Clarke announced yesterday that the company would return most of the excess cash that they have to shareholders using a special dividend of CA$2/share. Clarke has been looking for attractive investment opportunities for some time, and besides buying a basket of energy related stocks they haven’t found anything. So they have decided to do the right thing, and return the money to shareholders. They are returning CA$31.3 million which represents roughly 85% of their cash on hand. At the same time Clarke has decided to eliminate its regular dividend of CA$0.10 per quarter which makes sense since they don’t have assets anymore that produce a regular cash flow. I think both are great decisions that shows once again that it is run by a shareholder friendly CEO that understands capital allocation.
The market reacted quite favorably on the news and as a result the discount to NAV (proforma for the $2/share dividend) has shrunk to less than 10%. I think this is roughly fair value (maybe still a bit on the cheap side) and because of that I decided to exit my position. A small discount is warranted because of overhead at the company level, and at the same time I expect that in the near term no value will be created anymore by share buybacks since most of the cash will be gone. And buying back shares at such a small discount wouldn’t create a lot of value anyway.
Author has no position in Clarke anymore