Elite Client Idea #14

Reclaims Global Limited (SGX ticker: NEX; Price SG$ 0.09)

Reclaims Global (‘company’) is a relatively small outfit based in Singapore and operates in the construction services industry – with a focus on public sector projects. It was formed in 2009 and listed in 2019. It has a relatively low free float of 13.33%.

It generates revenues from: a) recycling of construction waste as building materials (29% of revenues), b) excavation services (48%), and c) logistics via tipper trucks for material transportation (23%).

The company is currently struggling from the slump in Singapore construction – with slow progress of projects, labour shortages, and high fuel costs. The key decline in the last few months is the fall in revenues from logistics, which appears to be the most operationally leveraged segment heavily dependent on volume.

On April 2021, the company announced that the executive Chairman of the company was under investigation by Singapore’s Corrupt Practices Investigation Bureau – but no charges have been filed, and this investigation doesn’t appear to relate to the company.

The company reported TTM revenues of SG$ 31.6m (FY21: $24.7m), ebitda of $5m (FY21: $4.5m), and net profits of $2.4m (FY21: $2.2m). (Note: the financial year end is January 31st). Average earnings in the last few years have exceeded $2.5m.

The financial position (as at July 31st 2022) was strong with net cash exceeding $9m. The net current asset value was $15m (including non-current financial investments of ~$1m); and net tangible asset value was $28m.

The equity last traded for under $12m, which is below net current asset value, and ~5x ttm and average earnings.

Receivables were reported at $7m and the company fully provided for amounts 365 days past due. Receivables and contract assets that are past due but not provided amount to roughly $5-6m. The management and auditors appear to be focused on provisioning of receivables as a key accounting risk. In our view, shortfalls on these amounts should still leave the investor with sufficient liquid asset protection.

The company generated aggregate free cash flows in just FY21 and FY22 of $13m, which exceeds the current market cap, and provides a clue as to glaring undervaluation in this stock.

Dividends were cut to zero in FY22 but long-term fundamentals appear sound with Singapore government’s focus on affordable housing, transport, and renewable energy infrastructure – and the current price appears to us to provide a low-risk entry point with the prospect of remunerative returns.