I have held off writing this blog for several months for fear of risking my credibility. Unlike many on this site, who submit unsubstantiated dribble, I believe in the Golden Rule: “Do unto others ….etc”. So I have checked my facts and now present a solid expose of a grossly maligned stock.
I own some stock, and yes, I want to see it rise, so this information is partly self serving, but I am not about to sell my holding for a quick few cents so it is more than just profit I seek. I seek justice. I do not rely on day trading for my income. I believe in the long term prosperity and the soundness of the commercial processes in the company.
ASQ is a maligned stock for 2 reasons. The first negative is fading in significance now and the second negative will disappear the instant the 07 P & L books are out. Here is why.
I am in the same industry as ASQ and have an intimate working knowledge of their modus operandi. They have eclipsed my level and risen from a small private company to a public company with substantial capital raisings in 6 years.
The short term mortgage market is a misunderstood industry. It is perceived as inherently high risk because of the high rewards (4 to 5 % per calendar month, that’s 48% plus!). This perception has been created by a passing parade of cowboys who have tried to use the niche to get rich quick. Those few who have squandered their dough have created the horror stories. Their ineptitude was their undoing, not the nature of the market. Short term lending is in demand because the banks and other lending institutions move too slowly for many business folk who either need cash within 3 or 4 business days to grab an opportunity or have painted themselves into a debt corner and need a quick fix to hold off the creditors while the property is sold or refinanced.
It is not a new industry and it is not going to go away. Lenders who secure their advances correctly do not lose money. If a short term (bridging) loan of say $50,000 is secured as a second mortgage on a house worth $500,000 behind an existing first mortgage of $300,000, the loan to value ratio (LVR) is 70%. Even if the borrower defaults and the property has to be repossessed and sold at auction it will achieve at least 80% of its valuation, and from that $400,000 plus the second mortgagee will always recover the capital and a healthy profit. To a lesser extent, first mortgages are taken as bridging loans at the same high interest.
ASQ began its healthy growth solely as short term lenders. Over the last couple of years, since floating it has diversified and now participates as equity lenders, partners and developers. It has started a huge marina and resort development in Bowen and has almost completed a land subdivision in Gatton.
The short term lending continues as an integral division within the company, but is no longer the sole business. Visit the website at www.assetloanco.au.com (note the position of the .au) to read about the projects, the prospectus and the annual reports. Note the $5 million “Impaired Losses” on the 06 Income statements. More on that significance later.
First to dispel negative #1.
The borrowers that we bridging loan lenders have to deal with are a colourful lot. We sometimes get the more volatile, “devil may care”, “it wasn’t my fault” types. Often we meet them for the first time 48 hours before the bank’s bailiff is about to put the widescreen and the rest of their traps out on the street. Or they present when they’ve signed up at auction or on a delayed settlement n contract and they have run out of time. “If I don’t raise $70,000 by Friday I’ll lose my $200,000 deposit !” The excuses for the bind they are in are manifold. Their fix is always down to someone else. Of course the opposite is always the case. We all create our own reality.
A couple of years back a local clown approached ASQ for a bridging loan to get himself out of a bind. This was granted and a mutually beneficial relationship grew as over time he took several loans. The fellow was always slippery however, and difficult to deal with, but ASQ played safe with proper security. Eventually he was bankrupted by other creditors on a separate project. At that time he owed ASQ a substantial chunk, so ASQ had to keep the security to recover their advance. Since that time he became obsessed with trying to force ASQ to rectify his loss, which he has no right to either legally or morally.
It turns out that apart from being a bankrupt, he is a professional litigant. He has set up a website slandering and defaming all those involved with ASQ. The guy is a nutter. Go to www.gregrogers.net to view a list of his spurious court actions. That site was posted by ASQ’s solicitors and contains nothing but the unembellished facts. All the court actions he has brought against ASQ have failed. To my knowledge that may be the end of it. I note that he blogged this site (Hotcopper) several times up to March 06 and then dropped from view. What impact he had on the share price is difficult to quantify but he has nil impact on the future fortunes of ASQ.
Now to negative #2.
On the website find the “Impaired Losses” in the P & L statement for 06. In this game, loan terms are usually set for 2 to 4 months. When a loan defaults, i.e. it is not repaid at the end of the term, the interest rate jumps to 10% per month and recovery action begins. Now, while that may seem like a drama to the layman, it isn’t to the lender. A due process is instituted, the result is repayment one way or the other, returning somewhere between the lower rate and the default 10% PCM in profit. The only irregularity is time. It just means that a particular advance may be out for 7 months instead of 2, and may roll over into the next financial year.
Now, a little while back the ATO changed the accounting rules for credit providers which means that instead of unrealized gains being in the credit column they must now be put in the debit column until recovered. Common sense knows that a $100,000 defaulted loan with $30,000 interest owing is an asset that will be converted to cash eventually, but the new rules log the profit due as a loss until recovered. The result is that the ASQ 06 books show a net profit of around $1 mill, not a brilliant return. Yet the $5 mill “Impaired Losses” will show as profits as they are recovered during the 07 tax year, add to that the normal 07 profits and a bumper year is expected !
Moreover the A & L reflects only the purchase and the costs associated with the Bowen project. When the D.A (Development Approval) is in, and it is expected in late January 07, the value of the property will rocket. That’s just in the short term, the profits over the next 2 to 5 years on that project alone will be in the tens of millions.
This company looks light. Looks can be deceiving.
A major share broker did a valuation on the shares of the company back in April 06, based on underlying value and the 05 books. They valued the shares then at 43.4c and as at the approval of the DA for Bowen they valued the shares at 85.9c. Now since then the 06 books showed a substantial increase in profitability over the 05 income. So when the Bowen DA is in, these are 85c shares.
ASQ Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
