November 06, 2013 - 5:52pm EST by
2013 2014
Price: 3.85 EPS $0.00 $0.00
Shares Out. (in M): 56 P/E 0.0x 0.0x
Market Cap (in $M): 200 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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  • Personal Account Idea
  • Special Dividend


Note: this is fairly illiquid, so mostly a PA idea as cash alternative. 

Maxim Power Corp is a liquidation play that should play out over the next 12-18 months and offer 25-40% upside with very low probability of capital loss. Stock trades at $3.85 vs. book value of $4.90, and recent transactions to sell assets in pieces reveal that market value is likely higher than book value. Despite the run, I still like the risk/reward, especially since this name should have no correlation with the market. 

The story is fairly straight forward like most liquidation plays, and follows a trail of similar (profitable) liquidation ideas in Canada (Terravest, Jovian to name a couple). Maxim was a hodge podge of power generation assets in Canada (Alberta), US, and France. Since it does not pay a dividend and operating results of the merchant power plants in Canada are volatile, the stock has mostly languished and traded under 0.5x BV, until the company sought "strategic alternatives" last year for its US/French assets. While it has taken longer than mgmt first guided, the process is moving along -- Maxim has announced the sale of its US asset (above BV, and above the higher end of analyst estimates), and the French asset sale is at an advanced stage and should close fairly soon. Maxim should also complete the sale of a high quality construction/permit ready met coal mine (Mine 14) in Alberta. All that remains will be a net cash pile of $3.45/share and a power plant in Alberta. Admittedly the plant has volatile operating results and will be decommissioned after 2019 due to environmental law changes, but it is minting money right now in a very tight Alberta market, at almost 70c/share EBITDA and 60c in cashflow this year. There should be plenty of buyers of this plant which also has a valuable option to build a fully permitted natural gas fired power plant (Deerfield Project). Buyers were probably hesitant given the disparate assets spread over the world, but that should no longer be an issue going forward. In the sum of parts exercise below, I am using 3x cashflow to value the Canadian asset. This will likely prove very conservative as CEO has stated numerous times that they should get at least BV. 
Non-core Assets           Per share BVPS
Current cash (June 30) + Vancouver Landfill sale     $27    
US assets $90mm, gross 112m, around 6.2-7x $16-18m '13 EBITDA $90 $1.61 $1.47
French Asset (net after debt repayment of $20.7m),6x sustainable EBITDA $50 $0.89 $0.90
Mine 14         $26 $0.47  
Total (downside)         $193 $3.45  
Canada (Millner) at 3x cashflow       $106 $1.89 $2.29
Total Value         $299    
Total Debt (including environmental reserve, minus US debt)   $19    
Equity Value         $279 $5.00 $4.90
Mkt Cap         $215    
# shares         55.9    
Price Target         $5.00    
Stock Price         $3.85    
Upside         30%    

Aside from the deals falling through due to financing issues (primarily on the French asset), the biggest risk is that the company uses the proceeds on the Deerfield project ($225m capex budget by mgmt estimate). However, I think that risk is quite low. Insiders (Chairman and a couple of funds) own over 60%+ of shares and have repeatedly said the company will not be public for long. Below is a brief profile of the Chairman, a proven money maker and willing seller in the past.

CEO does not own many shares and on recent conf calls sounded like he is ready to move on. In addition, Broadview Capital, a very good Canadian small-cap hedge fund, listed Maxim as their top position and had the following blurb in their September shareholder letter:

Furthermore, we recently flew to Calgary (blissfully without children) to get an update from company management. Our intention was to confirm that the company was in wind-down mode and that recent successes (lost in all the M&A was an absolute gangbuster Q2 report) hadn’t convinced management to “make a go of it” as a public company. We were very happy to hear, once again, that the CEO and CFO (and perhaps most importantly, the Board of Directors) are fully of the realization that the sun has set on Maxim as a public company. All efforts are being made to bring this venture to a relatively quick and profitable conclusion. 

In terms of event path/timing, my guess would be that we get a special dividend around $2 once the US/French sales finalizes (a topic that came up on the last call and CEO promised to give more clarity on Q3 call), and the remaining Alberta power plant is sold by end of next year. 

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


Sale/Close of additional assets.
Special dividends.
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