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.
Disclosure
Author has no position in Clarke anymore
Following the a ca25% oil price hike since March 31st I believe that their “Energy Securities Portfolio” is now very likely to be worth significantly more then what it did at that time, so you are probably understading the discount.
It’s probably up, but doubt that it is up by a super big amount. The XOP ETF is for example up a bit more than 10% since March 31. But would be enough to add a few percentage points to the discount, so you are right that this is probably understating the discount.