Friday, June 24, 2016

MRCR update: very cheap and possibly becoming less dark

Quick update on Moro.  I first wrote about MRCR 5 months ago.  They are dark and cheap with an old CEO.  The value will be realized some day, question is when

I got the 2015 annual and 2016 Q1 reports the other day.  This company is dark but do produce all the reports.  If you just send them an email request you'll get back reports.  They used to file reports with and on their own website but stopped.

The numbers look good.  Company came back to profitability with the winding down of their Rado division.  They would have actually been profitable in 2014 as well if not for Rado.

2015 yearly numbers:

  • shares 6.4M
  • BV $7.2M vs 7.1 in 2014
  • rev $58.9M vs 71.3
  • net income $100k vs -670
  • EPS $0.02 vs -0.10

2016 Q1:

  • shares 6.4M
  • BV $7.2M vs 7.2 in 2014
  • rev $13.2M vs 11.1
  • net income $5k vs -490
  • EPS $0 vs -0.08

I have exchanged a few emails with the CEO and he always gives me one word answers.  It's so funny.  I asked the CEO if he expects the most recent quarter's revenue growth to continue and he said "no.".  I asked when they will start posting their reports publicly again, either with the SEC or otcmarkets and he said "soon."  I asked if he considered posting the reports on the company website since that would presumably be cheap and he said "yes."  

So there you have it.  MRCR's CEO says he'll be posting reports publicly "soon" but who knows what that means.  

The stock is currently at $0.15 = 13% of book value.  Is that really what it's worth?

disclosure: long and would be buying more if Fidelity would let me


  1. Very interesting idea (it's so cheap if their statements are reliable). I have requested their latest filings (and they send them to me within a day). Recently (for Q1) they have changed their auditor. Do you have any idea about the reasons for this? (it's often a red flag).

    Additionally the auditor writes:

    "Accounting principles generally accepted in the United States of America require that deferred income taxes be recognized for the tax effects of differences between the financial and tax bases of assets and liabilities. The company has not recorded deferred taxes in the accompanying consolidated financial statements. The effects of this departure from accounting principles generally accepted in the United States of America have not been determined.

    Management has elected to omit substantially all of the disclosures required by accounting principles generally adopted in the United States of America. If the omitted disclosures were included in the consolidated financial statements, they might influence the user's conclusions about the Company's financial position, results of operations, and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters."

    1. I don't know about the auditor change. You should send them an email. My guess would be cost reasons, same as why they stopped filing reports with otcmarkets.

      I also don't know about the deferred income taxes stuff the auditor is talking about. That's one area I need to improve my understanding of. But to me, this is a super cheap stock that is a small part of my portfolio so I don't care to look that deeply in the deferred income taxes. Some day the CEO will want out and sell it for a couple bucks per share. The are profitable (slightly) and trading at a ridiculous percentage of book value.

      As far as omitting disclosures I would say be thankful for what we have and keep in mind who is producing the report. I'm glad they are sending me anything. The 77 year old CEO is also the CFO and chairmen of the board. I think they are just keeping the report to a manageable level.

      If these are red flags then what would that do the valuation? Instead of being worth stated BV then maybe it's worth half that, so now the upside is only 150% instead of 400%...still a buy

  2. Don't get me wrong. I'm very interested and have a buy order outstanding. I wasn't attacking the thesis.

    I just want to get an as clear as possible picture here about fair value to make buy and sell decisions (Up to what price do I want to buy? When should I exit? How big can I make my position?). The information I'm searching for is needed for that.

    The way the auditor worded it sounded quite scary though. It sounds like the auditor does not condone this conduct (the previous auditor sounded a lot less harsh). The wording: "Management has elected to omit substantially all of the disclosures required by accounting principles generally adopted in the United States of America."

    Substantially all? At least there is a balance sheet, income statement and cash flow statement. Because of the tax issues I do have to discount book value in my rough intrinsic value analysis until I better grasp what they might be pulling here. Certainly not the >80% discount it's trading for now though.

    I agree this is a buy.

  3. OK I have to apologize. I didn't give your questions the proper attention.

    I just looked through a couple of reports and I think what you're seeing is just a difference in how Moro handles quarterly vs annual reports. Request some old quarterlies from them and check it out. My Sept report from last year has the same auditor as the most recent quarter. Same language too about "substantially all...". I think moro just doesn't pay for a full quarterly audit and report to say money but they do for the annual. Seems they use different auditors too for quarterly vs annual which is strange but whatever.

  4. No need to apologize. I took your advise and contacted the company. They basically confirm your suspicion: the quarterly reports are done by a smaller firm and only the annual reports are "certified". The quarterly reports don't include deferred taxes and footnotes.

    On a side note I also really like the response speed of the CEO of the company: a matter of hours! That's not common for companies like this (as you are well aware).