08-Feb-2021:  NTA Backing as at 31 January 2021

As expected, the NTA of BEL is up +33.25% from $0.1306 on 31-Dec-2020 to $0.1736 on 31-Jan-2021 on the back of the increase in the SP of their main position, being Strike Resources (SRK) which was 14.5 cps on 31-Dec and 23.5 cps on 31-Jan.  SRK is currently trading at 21.5 cps. 

Bentley Capital's 52,553,493 shareholding in Strike Resources Limited (ASX:SRK) - being 25.37% of SRK - represented 82.4% of BEL's NTA as at 31-Jan-2021.  Interestingly, their NTA Backing announcement (link above) shows $2.2m of net liabilities compared to only $0.37m ($370K) one month prior (31-Dec-2020).  That $2.2m is likely performance fees, and/or payments to associated parties, staff or directors.  Bentley itself is owned and controlled by two other ASX-listed companies, Orion Equities (ASX:OEQ) and Queste Communications (ASX:QUE).  I have given more colour around that in my valuation for BEL, and I have explained the ownership structure in detail in a straw titled "#Corporate Structure". 

That $2.2m of net liabilites is now larger than their $1.8m of cash.

Their post-tax NTA, which includes tax payable on both realised and unrealised capital gains, remains exactly the same as their pre-tax NTA, and that is because, according to "Note 4" from this announcement, "Bentley’s current accounting policy is to recognise deferred tax assets arising from its carried forward tax losses and its unrealised loss on investments only to the extent of offsetting any deferred tax liabilities arising from its unrealised gains on investments."

In other words, they have carried forward tax losses from prior years, and they use those to offset their tax liabilities, but do not otherwise state those tax losses as being an asset.  While they continue to have carried forward tax losses to use to offset their unrealised and realised capital gains, their post-tax NTA will remain equal to their pre-tax NTA.

Despite their 31-Jan-2021 NTA being 17.36 cps (cents per share) and still being over 15 cps today, they are currently still trading at below 10 cps.  While that looks like a huge discount, and it is, it pays to remember that the majority of that valuation hinges on the value of their SRK position (being around 80% of their NTA), and SRK is an iron ore project developer who are not yet profitable, as they have no regular income and they are just burning through cash.  If the SP of SRK was to halve, and it could, the investment thesis behind BEL (being the massive discount to NTA in their SP) would evaporate.  There is significant risk here.

[I hold BEL shares, and they are also one of the larger positions on my Strawman.com scorecard.]

[Update:  12-Aug-2021:  Not any more.  I sold out of BEL at a small profit.  I have explained why in my BEL valuation, which I updated last night.]

06-Feb-2021:  Bentley Capital (BEL) is an investment company, and for the purposes of this straw, all of the following is current as at 31-Dec-2020, and I have no reason to think much has changed since then (in the 6 weeks since) except where I have noted a change.

This straw is about 4 companies, Strike Resources (SRK), Bentley Capital (BEL), Orion Equities (OEQ) and Queste Communications (QUE), which are all public companies listed on the ASX.

Strike (SRK) is a resources company with a few different projects, and they are mainly involved in the development of an iron ore mining project, which is still at an early stage.  They are not profitable, because of what they do and the stage they are at.

The other 3 (BEL, OEQ & QUE) are all investment companies whose main assets are shares in each other and in Strike (SRK), although some do hold other assets as well.  They are all controlled by Farooq Khan and his associates, in particular his sister Ambreen Chaudhri and his brother-in-law, Azhar Chaudhri.

Strike Resources is the main asset that underpins the valuations of the other three companies.

Strike Resources (SRK) has a current market capitalisation (m/cap) of $58m, and a board comprised of:

• Farooq Khan, Chairman and Director
• William (Bill) Johnson, Managing Director (MD)
• Victor Ho, Director and Company Secretary
• Matthew Hammond, Director
• Malcolm Richmond, Director

SRK's substantial shareholders are:

• Bentley Capital Ltd, 52,553,493 shares, 25.37%
• HSBC Custody Nominees (Australia) Limited, 25,825,000 shares, 12.47%
• Ambreen Chaudhri, 10,629,063 shares, 5.13%

Note: Ambreen Chaudhri is Farooq Khan's sister and is married to Azhar Chaudhri, who is regarded as an associate of Farooq Khan.  The Chaudhris and their company, Database Systems, got into trouble with the Takeovers Panel (TOV) back in 2011 and were forced to divest 3.7m BEL shares (in 2012) by order of the TOV - see here and here.  The Chaudhris are also involved with a company registered in the British Virgin Islands called Renmuir Holdings and a company registered in Hong Kong called Chi Tung Investments.  Those companies show up as substantial holders of both BEL and OEQ, see below.

Bentley Capital (BEL) has a $7m m/cap and a board comprised of:

• Farooq Khan, Executive Chairman and Executive Director
• William (Bill) Johnson, Executive Director
• Simon Cato, NED (non-executive Director)

Victor Ho is the company secretary of BEL, as well as SRK, QUE and OEQ.

BEL's substantial shareholders are:

• Azhar Chaudhri and Renmuir Holdings Ltd, 21,739,535 shares, 28.56%
• Queste Communications Ltd, 21,739,535 shares, 28.56%
• Orion Equities Limited, 20,513,783 shares, 26.95%
• Khan, Farooq, 11,717,586 shares, 15.39%
• Charles W. Rockefeller Pty Ltd, 4,042,232 shares, 5.31%
• Colin and Robin Vaughan, 3,990,192 shares, 5.24%, which was subsequently sold down on 21-Jan-2021 to below 5%, so they are no longer substantial shareholders

Azhar Chaudhri and Renmuir Holdings (and their associates, including Farooq Khan) are considered to be in control of Queste Communications (QUE), so those shareholdings (28.56% of BEL) are the same, not different holdings.

Orion Equities are regarded as being a controlled entity of Queste Communications (QUE), so the 28.56% of BEL owned by Queste, Azhar Chaudhri and Renmuir Holdings does include the 26.95% of BEL owned by Orion Equities (OEQ).

Orion Equities (OEQ) are a $3m m/cap company with a board consisting of:

• Farooq Khan, Executive Chairman and Executive Director
• Victor Ho, Executive Director and Company Secretary
• Yaqoob Khan, NED

OEQ's substantial shareholders are:

• Azhar Chaudhri, Renmuir Holdings Ltd and Chi Tung Investments Ltd, 9,422,882 shares, 60.21%
• Queste Communications Ltd, 9,367,653 shares, 59.86%
• Geoff Wilson and entities, 923,038 shares, 5.90%

The 59.86% of OEQ owned by Queste (QUE) is included in the 60.21% of OEQ owned by Chaudhri, Renmuir and Chi Tung, as they control Queste (QUE) along with associate Farooq Khan.

Queste Communications (QUE) is a $730K m/cap company (yep, sub-$1m) whose board consists of:

• Farooq Khan, Executive Chairman and Managing Director (MD)
• Victor Ho, Executive Director and Company Secretary
• Yaqoob Khan, NED

QUE's substantial shareholders are:

• Azhar Chaudhri, Renmuir Holdings Ltd and Chi Tung Investments Ltd, 8,322,737 shares, 30.70%
• Farooq Khan, 5,344,872 shares, 19.70%
• Geoff Wilson and entities, 4,391,975 shares, 16.20%
• Samuel Terry Asset Management Pty Ltd, 3,902,430 shares, 13.80%

Khan, Chaudhri (Khan's brother-in-law), Renmuir and Chi Tung together control 50.4% of QUE, which is a controlling stake.  This means they also control 60.21% of Orion (OEQ), again, a controlling stake.  They do NOT however control more than 50% of Bentley (BEL) at this point, mostly due to the forced sell-down back in 2012 (imposed by the Takeovers Panel - TOV).  

For more information of what each of these three investment companies actually holds within their own investment portfolios, see here:

Queste Communications (QUE) Quarterly Activities Report for the quarter ending 31-Dec-2020

Orion Equities (OEQ) NTA Backing 31-Dec-2020 and NTA breakdown (investment portfolio)

Bentley Capital (BEL) NTA Backing 31-Dec-2020 and Portfolio breakdown (what they hold)

Also, Samuel Terry Asset Management, who own 13.8% of QUE, run a fund that is only available to wholesale investors, and QUE is not one of their top 10 portfolio holdings - see here: https://www.samuelterry.com.au/index.php, and here:  https://www.samuelterry.com.au/pdf-reports/2020-December-Quarter.pdf

Finally, you may have noticed that Geoff Wilson (of WAM Funds) holds 16.2% of Queste (QUE) and 5.9% of Orion (OEQ).  It looks like these are private positions of Geoff's, rather than through WAM Funds.  While 16.2% might seem like a lot, Queste is only a $730K company, so Geoff's 16.2% of QUE is only worth around $118K.  Likewise, his 5.9% of OEQ is only worth around $177K.  That is not a particularly significant investment for a multi-millionaire like Geoff Wilson.  Worth noting, but best to keep it in perspective.  I imagine that's why these are private positions of Geoff's rather than positions within one or more of his WAM Funds' LICs.  I think QUE and OEQ are way too small even for WMI (WAM Microcap).  They are ultra-nano-cap companies.  Perhaps OK for a side-punt by GW, but not suitable for his LICs where he is investing money on behalf of other people alongside his own.

Disclosure:  Of the five ASX-listed companies mentioned above, I currently hold shares in BEL & WMI, but I am not a direct shareholder in SRK, QUE or OEQ. 

Updated disclosure:  12-Aug-2021:  I no longer hold WMI or BEL.  I have explained why I sold out of BEL in my update towards the end of my BEL valuation.  I sold out of WMI to lock in profits and because they started trading at a serious premium to their NTA, and they were trading at close NTA when I bought them.  I made a small profit on BEL and a much healthier one on WMI.

09-Feb-2021:  Just a comment on the complexity of the ownership structure, which I've described in detail in another straw here. 

Why the complexity?  The obvious answer is to make it very difficult for anybody to gain control of any of the companies involved, but I guess the main advantage to the directors and shareholders that control these companies is the high management fees and the directors fees that they can generate.  For instance, Farooq Khan is the Chairman of SRK, BEL, OEQ and QUE, so presumably collects 4 lots of director and chairman's fees.  Victor Ho is the company secretary of all four companies and a director of three of them.  Bill Johnson is the MD of SRK and also a director of BEL.  Farooq's brother Yaqoob Khan is a director of both OEQ and QUE.

The employees of the company are presumably paid well also, even though they are mostly just "managing" passive investments that do not require any work except ASX-related paperwork every month or so, plus collecting those fees of course. This also applies to the directors and chairman of BEL, OEQ and QUE too of course - what real work have they got to do, really?

It looks like Bentley pay fees to Orion who pay fees to Queste, and as I've explained elsewhere Queste and Orion are both majority owned by Farooq Khan and his associates, including his sister and her husband - the Chaudhris - and the Chaudhris hold their shares partly in two holding companies of their own (Renmuir Holdings and Chi Tung Investments) which are registered in the British Virgin Islands and in Hong Kong respectively.  They also previously used another holding company called Database Systems. 

The Chaudhri's Database Systems owned 5.65% of Strike (SRK) up until 17-Aug-2020, and Farooq's sister, Ambreen Chaudhri still owns 5.13% of Strike, in addition to the 25.37% of Strike that Bentley (BEL) owns.  It appears that Farooq and his associates only control around 44% of Bentley, and even less of Strike, but do however have controlling stakes in Queste which in turn has a controlling stake in Orion which owns around 27% of Bentley (BEL).  I have included that 27% in my estimate of the 44% of Bentley that I think Khan and the Chaudhris (and their holding companies) own.

The short version is it's all about fees and control, but I would imagine mostly about fees.

Farooq Khan is into some other companies as well, and has tangled with Geoff Wilson on more than one occasion, as this AFR article explains:  https://www.afr.com/rear-window/geoff-wilson-creeps-up-farooq-khans-register-at-queste-20180215-h0w4j3

Geoff Wilson creeps up Farooq Khan's register at Queste

by Myriam Robin, AFR Columnist

Feb 16, 2018

Veteran fund manager Geoff Wilson is sitting on a lot of cash these days. So while his funds wait for the ASX rout to finish, we guess he had to do something to keep himself entertained.

According to a notice lodged late on Wednesday, Wilson has in the past two weeks purchased a 14.54 per cent stake in Queste Communications, using what appears to be his own personal superannuation fund, Dynasty Peak.

The stake has set his personal fortune back almost $300,000. And trust us, he's not doing it for the investment potential of the nominal communications company: according to its January cash-flow report, Queste has made $19,000 in receipts from customers this year to date and received $218,000 in dividends, while paying out $279,000 in leases and staff costs.

But Queste's chairman is Perth business identity Farooq Khan, and through it, Khan controls and chairs another company, Orion, which controls another company, Bentley, which controls yet another firm, Keybridge Capital, which has major stakes in a range of investments including listed cash box Molopo, which Wilson briefly tried to take over last year.

Queste is the top of the food chain, and whoever controls it controls the entire edifice.

Wilson has a history of tangling with Khan. In 2009 he voted in favour of removing Khan from the chairmanship of Bentley. And in 2016 Khan, through Bentley, opposed Wilson's attempt to wind up the Hastings High Yield fund.

So we're reading Wilson buying up the stake in Queste – conveniently at the same time several other long-term shareholders exited the company – as unambiguously hostile.

But how much he can do from here is unclear. Queste's major shareholders are Khan, with a 19.4 per cent stake, and his brother-in-law Azhar Chaudhri, who owns another 31.64 per cent.

And if the two of them didn't have the whole thing locked down between them, there are plenty of other family members on the register, such as Ayub Khan and Afia Khan (with 0.8 per cent apiece).

Meanwhile Yaqoob Khan, Farooq's brother, isn't in the top twenty 20 shareholders, but is the company's executive director.

--- ends ---

Geoff Wilson still holds 5.9% of Orion (OEQ) and 16.2% of Queste (QUE).

Bentley DID control Keybridge Capital which controlled Molopo, and Wilson's WAM Funds have tried to takeover both of those companies, or at least release some value for their ordinary retail shareholders.

See here:  https://www.businessnewsaustralia.com/articles/wam-triumphs-over-bolton-s-keybridge-capital-in-the-supreme-court.html

That article mentions Yowie also, which is of course the other main holding of Bentley Capital (BEL) - other than their shares in SRK.  BEL own 9.71% of YOW, and WAM Funds now own 26.77 of YOW, which includes the 25.27% of YOW owned by Keybridge Capital (KBC), which is itself now 47.52% owned by WAM Funds - but was 50.16% owned by WAM Funds from 15-Sep-2020 to 24-Dec-2020, so was seen as a controlled entity of WAM Funds during that time.

Regarding Molopo Energy - see here:  https://www.smh.com.au/business/geoff-wilson-counters-nick-boltons-raid-on-molopos-65m-cash-box-20171109-gzhtjg.html

and here:  https://switzer.com.au/the-experts/tim-boreham/the-new-criterion-molopo-energy/

In their last Quarterley Activities Report on 29-Oct-2020, the last day they announced anything to the ASX, Molopo Energy (MPO) said:

Molopo’s shares have been suspended from trading since 27 July 2017 due to the level of its operations not being, in ASX’s opinion, sufficient to warrant the continued quotation of its securities in compliance with Listing Rule 12.1.

As previously reported, the Company is not pursuing any new oil and gas activities (outside of those which it indirectly holds via its 30% interest in Drawbridge) at the present time.

Following a previous application to ASX by Molopo, the ASX confirmed an extension to the deadline for Molopo’s removal was on the basis that it afforded Molopo the opportunity to demonstrate to ASX that it is in the ‘final stages’ of implementing a transaction that will lead to the resumption of trading of its securities. For these purposes, being in the ‘final stages’ of implementing a transaction means that the Company has completed the requirements referred to in ASX Guidance Note 33.

The ASX has now considered the Company’s further submissions on the progress of Molopo’s Victorian Supreme Court proceedings against former Molopo directors. Given the present circumstances, the ASX has agreed to further extend the deadline from 1 September 2020 to 28 February 2021 to afford Molopo the opportunity to demonstrate to ASX that it is in the ‘final stages’ of implementing a transaction that will lead to the resumption of trading of its securities.

Whilst the Current Directors recognise that this is extremely frustrating for shareholders, the Molopo Board will address the Company’s listing on ASX once the litigation proceedings against the Former Directors are completed. The Board will then consider and address the issue further before that date.

--- end of excerpt ---

...which is all to say that Farooq Khan and his associates have been involved in some interesting businesses, and have had a number of fights with Geoff Wilson, and it looks like Geoff Wilson's interest in Farooq Khan's currently controlled businesses (particularly OEQ and QUE) is ongoing.

It's getting late.  That's enough for tonight...