Winmill & Company WNMLA
July 13, 2001 - 6:10pm EST by
2001 2002
Price: 1.70 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 3 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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  • Special Situation
  • excess cash
  • Net-Net


Winmill & Company has net cash of $3.91. The stock trades for $1.70. If the stock trades to net cash value, the total return will be 130%.

Generally, the "catch" in companies that are trading for below cash value is either (1) there are substantial liabilities or (2) there is a large operating burn rate that is depleting the cash assets. Neither of these apply here:

WNMLA has no funded debt and only a very small amount of current liabilities. After subtracting ALL liabilities (Cash and Marketable Securities minus Total Liabilities), net cash is $3.91.

Operating cash flow was a loss of $0.13 per share in the most recent quarter. However, this was affected by a non-recurring payment on accrued taxes related to the sale in the prior year of a non-operating asset. Adjusting for this working capital item produces operating cash flow in the most recent quarter of positive $0.01. The most recent quarter's results do not include any contribution from the sold assets.

WNMLA is a securities firm that has been selling off its principal assets in the last two years. Originally, the company was called Bull & Bear Group. That company had 3 main assets: a brokerage operation, a commercial real estate property which produced rental income, and a fund management division. In 1999, the company sold its brokerage operation (and the rights to the Bull & Bear name) to Royal Bank of Canada. In 2000, the company sold its real estate property. What remains now is the cash and the fund management company, which I believe will be eventually sold as well.

The remaining fund management company manages approximately $170 mil in capital. As I'm sure many of the VIC members who are fund managers know, the fund management business is an extremely good one. Annual management fees are received based on a percentage of assets under management. Therefore, revenue increases directly proportionally with AUM whereas the expenses of managing a larger amount of assets stay relatively fixed (you do not have to increase operating expenses 10x if your assets under management grow from $50 mil to $500 million). Additionally, these management fees are recurring in nature and it produces a nice ongoing stream of revenue.

The assets under management of WNMLA can be classified into 3 categories: (1) Closed end funds, (2) Money market funds and (3) Open end mutual funds. WNMLA has 3 closed end funds that account for approximately 1/3 of the assets under management. Likewise, WNMLA has a money market fund that also accounts for approximately 1/3 of assets under management. These 2 categories have produced market-rate returns and should grow assets at roughly the industry average.

The performance of the third category (open end funds) is the reason that WNMLA is so cheap today. WNMLA manages the Midas family of funds which, in accordance with its name, has historically specialized in gold equities and precious metals. The performance of these funds has been abysmal. However, these funds now account for only 1/3 of assets under management and the two largest (by far) funds within this category are showing signs of getting on the right track. Midas Special Equities shifted its investment strategy last year and turned over its portfolio. Its largest holdings now include Phillip Morris, AIG and Berkshire Hathaway (each 10%+ of assets). WNMLA's other main mutual fund, Midas Fund, was up 9% in the latest quarter (ending June 30).


1. Company trades for less than 50% of cash minus total liabilities.
2. Company may be sold as Bassett Winmill (chairman) approaches retirement. He is 71.
3. WNMLA's mutual funds had decent performance in the 2nd quarter. Midas Fund alone was up 9% in the quarter. This should positively impact WNMLA's 2nd quarter results when they are announced.
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