Unrecognized Small-Cap Turnaround Value

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LONDON -- When a company is successfully turning itself around following a disaster of some sort, it can often take a while for it to regain the market's trust. This presents opportunities for investors willing to take a risk that the recovery isn't being recognized quickly enough.

I believe this to be the case with Baltic Oil Terminals  (LSE: BTC.L  ) -- but then, I own shares in the company, and my valuation is based on a rose-tinted, "glass half-full" basis. So this is definitely not an investment for widows and orphans. But for investors who don't mind risk, Tuesday's final results for 2011 seem to show a company making all the right moves.

The oil terminals operator owns, operates, or leases terminals or tank capacity in Baltysk Kaliningrad Region, Russia; Kaliningrad City, Russia; Rotterdam, Holland; and Aabenraa, Denmark.

But don't look at the headline figures in isolation, as they're far too flattering. This is due to last year's debacle, when trading was suspended in June after a senior employee in Kaliningrad was dismissed when "it became clear that some of the local financial records had either been destroyed or removed and an attempt made at replacing these with falsified information."

A safer valuation
BTC has a 50% interest in Rosbunker, which owns a terminal on the Baltic coast that handles heavy, low-quality fuel oil and diesel. But by its own admission, "the events that occurred at Rosbunker during the whole of 2010 were outside of the control of the group directors."

The safest way to value BTC is to ignore any value in its Rosbunker stake -- so anything back will then be a bonus. Its value on the balance sheet is 19.5 million pounds, equivalent to more than 19 pence per share versus the current mid-price of 13.5 pence, which values BTC at 13.7 million pounds. So you see what I mean?

Last year's 3.9 million pound profit share from Rosbunker should be put to one side, then, as receiving any real cash will be a wholly different matter. It seems highly likely that BTC will want to exit its interest in Rosbunker at the earliest opportunity, but the chairman says the board won't be rushed into a decision at any cost.

The balance sheet shows net tangible asset value per share of a little over 3 pence if we put nothing in for Rosbunker. Operating profit from the more reliable areas of the business came in close to 1.3 million pounds. This figure reflects the first full year of operations from Petro Broker International, the wholly owned subsidiary that operates (leased) fuel oil tanks in Europort, Rotterdam. The company has plans to double capacity here. Meanwhile, the Dan Balt subsidiary, acquired in November 2011, meant little for last year's results but should have a big impact this year.

The overall picture, here, is of a company trying to extricate itself from a disastrous Russian investment and continuing its business in more trustworthy areas. This will be reflected by a name change to Pan European Terminals.

I believe the shares in the "new," westernized company offer reasonably good value -- while any money flowing back from further east will be good news.

Let me finish by adding that higher-risk shares such as Baltic Oil Terminals can provide superb returns -- if things work out! If BTC interests you, then I feel you'd also like this special report: "Ten Steps To Making A Million In The Market." The report is free and for ambitious investors only!

Further investment opportunities:

David owns shares in Baltic Oil Terminals. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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