Insider buys 1M shares of profitable Canaf (CAF.v) - company continues to trade at significant discount

From Canadian insider ( http://www.canadianinsider.com/node/7?menu_tickersearch=caf )

Mar 5/12 Mar 2/12 Corrigan, Kevin Direct Ownership Common Shares 11 - Acquisition carried out privately 953,472
Mar 5/12 Dec 30/11 Corrigan, Kevin Direct Ownership Common Shares 10 - Acquisition in the public market 34,000 $0.050
Mar 5/12 Dec 30/11 Corrigan, Kevin Direct Ownership Common Shares 10 - Acquisition in the public market 66,000 $0.055
Nov 18/11 Nov 17/11 Way, Christopher Robert Direct Ownership Common Shares 10 - Acquisition in the public market 116,900 $0.072
Sep 12/11 Sep 7/11 Way, Christopher Robert Indirect Ownership Common Shares 10 - Acquisition in the public market 40,000 $0.06

Insider trading clearly shows the belief of insiders. Investors have not digested this recent information yet. The company's Quantum division has operated profitably for the past 8 years. The trading entity just declared 575k of profits in 2011 and 259k in Q4 alone. The following summary breaks it down

2011 Metrics Summary

- Profitable in 6 of the 8 past quarters ( both unprofitable quarters were due to one-time non-recurring events )

- 2011 sales increased to 13.3M$, even with a 4 month work stoppage at Mittal Newcastle

- Current Market cap only 3.3M$

- Price/sales ratio roughly 0.2x

- 2011 net earnings = +575k ( +.012$/share)

- Trailing 12 month PE ratio = 5.8x

- 2011 Q4 net earnings = +259k (+.005$/share)

- Long term debt only 229k (the company added 79k of in july for its new Crushing/screening plant)

- 2 large and recurring customers (Arcelor Mittal and BHP Billiton) who have needs far exceeding the company’s production capability

- Working capital = +876k (+.02$/share)

- Depreciated Book value = 1M$ (+.02$/share – no goodwill/intangibles, hard assets)

- 47.4M shares outstanding; more than 20M are held tight

- Salaries are not a problem (very reasonable)

What  makes CAF.v interesting at current prices

Growth is clearly proven with 2011 sales reaching new heights, even though their main customer was forced to shut down and cancel orders for 4 months ( Mittal Newcastle plant – see the following proof http://www.canafgroup.com/s/NewsRelease ... tID=472503  ). Upon acknowledgement of the incident, the company proceeded with an inventory and cost control strategy which has now been demonstrated effective, still producing 259k of net profits in Q4.

Canaf Group (CAF.v) sales growth profile

- 2011: 13.3M$

- 2010: 11.8M$

- 2009: 4.6M$ (financial crisis)

- 2008: 9.0M$

- 2007: 6.2M$

In July 2011, the company invested approximately 235 000$ by purchasing a new crushing and screening plant, which enables the company to process larger sized feedstock material (reduction of electricity consumption per ton), and which allows Canaf to offer product sizes which BHP Billiton requires. This has led to a 3 month trial starting march 2012, with hopes of signing a long term agreement with this word leader. To fulfill this mandate, the company recently invested another 150 000$ to satisfy their requirements, in lieu of meeting the conditions for this sought long term agreement.

In Q1, the company spent approximately 110 000$ to re-line the entire emissions stack of one kiln, and other major repairs were carried out on the refractory’s of both kilns. These are long lasting overhauls, which along with the purchase of the new crushing plant, tainted the 2011 results. Some large inventory purchase occurred in Q4 totalling almost 1M$, but subsequent to quarter end, the company subsequently collected 1.7M$ of receivables which reinvigorated its cash position.

Most of the short term and long term debts are owed to the Chairman, Mr. David Way, a very significant shareholder of the company. Since appointing his son as CEO, the interest rate on the debt has been reduced and regular payments can be seen in the financials, improving the balance sheet even further. Historical analysis of this public entity shows Haywood Securities participating in earlier financings of this entity at 25 cents and above. Haywood is believed to hold roughly 10M shares, a strong motivator, along with the sizeable position held by the Way family members.

The company’s coal processing division has operated profitably for the past 8 years and received a 0.20$/share (9M$) takeover offer from Anglo-African Minerals in march 2010 (http://www.canafgroup.com/s/NewsReleases.asp?ReportID=389381 ). With growing sales of 13.3M$ in 2011, which would have exceeded 15M$ had it not been for the Mittal breakdown, this small-cap will without a doubt attract investor attention due to its profitable recurring behavior and current undervalued metrics. Discounting working capital, the company trades well below 5x the 12 month trailing earnings.

The company has warned investors ( see http://www.canafgroup.com/s/NewsReleases.asp?ReportID=447787 ) that the Uganda lawsuit was progressing in a direction which could significantly benefit shareholders, as the Uganda government is eagerly contemplating an increase of the Kilembe power plant capacity ( http://www.era.or.ug/Pdf/KLM%20application.pdf  ), for the expected sale of the Kilembe mine to a Chinese company GINGKO (http://allafrica.com/stories/201110130355.html  ). In order to complete this sale, the Uganda government must clear the Kilembe mine of the injunction won by Canaf in previous legal debates. Canaf is suing the Uganda government for 10.4M$ (.22$/share), which would provide a significant cash influx allowing the company to tackle expansion plans. Representatives from Canaf, GINGKO and the Uganda government are known to be jointly reviewing the options. The Chinese need the minerals of this mine, the Uganda government will receive a huge windfall and royalties for this transaction, while providing about 3000 jobs for the local population.

The above is simply my personal understanding and not to be construed as investment advice. I’m not a broker, director, manager or employee of the aforementioned company, just a shareholder. Some typos could have occurred, do your own due diligence.