Exited Clarke Inc

I sold my position in Clarke yesterday. I needed to create some room in my portfolio, so I looked at my portfolio and asked myself the question: “If I would start from scratch today, what stock wouldn’t I buy”. AIG was actually the obvious answer, but selling that stock wouldn’t solve my problem because I have a lack of margin room in my portfolio while my net exposure is still comfortably below 100% (my target). The main reason for this is a long/short trade where both legs are non-marginable (like most of the stock I own). In this group Clarke was the obvious sell.

Since I initiated my position in the company the discount between book value (adjusted for the unrecognized pension asset) and the stock price has shrunk from 27.7% to 14.4% thanks to aggressive share repurchases. Because the discount is now a lot smaller future share repurchases will add a lot less value while fixed overhead costs remain. As a result, the stock is in my opinion now trading fairly close to fair value which I estimate at ~CA$13.50/share.

Because of the share repurchases and the shrinking discount I made a 22.5% return in roughly six months while the underlying value of Clarke’s assets remained basically unchanged: Holloway is down a couple percent while Terravest is up a little bit. Not a bad result in my book!

Clarke Inc June 2015 NAV


No position in Clarke anymore

3 thoughts on “Exited Clarke Inc

  1. pietje

    I sold most of my position too and was considering ditching the rest for exactly the same reason. So you probably made a bad decision 😉

    The one caveat is that the positions in Holloway and Terravest themselves might be materially undervalued and that these positions form a significant part of book value. Unfortunately I am very lazy and never bothered to try to value them.

    1. Alpha Vulture Post author

      If Holloway and or Terravest would be significantly undervalued it would probably be better to invest in those two directly (even though Clarke trades at a small discount) because Clarke also has a lot of cash and other stuff that is not trading below intrinsic value. And they of course also have to be more undervalued than the other stocks in the portfolio.

  2. Daniel Victor

    I still own them,having bought at C$10.60.Sadly,much of my gain has been offset by the fall in the Canadian Dollar !


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