Shares in this asset-rich, green company are up, but not enough to reflect its true value.
Any company whose cash accounts for a third of its valuation and whose net working capital actually outstrips that valuation is worthy of closer inspection in my book.
When that company is both profitable and growing quickly, you have either the proverbial no-brainer of an investment -- or you don't understand the wider picture.
And that picture is indeed a difficult one to see clearly with AIM-listed carbon credits specialist Camco International (LSE: CAO).
The mere mention of carbon credits is enough to have many investors leaving the room. Seen as something of a nebulous concept, the credits seem to be an invention out of thin air that enables ethereal value to be created -- but which has no true meaning in practice.
Proven performance
The truth though is that Camco has two decades' worth of experience in working with companies and governments in China, US, UK, Africa, Russia and Southeast Asia in developing emission reduction and clean energy projects. And also that carbon credits have true value.
Camco's client list is impressive and includes household names in the UK such as Shell (LSE: RDSB), HSBC (LSE: HSBA), and Aviva (LSE: AV), as well as the EU Commission, United Nations, and governments and public bodies.
The company also invests its capital directly in green energy projects via a $30m specialist energy fund in the USA, and through a $30m joint venture with the investment holding arm of the Government of Malaysia.
Why the value?
The fact that Camco's business is difficult to get to grips with may be the reason that the shares present such good value.
When I wrote about Camco a year ago, I thought the shares looked "inexplicably cheap".
At the time, the share price was 12.75p. It's now 17.5p, which is pretty close to its high point over the year, valuing the green group at just over £33m.
The company has net asset value of €61.2m (currently equivalent to £53.4m), and net tangible assets of £51m of which £27.6m is net accrued income from carbon projects. The carbon projects are registered and operational and expected to deliver cash in the next two and a half years.
Meanwhile, cash amounted to £10.8m at the end of the year, whilst net working capital was £38.2m -- outstripping the overall valuation by some 15%.
Where there's Idaho manure, there's brass
On Monday, the shares moved a little higher on what seems to be an excellent deal concerning American cow manure.
What Camco appears to have done is to get Uncle Sam to pay 30% of the costs of the deal, and to guarantee the future market -- and the company will benefit from the resulting carbon credits.
The project, which is wholly-owned by Camco and operated by the Camco-led consortium AgPower Group LLC, involves the installation of anaerobic digesters to convert cow manure into enough biogas to fuel 4.5MW of generation capacity. We're told that proven anaerobic digesters of a type already installed in over 50 farms across the US will convert cow manure from a dairy farm in Idaho into clean electricity.
The work is fully financed for an estimated total construction cost of less than $25m, which will come from a combination of construction financing and debt financing. It also qualifies a federal grant programme, under which 30% of eligible construction costs are reimbursed.
A 20-year power purchase agreement is also in place, and the renewable energy certificates and emission credits will qualify under California's new renewable energy and greenhouse gas regulations -- so adding further to the carbon credits portfolio.
The house broker anticipates earnings per share of 2.28p this year, rising to 4.54p next.
If these forecasts are anything like correct, the shares deserve a much higher rating given the asset base, which the company looks to be shrewdly augmenting.
More company comment:
> David owns shares in Camco.
