NAPEC, Valuation, and Random Thoughts


NAPEC Inc. ( is up 10% since my publication on April 20, 2015. The article demonstrates that NAPEC is severely mispriced and offers a lot of value. This opportunity exists because a variety of missteps led the market to severely punish NAPEC’ stock in the last couple years. Management and part of the board got the boot and a new slate of C-suite executives took over in the summer/fall of 2014. With the current turnaround in place, NPC presents an attractive contrarian opportunity with upside.

At around ~$0.95 a share, the current price reflects thoroughly negative sentiment and has made shares available at a cheap valuation. Valuation is the key here (it should always be when investing). Using different methods, I arrived at an intrinsic value range of $1.40 to $1.60. Even if my valuation is off 50%, you can still make some money.

You can buy high quality companies. It’s something I recommend. The issue is valuation. You will end up paying a lot in relation to assets or earnings. High quality assets and earnings don’t come cheap. That’s what everyone wants. The dream is to buy high quality assets at dirt cheap prices and these occasions are rare. You need a 2008/2009 moment when the world was falling apart and those moments don’t come around too often. So in the meantime you need to work hard at finding interesting investment opportunities.

On the topic of frothy valuation, Twitter (TWTR) just announced disappointed results and the stock collapse. Why? Twitter’s expectations are sky high. The pressure to deliver super spectacular results weights on the stock. Plus the investor base of Twitter is probably composed of speculators and short-term investors. The second they read a negative tweet, they sell the share. I’m not saying Twitter is a bad company. I love Twitter and I think it’s an excellent company but it’s not a good investment because of its rich valuation.

Obviously investing in NPC doesn’t come without risk. It’s a tiny company with limited volume and a lackluster past. The key to the turnaround’s success is to improve operating metrics and regaining investor confidence. With the low expectations surrounding NPC, the company only needs to deliver less than worse results to move the stock up.

Book Review: Tomorrow’s Gold: Asia’s Age of Discovery

Marc Faber

Disclosure: Marc Faber is the chairman of a fund I consult for.

I enjoyed reading Tomorrow’s Gold: Asia’s Age of Discovery by Marc Faber. In the investment world, Dr. Marc Faber, also known as Dr. Doom, doesn’t need an introduction. He’s a well-known contrarian investor.  He’s the author of the famous Gloom Boom Doom newsletter (~$1500 per year) and he’s on TV all the time pitching his next prediction.  I’m sort of a contrarian investor also, but my philosophy and his are totally opposite. He’s more a macro top down investor and I’m a bottom-up valuation guy. Even if I don’t share the same point of view as Mr. Faber on everything, I respect his work and opinion.

Tomorrow’s Gold was published in 2002. Faber is an economic historian (PhD in Economics). I like economics and I like history, so I’m not setting myself up for disappointment.  Three quarter of the book is interesting facts and figures, and it’s an extremely well researched book. The other 25% is the prediction part which I’m less fond of. Since the book was published thirteen years ago, some of his predictions are obviously off. I can’t expect him to be perfect either. But he does get some stuff right like the major themes of the book, the rise of emerging markets and the economic softening of the develop countries slow. But I don’t care about predictions. Predictions are interesting to talk about but in my opinion they are worthless. What I liked the most is rise and downfall of civilizations. How empires were forms and disappeared. What happened to powerful rich cities? How the center of importance and influence moved around the world. There’s a good chunk of the book on major bubbles, busts and crowd psychology. History seems to repeat itself over and over. And of course, Mr. Faber doesn’t hold back on taking a couple swipes at the central bankers.

Of course Mr. Faber is not the only guy making predictions on Wall-Street. We could fill a couple stadiums with “market forecasters” filling the airwaves with their bold predictions. I just wish they would keep score. The TV host gets a nice quote out of you and there never seem to be any follow up with your claims. If you are a smooth talker with a great personality, you could be wrong all the time and they can’t get enough of you on TV. You just move on with your next headlining prediction. I’ve been following Marc Faber’s career in the last couple years and his predictions have been all over the place that it’s impossible to keep a score sheet. The thing about predictions is that if you make enough of them, eventually they’ll start to come true. There’s a joke in the industry regarding perma-bears that goes like this: “I’ve predicted 15 of the last 8 recessions.” Calling a market correction is the easy part. The secret of forecasting is timing and the magnitude of the correction. A lot of “experts” called the burst of the housing bubble in 2008 but nobody predicted that it almost sent us back to the stone age.Being a good enough prognosticator to hold the investor community’s attention most of the time is an entirely different matter and Marc Faber is one of those guys.

To conclude, it’s a great book filled with knowledge. I learned a lot and I recommend it to anyone with interest in economics or history to read it. However I don’t think this book really makes you a better investor.  The book guides on where to look in the world for opportunities and it pretty much stops there. The ideas of the book are hard to apply to everyday investing. I find it hard to tie economic theory to investment ideas.

Bush: We Have A Vibrant and Strong Economy, 10/2007

If history truly repeat itself, the next time a President tells you we have a strong vibrant economy, run the other way. Here’s what Bush said 11 months before the collapse of the financial system.


Aside from this one data point, real estate always goes up


I Have a Feeling This Won’t End Well

I have a feeling that this won’t end very well for this particular bank, BOFI Federal Bank. I don’t know if the bank actually follows through with their campaign, but if they do history is not on their side.

It’s one of the hottest bank on the market right now. It’s trading at a very high multiple of 20x trailing P/E and 3x book value. To compare, Citigroup just released their 1st quarter numbers and they are very profitable but the stock is trading like its dead.

The following post is not an analysis of BOFI but a focus on its ad campaign. BOFI targets non-qualifying folks who they perceive to be low risk. Non-qualifying = you can’t borrow money at a traditional bank because you don’t meet the lending criteria.

There’s a mega collection of posters like the ones below here.

“No jobs, no income, no problem”. The following campaign is a nice flashback to 2006.

“New draft pick wants to buy luxury home”. I would estimate that 90% of the time this will end in a disaster. I’m pretty sure Johnny Manziel is a client. And even if the prospect becomes successful, football and basketball players are among the worst people you can lend money too with a very high rate of bankruptcy.

If UFC keeps paying the fighters at the current rates our poster boy probably qualifies to buy a dog house. Except in this ad, the mma guy is getting a martial arts studio, so there’s a possibility of extra income if it’s a public studio with paying members. If not, I’m not sure how well the bank can sell a mma studio.And if you ever wonder what’s an asset depletion income qualification loan? It’s for individuals who are asset rich but don’t declare enough income. The lender takes the asset into consideration when calculating income.

This is an ad of a very talented artist working on a masterpiece. If an artist ever shows me that piece of art, it’s an automatic sign that you should throw money at him, especially if he’s buying in New-York. BOFI is a bank that’s very open minded that knows and understand culture.

BOFI Federal Bank is an Internet bank. It doesn’t have a physical branch network. They sell their products through affiliates and third-parties partners. There BOFI’s cost are very low compared to a traditional bank. It’s growing really fast and making money, which explains their rich valuation multiple. However, with such low lending standards and probably a high risk portfolio of loans, I wouldn’t expect this bank to last forever. On the extreme opposite, Cullen/Frost Bankers Inc., a Texas bank, has been around for over 100 years. It’s not a sexy cool bank, but it’s still around to rewarding shareholders. It has seen it shares of economic crisis, wars, and oil boom and busts. The company is also one of the few financial institutions we know of that did not reduce its dividend during the financial crisis of 2008/2009.

My point is to be skeptical when investing in banks with aggressive lending activity. You might make money for a few years until it hits a bump on the road. It’s usually better to avoid these kind of companies.

Santangel’s Review

Santangel's ReviewFor the investors that follows me, I highly suggest that you sign up for the Santangel’s Value Links Weekly Mailing List. It’s one of the rare email that I allow in my inbox. There’s no solicitation, spam or anything like that. Just a weekly email with a couple interesting investing stories. Clean and straightforward.

Disclosure: I met the guy running it, Steven Friedman, at an investment conference, he’s a great person.

The NAPEC Turnaround – Mispriced Security Offers A Lot Of Upside


The following article is free and available to everyone via Seeking Alpha. You don’t to login or sign up for anything. It is however a follow up on my PRO research that was published last month. I have a preview on this site here. So if you can I highly suggest to read the first article (login required) because it’s much more in-depth piece of research. You can also find the supporting documents here.

*April 21,2015 Update: A day after my publication NAPEC Inc. announced that they were awarded $90m in contracts. This announcement isn’t included in my valuation. It implies that the backlog just got bigger to approximately ~$465m.

Reposted from Seeking Alpha
By Brian Langis


  • Mispriced security. Large gap between current price and value. There are many catalysts that could “wake up” the stock.
  • A major institutional investor recently increased their position by buying 2.3 million shares.
  • Turnaround situation. New management, led by Pierre Gauthier seem committed to accountability, cutting costs, a return to profitability. Plan to double revenues and EBITDA margins to 7-8%.
  • Revenue at an all-time high. Backlog at a 3 year high. Q4 results suggest NPC is turning the corner.
  • NPC has turned down many buyout offers in the past.



CVTech Group officially became NAPEC Inc. in September 2014. Throughout the article, NAPEC Inc. can also be referred to as NPC, CVTech Group, or the Corporation and its subsidiaries.

NAPEC Inc. is primarily traded on the Toronto Stock Exchange under the sticker NPC.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise. USD-CAD 1.22 Price of 1 USD in CAD as of April 10, 2015.

Before diving into the article, I highly suggest you read my research articleNAPEC Inc: 30%-40% Upside In Potential Turnaround. It sets the background for this article and I didn’t want to rehash everything. It explains how NPC got to where it is today, which I recommend reading before investing. The objective of this article is to provide a valuation update and a review of the Q4 and FY2014 results. Since NAPEC is in a turnaround phase, it’s important to keep track of its progress.

Since my publication on March 11, 2015, NPC is down 19 cents or 18.1%. Not an achievement to be proud off. At that price you can get in at the same price as the Caisse du Dépôt et Placement du Québec (CDPQ) did in December 2014 when they acquired 2.3m shares. As soon as my article was published NPC jumped off a cliff. However I am not worried because I’m not suffering a permanent loss since NPC is trading below its intrinsic value and I understand what I own. One must wonder what piece of bad news made NPC to jump off a cliff? Well there was no bad news and Q4 results were what people expected. I have my reasons on why NPC is down which I explain later in the article. The 52 week low/high is $0.83 and $1.15. That’s a vast movement considering the value of NPC didn’t fluctuate that much in the last year. There’s another way of interpreting this: NAPEC just got much cheaper.

                                   NAPEC Inc. -10.31% since inception vs S&P TSX +65.3%. April 29, 2005 – April 17, 2015

Investment Thesis

According to my valuation, the shares of NPC are worth between $1.40 and $1.60 which represents an upside of 56% to 78% over the current share price of about~$0.90.

The full details of my valuation are below.

NAPEC trades at a significant discount to its intrinsic value because its lackluster past is overshadowing the current turnaround and progress. NPC prospects will be worthy once short-term problems disappear.

Mismanagement and a bloated cost structure have been long hallmarks at NAPEC, and good reasons to avoid it. However, new management, led C-suites execs, by Pierre Gauthier and a new Chairman, seem committed to accountability, cutting costs, a return to profitability, and a willingness to make tough decisions. The hiring of Pierre Gauthier is an excellent decision. Prior to NAPEC he was the Chairman and CEO of of Alstom Power and Transportation Canada Inc. If you are more interested, listen to some of his speeches on Youtube or Bloomberg.

In my view, NPC is heading in the right direction by cutting unnecessary expenses, returning EBITDA margins to its historical level, and a plan to double revenues in the next three fiscal years.

NAPEC Inc. is a simple idea. This simple idea never produces any return for shareholders because of the previous management. Over the years NPC became bloated and inefficient. When bloated costs and sound assets clash with sharp management and a cheap stock price, opportunities lie in wait.

For NPC to become successful it doesn’t require making cutting-edge breakthroughs to spur growth, rather, simply aligning costs and a culture of accountability will create substantial shareholder value.

Here are some eye-opening facts that show both the problem and the potential:

  1. NPC FY2014 EBITDA margins were a mere 3.85%, dragged down by two bad contracts. The new management team wants to bring them back to 7-8%, its historical and industry average. This would double EBITDA.
  2. NPC FY2014 revenues were at $292 million. A record high but not near to what former management promised ($1 billion). The new strategic plan calls for revenues to hit $600 million by the end of FY2017.
  3. NPC turned down buyout offers as high as $1.95 per share, all cash. Well NPC shouldn’t expect that kind of offer to come back, it’s a good indicator that the business is worth something.

At this point, I feel we’re past the cross-finger stage. Management has taken action on a number of fronts: slashed costs, developed synergies among the different operating units, shrunk divisions, hit all-time high revenues, and growing backlog, is showing us that there’s determination behind the message. Best of all, if things go awry and the old status quo creeps back in, NPC’s bargain price should provide protection against a major loss.

I didn’t post everything but you can read the whole article on Seeking Alpha

A Tale Of Two Economies: Singapore And Cuba

I found the following picture on ValueWalk and it’s worth a moment of thoughts. Stare at the picture and try to absorbed what happened. You don’t need to be an economic genius to understand. Two countries, Cuba started way ahead while Singapore was a backwater country, two different economic path, and two strong leaders. I was fortunate enough to go to both countries. I went to Singapore in 2012 and Cuba in 2014. This blog is not big enough to explain the contrasts between the two. Cuba looks worse off today than in 1950. Kudos to Lee Kuan Yew for turning this former third world country into a role model for the rest of the world.

The point is this: Apply the right economic policies, promote individual liberty and let individual pursue their dream and it will destroy poverty. I know Singapore isn’t exactly a democracy but the government values individual liberty.

Reposted from ValueWalk
By Frank Holmes

Cuba vs Singapore

Anarchists – Proving We Need a Government

In Quebec spring is back and the students are back on the street protesting anything and everything. Yes Quebec has its boatload of problems and people are pissed, but sometimes you make a greater difference by getting educated. It might not ring the bell yet, but having a tantrum and breaking windows at Starbucks won’t get you what you. Get educated and you will help your society.



If you speak French, the following video is hilarious.