One mile of Ocean Front, One Incredible Real Estate Development
Multi-Billion Dollar Agreement Signed With Oman
Message: Omagine's Margin Of Safety Is Very Real
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The comments to this article are not favorable (see below), and as I said before, much has to happen yet before we will see any buying interest. Right now folks are not willing to invest in OMAG, since the biggest hurdles of getting the financing completed to start the project is of real concern.
As far as the value of the land making the stock worth around $24 per share is not being accepted by investors at this time, nor will it until we are much further along. Only when the work on the Omagine Project begins, is when folks will feel safe enough to invest their money into this stock and the comments to this article only bolster what I have said all along, which is we shouldn't expect anything major to happen to the share price until the financing is actually secured and the groundbreaking ceremony has taken place.
Meanwhile, Bill and I will accumulate cheap shares on any dips after someone loses patience. We have a ways to go ladies and gents, so prepare for the wait and keep from getting disappointed by the share price action in the short term. This is a long term investment in the Omagine Project being completed. Cheers!
Your article is more about Ben Graham than it is about Omagine. In fact nowhere did you even mention what KIND of business Omagine even is. There is no talk about the business at all, in fact a computer could have, and may have written this article.
Omagine has 6 employees and the last quarterly report is a strange piece of work. Apparently they buy beachfront land in the Middle East/North Africa, develop it and re-sell it, but I am not quite sure.
I also have no way of verifying anything in their balance sheet. The company is veiled in mystery. The stock trades at next to no volume.
Ben Graham believed in investing in ACTUAL businesses, he didn't invest in strange 6 employee holding companies that have ZERO revenue.
Author’s reply »
Hi Johnny_Vegas,
I can assure you that I wrote the article. I follow and write about investment strategies, rather than specific stocks. The purpose of this article is to point out that Omagine qualifies for the NCAV strategy as spelled out by Benjamin Graham.
The assets discussed in the article were reported to the SEC in the company's latest 10-Q filing. Your statement about Graham not investing in companies with zero revenue is not completely true. He talked often about buying assets for less than they were worth. That is what his Net-Net approach is all about.
If you trust the company's financial statements, the stock is selling for about 10% of it's net liquid assets. If you don't trust its financial statements, 90% allows for a large room for error.
I quote Graham in the article as saying about this strategy: "I consider it a fool-proof method of systematic investment - not on the basis of individual results but in terms of the expectable group outcome."
If the market-cap is too small or the stock is too illiquid for your investing preferences, nobody is forcing you to buy.
Thank you for the comment.
Yes the NCAV strategy is well known to me, that is why I commented. Ben Graham still believed in doing due diligence on companies that were trading at less than NCAV. That is my problem with your article. It only cities a few bits from the balance sheet, does a quick NCAV calculation, quotes a few Ben Graham quotes and is done.
Some questions I wish you had answered:
Why does the company have a -0.02/shr book value as of 12/31/2014, but now has a $24.68/shr book value.?
Why has the company made no revenue, only negative cashflow, going back as far as 2008?
In short, give me a reasonable assurance to trust this $11.59 NCAV/shr.
Author’s reply »
I'm not attempting to make the case that Omagine is a safe investment on it's own. I think it would be risky to invest in Omagine as a single investment. It would be risky to invest in any individual stock as a single investment. However, as I say in the article, buying a diversified group of NCAV stocks such as Omagine should prove profitable for patient and disciplined investors.
There's no doubt that Graham did extensive research on his investments throughout his career, but late it his life he stated that a simple formula such as NCAV is the best approach. I follow this advice and invest based on quantitative models.
I didn't dig into the details you are looking for in this article. My purpose was simply to point out that Omagine is a NCAV stock and that investing in a diversified group of similar stocks is a good strategy.
They signed a contract with the government of Oman for this project. Oman has a 25% stake in the operational LLC and in exchange Omagine receives the land rights for 245 acres of undeveloped land. The land rights have been valued independently by Savills, DTZ and JLL. They came up with an average valuation of $718 million. PwC and Deloitte have been consulted regarding the correct accounting method.
" The Land Rights over the Project Land are extensive, are closely akin to ownership rights and include the right to sell such land on a freehold basis." (http://1.usa.gov/24fSSR8)
I believe it's not some kind of scam, but there is just so much uncertainty about future financing for the project that not many people seem to be interested in buying the stock.
Interesting quote from the 10-Q:
" The Land Rights over the Project Land are extensive, are closely akin to ownership rights and include the right to sell such land on a freehold basis." (http://1.usa.gov/24fSSR8)
The questions is what happens if they can't secure financing. Can they just sell the Land Rights? This is a very important issue in my opinion.
JJ, thanks for the research. Yes, this is all I think the business is thus far, an agreement with the Sultan of Oman. I still take issue with Mitchell's overly simplistic article.
So it seems that these consultants value the assets at 718 million, but as you say... that's IF the company gets financing to develop the land. The balance sheet of this company is so much hocus pocus, producing this asset out of thin air. One quarter they have nothing, the next they have 718 million in assets, sure...
Author’s reply »
There's a lot of IF's involved. That's why the assets are selling for a tenth of their net appraised value.
I could understand you taking issue with a simple article if I was trying to be an expert forecasting the future of the company. But that's not what I did in this article...
Please note that Graham did not actually recommend the two-thirds NCAV (Net-Net) criteria. He was simply talking about his own investment operations.
"Our purchases were made typically at two-thirds or less of such stripped-down asset value"
"acquire a diversified group of common stocks at a price less than the applicable net current assets alone—after deducting all prior claims, and counting as zero the fixed and other assets"
"eliminated those which had reported net losses in the last 12-month period"
For more serious investors, Graham recommended three categories of stocks - Defensive, Enterprising and NCAV - with 17 rules for Quality and Quantity.
For professional investors, Graham described various special situations or "workouts".
From Chapter 15 of The Intelligent Investor - Stock Selection for the Enterprising Investor:
"Our purchases were made typically at two-thirds or less of such stripped-down asset value"
For his readers, Graham actually recommended NCAV stocks with a positive EPS.
From Chapter 15 of The Intelligent Investor - Stock Selection for the Enterprising Investor:
"acquire a diversified group of common stocks at a price less than the applicable net current assets alone—after deducting all prior claims, and counting as zero the fixed and other assets"
"eliminated those which had reported net losses in the last 12-month period"
The positive EPS requirement is the qualitative check for NCAV stocks; and is - if you think about it - a very logical rule. There's really not much point buying a stock for its current assets (cash equivalents), if the company's losing money.
Graham's first recommended strategy - for novice investors - was to invest in the stocks comprising an Index.
For more serious investors, Graham recommended three categories of stocks - Defensive, Enterprising and NCAV - with 17 rules for Quality and Quantity.
For professional investors, Graham described various special situations or "workouts".
Article: How To Build A Complete Benjamin Graham Portfolio (http://seekingalpha.co...) has more details.
Author’s reply »
Thanks Serenity but you left off the two very critical words at the beginning of your quote. Graham's full statement is: "IF WE had excluded those which had reported net losses in the last 12-month period we would still be left with enough issues to make up a diversified list."
If you continue reading, you see that his point is that there were a lot of NCAV stocks available in 1970 and that investors who were more comfortable investing with profitable companies had the option. Positive EPS was never a rule to the investment approach.
dug up a few scraps from Omagine.com, sounds pretty shaky to me, as in I don't think any assets actually exist yet, its all accounting magic...
"MUSCAT — Nov 28: Omagine LLC, which has signed a deal with the Omani government to develop a mixed use tourism and real estate project in Muscat Governorate, says it is currently in discussion with a Qatari bank for financing the first phase activities of this ambitious scheme.
The company’s US-based majority shareholder, Omagine Inc, stated in a filing to the US Securities and Exchange Commission (SEC) that it has received a term sheet from the unnamed Qatari lender setting out the terms covering the provision of $25 million loan to finance the first phase of the design and construction of the estimated $2.5 billion development."
And...
"In October 2014 the company's 60% owned subsidiary, Omagine LLC, signed a Development Agreement with the Government of Oman for the development of a $2.5 Billion real-estate and tourism project known as the Omagine Project.
In March 2015 the Ministry of Finance in Oman ratified the Development Agreement.
In July 2015 the development rights to the 245 acres of beachfront land were registered with the Oman Government.
The company anticipates executing the construction contract for the development of the Omagine Project and executing a $25 million loan for the first phase of the project development in January 2016."
and...
"The company's internal financial model presently forecasts net positive cash flows for Omagine LLC over the seven year period subsequent to the signing of the Development Agreement in excess of $1 billion and a significant net present value of the Omagine Project. The Company intends to continually update this model at regular intervals as new facts and information become available, as the development program and design process unfolds and as market conditions require."
Author’s reply »
In a 30-stock, equally weighted NCAV portfolio, OMAG would constitute 3.33% of the strategy. Paying only 10% for the supposed assets offers little downside with huge upside.
The entirety of the business's "assets" seems to be a handshake with the Sultan, prove me wrong. Nothing has been built. Nothing has been sold. The 25 million dollar loan from the bank doesn't even exist yet (will it ever). There are 6 employees and at least 7 years of no revenue and share dilution.
I'm sorry Mitchell but you have not demonstrated that this business is even a real entity. It is my opinion that Ben Graham would roll over in his grave if he knew you were classifying this as a "Ben Graham" stock.
Your "30 stock equally weighted portfolio" response makes me think that your excuse for not understanding the basics of this business is that you don't NEED to know anything. Nonsense, Ben Graham did lots of research to make sure the assets were worth something!
Author’s reply »
In a Financial Analyst Journal interview in 1976, Graham was asked which general approach to portfolio formation he advocates most. His response was:
expectations for individual issues."
"Essentially, a highly simplified one that applies a single criteria or perhaps two criteria to the price to assure that full value is present and that relies for its results on the performance of the portfolio as a whole--i.e., on the group results--rather than on the
expectations for individual issues."
In his preceding statement he says, "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities."
My investment philosophy is heavily influenced by the above statements. I follow "ridiculously simple" quantitative approaches which allow me to buy what the model tells me to. No second guessing or further analysis.
I'm certain that a very strong case can be made against buying any NCAV stock. I never pretended to make a compelling case for Omagine. I wrote a simple article promoting a simple strategy.
The assets in this case may not be worth anything, which is why they are selling at a 90% discount. If they were selling for full price, or even half off, I wouldn't be recommending Omagine as part of a diversified NCAV portfolio. But as I said a few times already, at a 90% discount in a diversified portfolio, there is not much downside but big upside potential.
I'm sorry this wasn't the article you were expecting. It is my style of investing. I'm not saying everyone has to invest the way I do.
"I'm certain that a very strong case can be made against buying any NCAV stock. I never pretended to make a compelling case for Omagine. I wrote a simple article promoting a simple strategy."
So basically, you wrote a bunch of long-winded responses that amounted to, "Yeah sure, my article lacks substance, but that's just the kind of guy I am."
As far as your evoking Graham, seems to me value investing he did requires a bit more due diligence than looking at two numbers that suddenly appeared on the balance sheet in a tiny closely-held company as a result of a deal with a Middle Eastern sultan.
If you need further evidence that these assets don't have anywhere near the stated value is that, if they did, someone would plop down $30 million and buy this whole company. The very first people to do it would be the majority owners themselves since why not gain 100% control if you are paying 10c on the dollar. The fact that it hasn't happened tells you all that you need to know.
If there were an actual valuable real estate asset such as land, with definitive value that is anywhere near that stated amount, it would have been immediately monetized. If it hasn't, the only possibility is that the value is bogus.
Author’s reply »
I'm the kind of guy that follows simple quantitative models to make my investment decisions. It's surprising to me that you and Johnny are so offended by this.
The second part of your comment is merely describing the efficient market hypothesis.
Author’s reply »
I agree that revenue is a good filter for NCAV and NNWC stocks. The screens on my website have been modified to only include stocks with operating revenue > 0. Thanks for pointing this out.
Based on my research OMAG is a promotion and a zero. Caveat emptor.
I am hoping for a pump though so I can short it.
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