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View Full Version : APB - A Clayton's Profit



Lizard
01-09-2009, 02:26 PM
Just looked at yet another gem of a FY report from Australian pearl producer and MIS scheme seller, Arafura Pearl. I strongly feel it deserves a dishonorable mention in case anyone absent-mindedly considers buying in...

On the surface, APB looks cheap - $3.1m profit on a $14m market cap. However, look closer and $11m of this is magically generated from an increase in the value of biological assets. I say "magically" because they have missed the critical "note 1" from these unaudited accounts - the note that should detail the assumptions used in valuing these assets.

Now, call me cynical, but with the value of pearls having been slashed, sales drying up, inventories building (including at APB - but they are claiming this is part of some new marketing strategy to launch their own sales/marketing effort!) and the entire pearl industry in crisis, I struggle to believe that their $44m valuation for pearl oysters and spat is justified... I would hazard a guess that the true market value is currently somewhere between one third that figure and completely worthless... In addition, while their "strategically" growing inventory is never going to be written off, it may need to be written down in order to turn it into cash. And that bank overdraft is sitting mighty close to the $6m limit.

Have to hope some more hapless punters subscribe to their MIS scheme then?

Even if APB can survive and generate positive cashflows, I suspect the gains already booked on biological assets have effectively brought-to-book profits from future sales for at least the next 5 years.

sharer
01-09-2009, 02:43 PM
Re that big increase in "biological assets" & "...they are claiming this is part of some new marketing strategy to launch their own sales/marketing effort!"

Could it be .. next agm notice says '.. bring a few beers ..' & any biological assets still surplus - shall be eaten! mmmmm:)

Lizard
31-01-2012, 10:21 PM
Article forgot to mention the minnows like APB, but yeah, good the regulators woke up eventually:
http://www.smh.com.au/money/investing/three-years-on-agribusiness-investment-guides-emerge-20120131-1qqev.html

The most eye-opening thing about this one, for me, was the 2009 annual report, when you could read through the entire "profitable" x-pages of fine-print accounts and only discover the truth in the auditors comments where they significantly disagreed with the valuation of biological assets... They said the profit of $3.1m should really be a loss of $9.4 (and I'd have said that was conservative).... just spot the one line in 62 pages that tells you the truth. Oh yeah, buyer beware. Yet, they were still permitted to trade and sell MIS schemes under those accounts. Incredible. What to do? They changed auditors and 2010 Annual Report just got an auditors abstract waffle about valuation assumptions...

... good to see the regulators take an interest, even if it's mostly in the large-caps. Requiring integrity of anything smaller on the ASX is just considered unrealistic.

I haven't read the new regulatory proposals, but I hope they deal with accounting valuation of biological assets, and the delineation of MIS revenues/likely liabilities from production revenues and management returns. Another 50 pages of fine print is NOT the answer.

PS: Yes, Steve, DOCA and shell coming up...