Last Friday Argo Group announced that is successfully completed the share repurchase program that was started on the 30th of March. In just three months time the company spend £1.96 million repurchasing 19.0 million shares (28.1% of the outstanding shares) which is pretty impressive considering that insiders owned 33.2% of the share capital and on the AIM market average daily volume is around 60 thousand shares a day. Apparently there was plenty of liquidity off-exchange using block trades.
I have mixed feelings about the successful share repurchase program. It’s good that they managed to buy a large amount of shares at a nice discount to NCAV which is nicely accretive to intrinsic value. At the same time I’m worried that the management team didn’t do this share repurchase program to create value, but to solidify their control of the company. Thanks to the repurchase program their ownership went from 33.2% to 51.2% without paying any control premium to minority shareholders. I don’t really like this, and that is why urged people earlier this year to vote against the share buyback proposal. Unfortunately the vote passed, and I now have to accept that I’m even more at the mercy of the whims of the Rialas brothers than before.
Author is long Argo Group
It is pretty incredible that they were able to buy back 28% of the shares (or 41% of the the shares not-owned-by-management) without a bigger rise in share Price. When the reporchase was initiated, I planned to sell half of my shares when the price got over 15p. But at least I now own 1/(1-0.28)-1 = 39% more of the Company than before.
I sold a bit of my shares when the buyback was announced, but I also now own a larger percentage of the company than before.
During the buyback, it appears that AREOF sold off one of it’s larger assets as per the attached link http://www.nepinvest.com/pdf/news/en-2016-06-28.pdf. Surprised there has been no market announcement re this given the money owing to Argo from AREOF
Thanks for the link, hadn’t seen this news before. Also surprised that Argo hasn’t released anything about this, seems pretty material to me.
wow, EUR 100M is quite a lot, but I don’t suppose anyone knows how big the balance of AREOF is, or how much the property was valued at…?
In 2013, I believe it was held at 110 m eur or so. There was at least 70m eur debt directly attached to it. [It was 2nd largest asset at that time] In the intervening period, who knows what has been agreed in negotiations with AREOF bankers. There is a strong possibility all proceeds will be taken by AREOFs bankers.
However, the sale should improve the visibility by Argos management team of the substantial amounts of management fees owing to ARGO by AREOF, as well as assist in valuing the AREOF stake held by Argo.
In addition, the most recent Argo accounts to 31.12.15, in non current assets, contain loans of $1,783k. Of this $1,437k [probably $60k more now with interest] relates to Bel Rom / Sibiu Shopping City.
“Challenging trading conditions have impacted Bel Rom’s cash flow and its ability
to meet payments due to lending banks as and when they fall due. The situation is being remedied by
way of discussions with the lending banks with a view to restructuring these loans. While these
discussions are on-going to find an agreeable solution for both parties, Bel Rom continues to enjoy
the support of its banks. The loan is repayable on demand and accrues interest at 12%. The full
amount of the loan and accrued interest amounting to US$1,437,321 (€1,317,918) remains
outstanding at the year end. The Directors consider this loan to be fully recoverable on the basis that
conditional offers to buy the centre have been received that indicate a value in excess of the debt
attached to the project.”
I would now expect this to be cash in Argos balance sheet.
Sweet. Thanks for the insight Owen 🙂
Im confused regarding Bel Rome though. Are you saying that Bel Rome is part of the Sibiu Shopping City or are you saying that you expect that Argo is likely to repay the Bel Rome loan to ARGO with some of the the cash it gets from the sale of Sibiu?
Sorry Casper, I think Bel Rome is the company or holding entity that holds the Sibiu asset for AREOF. I would have thought that as part of the sale, Bel Rome would be obliged to pay it’s loan back to Argo whether directly or through AREOF.
Oh, excellent, thanks for the clarification 🙂 And yes it sounds reasonable that the loan is then payed back (if there isn’t enough Money for that, the ARGO management has done a really lousy job selling the property – it wouldn’t be asset-manager-like) 😉
I see another buyback is planned
Decent hop up today with half year result. Didn’t have a time to fully read them, on the face of it they look positive. Not sure what happened with Somalian bonds, carrying value vs disposal amount looks strange.
Yes, looks like they were carried significantly higher than the price they managed to get for it ($4.8 million carrying value vs just $1.9 million cash received). But overal think it was all pretty good news.
* AUM up and good fund performance (performance fees!)
* received €2.5 million from AREOF
Seems like the share repurchases earlier this year were very well timed. Wonder if they now will continue with the new second program now that the share price is up significantly (think they should, would still add a lot of value).
How do you buy this. Can’t seem to do it through IB.
I have used Binck (A Dutch broker), think in the US Fidelity can do it (but probably others as well)