Monday, August 30, 2021

TCOR Pummeled in the Darkness

Treecon Resources (TCOR) closed today with a stock price of $0.35 giving a market cap of $7.9M.  This for a company with TTM revenue of $80M and $0.181 EPS.  I like buying stocks at 2x earnings, how about you?

Before you get too excited there are some drawbacks.  I don't know how much of the most recent quarter's $0.08 EPS is due to one-off items because the company doesn't talk much.  They provide limited quarterly financials on their website here with a press release here, but they do not file officially with the SEC or OTCmarkets so they have the dreaded Stop Sign of Darkness:


The stock is down ~65% from the recent high near a dollar two months ago.  TCOR was up on the heels of good numbers and lumber speculation.  I have to admit I was hoping for a spike earlier this year as lumber ran to the moon.  You see they own a bunch of timber land supposedly bought out of the dumpster years ago.  Below is a company description from their website (emphasis mine):
"TreeCon Resources, Inc., is a holding company that, through its subsidiaries, operates a portfolio of businesses based primarily in the east Texas forest region.

Logging and heavy equipment dealership operations are conducted through the Company's wholly owned subsidiary Texas Timberjack, with sales, leasing, financing and service locations in Lufkin, Jasper and Cleveland, Texas.

Lumber and treating operations are conducted through it's wholly owned subsidiaries, Southern Forest Products in Newton County, Texas and International Forest Products in Houston, Texas.

Texas Frac Fluids operates an oilfield services facility in northeast Texas producing water-based fluids for the oil and gas industry.

The Company also owns and manages a real estate portfolio consisting primarily of timberlands in Texas and Louisiana."
I say supposedly because the company won't communicate any more than what you see on the website.  All I have is that plus anecdotes from other shareholders.  I got a hold of the CFO at the end of last year by guessing her email enough times that one of them finally went through.  I sent my list of questions but didn't get the response I was looking for:
"Dan 
Thank you for your inquiry. Please see our website for published information. http://treeconresources.com, Have a safe and merry Christmas."

I think the stock is down so hard recently because of the stupid new SEC rule.  TCOR has the stop sign and has shown no desire to change that.  Schwab will no longer let me buy the stock and in another month I'm not sure what brokerages will.  The congregation is rushing the exit before they get locked inside.  

Given enough time, effort, and money there will be ways to buy.  I just don't know what those ways are or how it'll change in the next few months.  So far I've heard Robotti is a possibility.  

Still the stock is Cheap with a capital C.  Check these numbers from the most recent annual:

  • 22.62M shares out
  • $35.7M book value
  • $76.7M revenue
  • $2.1M net income
    • had $1.25M "other income" from PPP

At a stock price os $0.35 the stock trades at 2x earnings, 1/10 of TTM sales, 1/5 of the most recently reported book value.  The risk is you don't really know everything behind the curtain but that's also the allure.  What happens when that timber land is ready for harvest?  

****update 20210830

One interesting thing is the company has posted 3 full annual reports to their site.  They're not referenced anywhere and I only found by googling.  Unfortunately it doesn't appear to be something they keep up.  

****

I've made a spread sheet of all their reported numbers.  Here are quarterly EPS and revenue:

And annual:


To me the company is worth a couple bucks in a sale.  Has to be worth at least book value.  Just need to lean on that patience.

--Dan

disclosure: long TCOR

16 comments:

  1. When I first wrote this I forgot to include links to the 3 annual reports they have posted online so I've added those above

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  2. New write up without chart...are you ok Dan?..

    ; )

    Of course I like it!

    Thanks

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    1. some stories are so simple they don't even need a chart :)

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  3. How did you find out about this stock? Just checking your confidence level on the underlying finances and what you see as the ultimate catalyst for the investment.

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    1. A few different people have mentioned this stock to me over the years. I'm not sure what you mean by confidence level. They have the financials posted on their site and I don't think they're lying more than any other company out there. As for catalyst I don't see one, it's just waiting.

      I know they got a new CFO last year and I've heard their CEO retired. so maybe there could be a new management catalyst? I wouldn't hold my breath on overly positive change though

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  4. Glad to here at least SOME good news after this new SEC rule has been taking effect. Do you know if Robotti has any plans to make an online interface for Buy and Sell orders or will we have to do things the old fashioned way?

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    1. I've never talked with Robotti so I don't know. I have heard some concerns from other people with respect to transaction fees, minimum account size, lack of caveat emptor coverage. I'd suggest you call them yourself with questions. Overall I don't think Robotti is ideal but it may at least be an option for some

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    2. I'll get in contact with them and will keep you all updated.

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  5. Dan, you may know more than me about logging ( i.e. you may know something) but do you think that level of earnings can be sustained? A lot of people are expecting inflation which would drive up lumber prices and values of forestry, but I wouldn't be one to bank on macro forecasts. Also I had a look at lumber prices and what the hell was going on in May!?

    Average net income over the past 8 years has been $1.4-1.5mn and at $2 or a $45mn market cap that would be a pe of 30. Using the ttm figure the valuation would be supported but I struggle to see if that can continue long term. The level of discount to NAV is unwarranted I agree. but I don't know how much upside there is beyond that.

    The ttm multiples at $0.35 are amusing though. Long term liabilities look pretty stable at ~$500k from the 3 full annual reports and they may even have been paid off given liabilities for 2020 are lower. Assuming $500k long term liabilities it has an ex cash pe of around 1.5. Assuming no long term debt ex cash pe of just over 1 lol.

    Anyway thanks for the write up and interested to hear your thoughts.

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    1. I don't know anything about logging or lumber. I also don't know how much each TCOR division contributed to their earnings. I think the trees are just icing on the cake.

      This is one I am not thinking very hard about. Pick a multiple and it's cheap. If you don't think earnings are sustainable then go with book value

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  6. That looks like a buy to me. Anyway, very cheap if you can buy the stock at 35 cents. The price has ranged between 10 cents and 1 usd in the last decades. So the upside is maybe capped at 1 usd.

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    1. cheap for sure. I've bought probably between like 0.40 and 0.75 or so. I do not agree the upside is capped at a dollar

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  7. I was still wondering if you are not put off by the fact that soon you will only be able to trade these dark stocks /TCOR to a limited extent or only be able to sell them. Couldn't the liquidity drop so much that you can't get rid of the stocks at all?

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    1. I am not worried about liquidity. I have not sold anything due to this SEC rule and I don't plan to. If anything it may provide opportunity, if I can find a brokerage to let me buy.

      I am upset at the SEC for their misguided rule and at otcmarkets for fanning the flames with their uneducated stop designation list and warnings.

      For me this affects about 20% of my portfolio. So it is not a killer at this point in time if I'm not allowed to trade those stocks for a while. If some of them drop in price, well that's just part of the game and it happens. I will wait and watch either way

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  8. I asked the CFO why their most recent Q is late and she said, "Management has elected to not post quarterly financial statements on the website going forward. Sorry for the inconvenience." then when I asked if they'll be posting annual numbers she said, "That is not yet decided. Sorry I cannot give you more information."

    ugh. booooo

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