Wednesday, 16 April 2014

Nomad Building Solutions

Today I purchased 33,333 shares in Nomad Building Solutions (ASX:NOD) at a price of $0.051 each. Like Boom Logistics, this is another stock that was brought to my attention by Alex over on The 8th Wonder. Their main business now is a subsidiary called McGrath Homes that builds and sells modular homes in Western Australia. Unfortunately, because I'm very snowed under with university work at the moment, once again I'm going to refer readers to Alex's summary of why NOD looks cheap, which I substantially agree with. Besides, after that long post on Atcor Medical, I think both you and I could do with a shorter post.

I'll just point out one important piece of the puzzle that Alex didn't mention in his post, and the one that concerns me the most - while NOD has wound down the Nomad Eastern States segment, they had a non-cancellable lease over a premises in Wacol, Queensland. If you look at the annual report under note 29, you'll find that Nomad is required to pay more than $3 million in FY14 for non-cancellable leases, almost $10.6 million in the four years afterward (an average $2.6 per year), and $2.3 million thereafter. I'm assuming that the entirety of these amounts refer to the Wacol lease, as the $3 million figure roughly lines up with the $1.4 million loss from operating activities in Nomad Eastern States for the first half of FY14. This is very significant in relation to the group's profits and will continue to drain cash until management is able to sub lease this property, which is understandably one of their highest priorities at the moment. When and on what terms this sub lease is established is an important risk, and one investors should watch closely.

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