Retail Holdings announces sale of Singer Bangladesh

Retail Holdings announced today that a 54.1% owned subsidiary has entered into an agreement to sell their whole stake in Singer Bangladesh for $75 million. Given that Singer Bangladesh is the largest remaining piece of Retail Holdings assets this gets the company pretty close to the finish line with regards to their plan to fully liquidate. Besides Singer Bangladesh they only have a 60.8% stake in Singer India left that is also owned indirectly through the same subsidiary.

While the sale of Singer Bangladesh is nice, the price is very disappointing. Retail Holdings owns (indirectly) a 37% stake of Singer Bangladesh that is worth $91 million based on the latest market price in Bangladesh. Besides this stake, they also own a 20% stake consisting of non-remittance shares and these shares have $15 million in accumulated unremitted dividend distributions. Given the restrictions these shares have with regards to paying distributions to shareholders outside Bangladesh it makes sense that these are worth substantially less than normal shares, but I think they should certainly be worth something. Selling their whole Singer Bangladesh stake for a discount to the latest market price and throwing in the non-remittance shares and their accumulated unremitted dividend distributions for free seems a pretty bad deal. In a best case scenario, with a zero percentage discount, these assets could be worth $155 million, more than twice the agreed upon price of $75 million.

Despite the bad deal the stock is up a tiny bit today, which makes sense. Most of Retail Holdings market cap will soon consist of cash, and presumably be returned to shareholders. Taking into account the $75 million that will be received for their Singer Bangladesh stake, NAV/share stands roughly at $12.40 which means that there is actually a little bit of upside left from today’s share price of $11.66. Guess that shows that buying stuff with a sufficiently big discount does offer some margin of safety, but still: I’m pretty disappointed by this outcome.

Disclosure

Author is long Retail Holdings

Sorrento Tech liquidation payment: resolved

Almost four months ago I wrote a blog post about Sorrento Tech, formerly known as Roka Bioscience (NASDAQ:ROKA), thinking I probably got screwed out of a liquidation payment. I bought shares on the last day of trading on December 28, 2017 while the company closed it stock transfer books on the same date, probably giving no thought to the fact that it takes two days for trades to settle. In 2018 the company announced its first liquidation distribution, and with a record date of December 28, 2017 it seemed like people who bought shares in the last two days of trading were out of luck.

Not how it should be, because when I bought the shares they weren’t trading ex-dividend, and as the legal owner of the shares I should be entitled to any and all future distributions. But being right is one thing, getting paid what you deserve is something else. Luckily the company proved willing to work with DTC to resolve the situation, and while it took a couple of months, DTC rescinded the original payment last month and made the new distribution payable to beneficial owners as of October 24, 2018. Most brokers processed the new payment instruction on March 1st, but for some reason it took Interactive Brokers a full three weeks more. A little bit annoying, but quite happy that this mess finally got resolved :).

I would also like to thank all the readers that contacted me about the situation with tips and information about their attempts to get the situation fixed. It’s pretty amazing to be able to find people who are in the same situation as you, especially when we are talking about two days of trading in a $4 million market cap company. Doesn’t get much more obscure than that!

Disclosure

Author is long ROKA

Argo Group launches big tender offer

My oldest position in my portfolio is Argo Group. I bought my first shares not long after starting this blog in 2012 at 14.69p/share and while there have been a couple of dividends since, and the opportunity to buy more at significantly lower prices, the stock hasn’t exactly been a home run with a current price around 18p/share. Nevertheless, the company remains very cheap, trading at roughly a 50% discount to net current asset value. Argo’s management has recognized this, and reduced the number of outstanding shares with 30% since 2012. But at the same time this has cemented their control over de company as well since they now control 52.7% of the outstanding shares.

Last week Argo announced that it is launching a tender offer to purchase between £2.0 million and £2.5 million worth of shares in a Dutch auction action with a price range between 18p/share and 26p/share. If you don’t have a position yet in the company you can stop reading here, because the offer is only open to shareholders who held their shares on the record date of 6 March. But since I already own the stock I had a decision to make.

Argo Group has a net current asset value of 36.5p per share so I’m absolutely not interested in selling at 18p/share. But at 26p I think it’s a reasonable deal. I get paid a 50% premium to the latest market price, and the company would still be purchasing shares at a 30% discount to NCAV. I’m okay with a deal that’s a win-win for both parties, and at that price the discount is basically split “fairly” between exiting shareholders and remaining shareholders. By tendering at the highest price of the range there is of course a risk that none, or not all my shares, will be accepted in the tender offer, but I think that’s a risk worth taking. If the tender offer is completed at a lower price it would provide a nice boost to NCAV/share anyway, and most likely the stock price will follow. And most importantly, at 26p I’m selling it cheap enough already!

A sort of interesting twist in the tender offer is the fact that the company can pick if they want to buy back £2.0 million worth of shares or £2.5 million worth of shares. At a price of 18p that corresponds to 50% to 60% of the float while at 26p it corresponds to a percentage between 35% and 43%. Given that it’s such a big percentage of the float, I expect that it’s quite likely that the tender offer will go at the maximum of the range. But because the company has the ability to scale back the number of shares they have to buy I do think it’s important to not tender low with the expectation that it will not really matter in the end result.

Disclosure

Long Argo, tendered my whole position at the maximum price

Another update on my basket of Italian real estate funds

Four years ago I bought a basket of various Italian real estate funds because I liked the combination of a 50% discount to NAV and the fact that these funds all have a fixed maturity date. When I started tracking these funds there were 24 different entities with a total NAV of €4.0 billion. Two years ago that number had shrunk to 21 different funds with a NAV of €2.6 billion and now just 14 funds are remaining with a total NAV of €1.5 billion. It’s taking quite some time to sell the assets of these funds, but they are liquidating. At the same time the average discount of the remaining funds has shrunk a little bit, but is still quite high at 41%:

So far my investment in this basket has worked out to my satisfaction. As of today my internal rate of return stands at 14.7% which I think is pretty okay for real estate. While all the funds I bought have appreciated in price, most of the return can be attributed to just two funds that have now been fully liquidated. While things have worked out for me, just blindly buying all these funds would probably have been a bit less successful. Most funds have been quite successful in slowly selling their assets close to NAV, but some have sold them at sizable discounts. The Obelisco fund liquidated this year, writing down their NAV to zero, and without making a single distribution to shareholders…

Another fund that is close to liquidating is Unicredito Immobiliare Uno. In the latest annual report the management company reports that they have received offers from multiple investors to acquire the remaining real-estate portfolio of the fund. I think it’s quite likely they will be able to sell their remaining assets close to NAV, and thus with the discount remaining above 20% I think it’s an attractive bet. It’s my only new position in my basket of Italian real estate funds, all the other ones in the list below have been in my possession for multiple years:

Ticker Purchase Date entry Sell Date dividend Price/Exit Return
QFUNO.MI Mar 1, 2019 727.00 765.00 5.3%
QFSEC.MI Mar 27, 2017 260.10 66.5 248.00 20.8%
QFARI.MI Mar 27, 2017 725.50 860.00 18.4%
QFSOC.MI Mar 27, 2017 237.30 27.00 244.15 5.5%
QFAL.MI Feb 26, 2015 1,150.00 278.00 1,457.00 26.6%
QFARE.MI Feb 23, 2015 1,120.00 575.50 860.00 23.4%
QFDI.MI Feb 26, 2015 41.01 85.18 107.5%
QFEI1.MI Mar 2, 2015 720.00 Mar 27, 2017 450.00 948.50 93.8%
QFID.MI Feb 27, 2015 70.90 3.50 95.25 18.4%
QFIMM.MI Feb 27, 2015 1675.00 1002.00 1,256.20 34.6%
QFVIG.MI Feb 27, 2015 1635.00 1,751.95 554.00 40.9%

Disclosure

Author is long everything in the table that hasn’t liquidated yet

My investment book reading suggestions

A question that people regularly ask me is what kind of books, blogs and other resources I would recommend. To tackle this question once and for all I thought the best idea was to write one or more blog posts about it, starting with books that I would recommend reading. What books to recommend is an easy question in my opinion. There are really a ton of good books out there, and I don’t think it matters too much which ones you read. Start with some of the well known classics and it’s really hard to go wrong.

After reading enough books on, for example, value investing you will see the content becoming more and more repetitious. They first book you read you might think, “Wow, that’s genius buying stocks at a discount to NCAV” while in the 10th book you start thinking “Can’t this author tell me anything new?”. It’s not that the 10th book is a worse one, but at some point you know the drill. So I have to admit that these days I rarely read investing books anymore, so quite possibly I’m not the most qualified person to give reading tips. But since you have been asking I’ll try anyway! All the books in the lists below are books I have read personally. If you think I’m missing something great, let me know in the comments.

Investment basics, philosophy

If you are totally new to investing these are the kinds of books that I think should be helpful to understand what (intelligent) investing is, what kind of attitude you should have with regards to your investments, and what kinds of stocks could be profitable investments.

  • The Intelligent Investor I think this timeless classic is a must have on the reading list, and a good one as a first book to read.
  • Margin of Safety Only buy it if you run a successful hedge fund and want to showoff with the books on your bookshelf. For the rest of us, you should be able to find the pdf-version somewhere online.
  • The Manual of Ideas A way more modern text that incorporates many of the ideas of the previous books and some new ones.
  • Common Stocks and Uncommon Profits and Other Writings There is more under the sun than just buying dirt cheap stocks.
  • Essays of Warren Buffet At some point in your investing life you will probably get bored by hearing for the millionth time the same Buffett quotes, but if you are new to investing these are a must read. Instead of buying the book you can also go for the value option, and read all of Buffets shareholder letters on berkshirehathaway.com.

Psychology

Understanding psychology is extremely important if you want to make good decisions, yet at the same time it’s very hard to apply. There is a big difference between reading a book about psychology, and being able to avoid the many psychological pitfalls you read about. But reading these books is a good first step I think.

  • Thinking Fast and Slow It’s not really an investment book, but a great book to understand the various heuristics and biases our brain has that can influence our decision making. An absolute must read in my opinion.
  • Beyond Greed and Fear It’s the same topic, but this time a bit more tailored towards investing.

Applied accounting/investing/valuation

The border between books in this category and the investment basics category is arguably a bit vague, but these books are on average a bit more practical, maybe aiming at more specific subjects and heavy on examples and case studies.

Case studies/entertainment

Most investing books I read nowadays fall in this category. Individually you’re probably not going to learn a whole lot from each book, but most of these books contain interesting nuggets of wisdom, and perhaps more importantly, are just very good reads.

  • Fooling Some of the People All of the Time Entertaining story of Einhorn’s fight against Allied Capital.
  • Reminiscences of a Stock Operator Interesting story about trading and speculation in the early days of the stock market
  • The Big Short One of the best stories about the 2008 financial crisis. The movie is surprisingly great as well. So if you are tired of reading, you can just watch it.
  • When Genius Failed Good story about the spectacular failure of the Long Term Capital Management hedge fund.
  • Red Notice Hedge fund manager turns into social justice warrior after the Russian state murders his lawyer. Book reads reads like thriller, something you don’t expect in the finance category. @Billbrowder is worth a follow on Twitter too.

Part of my bookshelf containing some of the books recommend above

Disclosure

All of the links in this post contain my Amazon affiliate code. If you buy something I will get a small percentage while you get the same price as always. Hopefully this post can make me rich!