DailyTrends.com Small Cap Pick of the Week (Revisited): CVF Technologies (CNVT)
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I must agree that in the US, a single person can purchase stock into 25,000 different entities. Out of all these companies that one can invest in, I personally can't find one more compelling to look at than CVF Tech (CNVT).
The assets of CVF alone are worth more than four times what its stock is currently trading.
Its NAV (Net Asset Value), which means the dollar value of a single share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding is .85 cents.
That is cheap relative to where the stock is currently trading at. I recommended this stock at .34 cents a few months ago, and am recommending it again because of some significant news.
But first, here is the summary of what the company does.
CVF is a company that invests in other companies similar to a BDC (Business Development Company).
It currently owns large portions of four separate and very niche businesses:
- Biorem: Makes bio-filtration products that control and reduce air pollution and odor removal (mostly sewage systems) http://www.biorem.ca
- Gemprint: Manufactures machines that uniquely identify diamonds and other precious gems using reflective laser light. http://www.gemprint.com
- SRE Controls: Specifically makes software-driven electronic controllers for electric vehicles and fuel cells http://www.srecontrols.com
- Ecoval: Markets biodegradable, organic, non-toxic pesticides and fertilizers under the name "Nature's Glory"
Since CVF is already in the fund and I personally own it, I have spoken with the CEO and Founder Jeff Dreben on several occasions, mostly to ask him whether his stock was "too good too be true" at these current levels.
The new updating interview is towards the end of the report.
I'll let the members decide whether or not this is one of the best bargains in the entire stock market right now.
Lahiji (DailyTrends.com): Mr. Dreben, please tell me how and when CVF was founded and the transformation it has had since inception?
Dreben (CVF Corp): CVF was founded in 1989 as a private venture fund backed by institutional investors led by Prudential Insurance, and capitalized with $16 million. At the end of 1995 it was converted from a private partnership to a public company.
Lahiji: How many companies has CVF invested large stakes of money in the last ten years?
Dreben: CVF has invested in a total of 10 companies since 1989. It has exited five of them so far and its annual internal rate of return between 1989 and today on the five it exited is 40.4%. It currently has five remaining companies.
Lahiji: Currently, what percentage of each business do you own in the portfolio?
Dreben: Biorem- 69% Gemprint - 65% Ecoval - 84% SRE -37% Petrozyme - 50%
Lahiji: Why did you decide to sell off some of your ownership in SRE Controls earlier in the year?
Dreben: We sold it off because of its negative cash flow. It was depleting our ownership interest in Biorem and we felt it was more prudent to hold on to as much of Biorem as we could, as it's clearly a measurable success as evidenced by its revenue and earnings. SRE has excellent potential in the exciting areas of electric vehicles and fuel cells but is still one or two years from achieving from being on its own cash flow.
Lahiji: What is the most successful company (in terms of net income) in the portfolio right now?
Dreben: Clearly, Biorem is the most successful with $1.3 million of net income in 2003.
Lahiji: Do you see Biorem growing significantly in the next 2-4 years?
Dreben: Biorem has significant growth potential when you realize it has $140 million of qualified leads in its pipeline at this time and is targeting over 9000 municipal and commercial accounts for its odor control biofilters.
Lahiji: Which one of your businesses still loses money?
Dreben: SRE is still losing money in spite of sales increasing by 40% last year. However, its losses are being funded by an outside investor.
Lahiji: How much is CVF worth if we were to break down its parts today?
Dreben: We have stated in our press releases that, on a conservative basis, it's worth $.85 per share. Some analysts have told us they believe its worth substantially more than that.
Lahiji: If the NAV (Net Asset Value) is almost 3X what the stock is currently trading at, how come insiders aren't buying lots of shares right now?
Dreben: We have rules as to when insiders can buy shares, and we are currently in a restricted period.
Lahiji: Do you plan to spin off any of your businesses in the next year or so, and if you were to spin off Biorem, how much would it be worth?
Dreben: We spin off our businesses either through an IPO or through them being acquired. We do not plan to spin them off until their values are significantly higher than they are today.
Lahiji: What are you doing to keep CVF consistently profitable?
Dreben: We are reducing expenses as a percentage of revenue among our portfolio companies as well as the head office of CVF as we ramp up revenue and gross margins.
Lahiji: You're being de-listed on the AMEX? How come? Are you willing to fight this decision?
Dreben: We are potentially being de-listed because our consolidated GAAP statements do not meet their minimum requirements. We have appealed this decision and we will be meeting with the AMEX Appeal Panel next month where we will argue that our non-consolidated pro-forma balance sheets should be the basis of their decision on listing as we would then easily meet their listing requirements and these statements represent the true value of CVF.
Lahiji: Lastly, Why do think CVF stock is not trading at the price it's actually worth? Any measures being taken to increase shareholder value?
Dreben: It is trading where it is because our consolidated statement does not give a true value of the net worth of CVF. We plan to remedy this in the coming months by producing a non-consolidated pro-forma balance sheet which will demonstrate CVF's true value and then we will begin an active investor relation campaign.
END OF OLD INTERVIEW
Well, a lot has changed since this report came out during the summer.
First off, Biorem is having an IPO that is set to launch by the end of the year. It will be traded on the Toronto Exchange because it is first and foremost, a Canadian company.
Shareholders of CVF will get shares in Biorem, adding significant value to the stock.
Unfortunately, Mr. Dreben was too busy getting ready for Biorem's IPO and had to postpone the updated interview.
We will IMMEDIATELY send it once he ships it over to us.
I personally own a lot of shares given the simple fact that you're getting your money's worth when buying CNVT.
Many people have been frightened of the descent it has had this year, and it makes a great opportunity for those who currently buy at these levels in my opinion.
Biorem alone is worth almost three times what the stock is currently trading at, and they have investments in three other companies (Gemprint, Ecoval, and SRE), of which another one is profitable.
The decision for me is easy to make. CVF is very cheap. I'm buying.
Chris Lahiji will be available to take your questions until Thursday, November 4. Please use the form below to submit your questions.