubai based company established in 2006 as a Sharia compliant investment vehicle. It made a small number of unsuccessful investments in 2006-2010 and since then has tried to liquidate these. All culminated with the sale of 3 land plots in the Arjan project in Dubai. Pro-forma for the latest sale (Q1 2017), company has $17.5m in net assets which are comprised of cash and Wakala deposits (bond equivalents in Sharia). This translates into $0.63 NAV per share vs. $0.37 current share price - i.e. 70% upside if Tejoori distributed all the cash to shareholders.

In the regulatory fillings management stated intention to return a portion of the sale proceeds to shareholders. This intention was first expressed (with the ‘no guarantee’ clause) in May 2016 together with the disposal of the first land plot. With almost full year gone by and still no distributions market’s skepticism and discount to NAV are understandable. However, management has repeated the same intention in a number of times since and - with the last land plot disposal completed on the 24th of Feb 2017 - the announcement of some kind of distribution might be imminent and will likely push the share price closer to NAV.

Despite value destroying early investments (NAV per share declined from $1.35 upon listing to $0.63) which took ages to liquidate I have not found any evidence that management would not be acting in the best interest of shareholders. Directors’ compensation has been reduced to symbolic amounts ($5k annually each) and CEO salary stands at $2.5k per month. Overall admin expenses are capped at $150k annually (equivalent to 0.9% expense ratio) – as a result of which CEO's salary was reduced in FY2016 and stands at zero for H1 FY2017 in order not to exceed this amount. Insiders own 16% of the company (c. $3m in NAV) - thus management and directors stand to benefit much more from liquidating the company than from continuing to generate negligible fees. Also worth noting that the company was sitting on the cash balance equivalent of $3.5m-$4.5m for the last few years without making any new investments – if insiders wanted to exploit TJI for their own benefit this cash would likely be gone by now. Thus unless there are some undisclosed related party transactions, I do not see how management would benefit from not carrying out the announced intention to return cash to shareholders.

Besides the questions of whether and how much of the cash will be returned, there are couple more concerns. Large cash balance (almost half of NAV) is kept in short term Wakala deposits and there is no information on who is the counter-party on the other side. Somewhat reassuring is that historically there have not been any impairments on these deposits and principal has always been paid back. However, the risk of related party transactions hidden under these instruments (and credit risk in general) remains. Another concern is that BoD was/is contemplating delisting of the shares from AIM. Due to already low expense level there clearly would be no benefit in that for the shareholders. But if the delisting is announced (not sure if shareholders will have a chance to vote on this) it will likely cause shares to plummet. And finally, management might simply decide to put all of the cash into some questionable project, which judging by the track record so far is unlikely to pay-off. My attempts to reach out to the company to clarify on these issues have been fruitless.

In short, Tejoori is trading at large discount to its cash value and although there are certain risks my expectation is that imminent announcement of distribution will help to bridge the gap between NAV and the share price.

Catalyst

Announcement of distribution