Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Does MFC Industrial Ltd (MIL) Have a Low PE?

However, this big difference in valuations from a PE standpoint is related to a one-time gain associated with the acquisition of Compton Petroleum.  On September 12, 2012, MFC closed on the acquisition of Compton Petroleum for $33 million.  Compton primarily operates in the Western Canadian Sedimentary Basin.  Usually when a firm acquires a company, it has to account for the difference in price paid and book value by marking that down as goodwill.  In this case however, Compton Petroleum’s book value significantly exceeded market value and MIL recorded that as negative goodwill.  In 3Q12, MFC recognized $230 million on their income statement as a result of the negative goodwill, a one-time event.  GAAP earnings were $4.14 per share in 3Q12, but after adjusting for the goodwill benefit, EPS was $0.46 per share.

The acquisition is still an interesting one beyond the accounting.  It’s expanding MFC’s commodities business to include energy.  Compton’s land is under developed, the debt structure is less than optimal, production volumes can increase, and there is room to reduce costs.  On a first look, Compton appears to have suffered from a lack of development, attention and properly deployed capital.

MFC Industrial also acquired 60% of the shares of Possehl Mexico SA de C.V and 70% of ACC Resources both fully integrated commodity supply chain firms.  MFC is consolidating the industry and rolling up smaller players onto their platform to create value for shareholders.


MFC Industrial is an interesting stock and similar to an investment in a private equity or hedge fund.  The bulls believe in management’s expertise, that it can continue to extract value from acquisitions, successful engage in commodities contracts and trades for their own account.  The track record over the years of a 10 year average annual return of 20% to shareholders supports management’s case to own the shares.

The article Why Does This Stock Have a Low PE? originally appeared on and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.