Yearly Archives: 2017

Exited Retail Holdings, this time for real

Earlier this month I sold Retail Holdings, only to quickly buy it back after I realized there was a mistake in my sheet. Since then the price of the company has increased a bit more than 6% while the underlying asset value actually declined a tiny bit. Since the discount earlier this month was just 12.7% (using a 33% discount on the non-remittance shares) these relative small movements are enough to change the story. At the moment the remaining discount is 6.01% which translates to 10.1% after the dividends have been paid. Given that there are for sure some costs at the holding company level, and that it quite possible that a fair discount on the non-remittance shares is actually higher than 33% I sold my position. There might be a bit of upside left (especially if this Seeking Alpha author is right with respects to the licence fees), but I think the Retail Holdings story has mostly played out at this point in time.

I bought my initial position a bit more than three years ago. Taking into account the dividends paid out in the meantime I generated a more than solid internal rate of return of 20.2%:

 Description Date Cash flow
Buy 6/4/2014 -18.95
Dividend 10/6/2014 1.00
Dividend 10/6/2015 1.00
Dividend 4/13/2016 5.00
Dividend 5/17/2017 2.00
Sell 10/13/2017 23.24
IRR: 20.21%

Disclosure

Author has no position in Retail Holdings anymore

Exited Retail Holdings (updated)

Some readers might have noticed that I briefly published a post about selling Retail Holdings yesterday. One reader quickly noticed that there was a pretty big mistake in my sheet (note to self: maybe don’t update sheets and trade while on the train…) which does change the story a bit. I thought that a discount of 33% on the non-remittance shares would mean that there was almost no upside left in Retail Holdings, while in fact the discount is still 21.1% (pro-forma for the $10 in dividends that will be paid in the coming months). It is tempting to rationalize your previous selling decision and find a new reason to support the move, but a mistake warrants a fresh evaluation. While the discount isn’t particularly big I think I’m happy to continue owning a (smallish) position. So I decided to correct my mistake of yesterday, and I rebought today.

I still think that it was a disappointing development that the company sold their SVP notes for a nominal amount last month. They had been written down in the past to zero already, but with a face value of $32.7 million it provided a nice bit of optionality that is now definitively gone.

Disclosure

Author is long Retail Holdings

Retail Holdings sells majority stake in Singer Sri Lanka

Retail Holdings announced today that they have sold 61.7% of their stake in Singer Sri Lanka for a total consideration of $69.0 million. Because the stock was owned through Sewko Holdings in which the company has a 54.1% stake the consideration attributable to Retail Holdings shareholders will be $37.3 million. This is pretty significant news since Singer Sri Lanka was one of the last remaining big position besides Singer Bangladesh. According to the press release Retail Holdings hasn’t yet determined what the cash will be used for, but based on their history of paying out (large) dividends another one of those is a safe bet. With 4.65 million shares outstanding the $37.3 million payment would enable a dividend of a little more than $8/share, in addition to the $1 dividend that already has been announced for November.

For some reason the company didn’t sell their whole stake in Singer Sri Lanka, but they are keeping a 9.5% stake with the option to sell it to the acquiring party within 12 to 15 months. I have no idea why they have structured the transaction in such a way, but my guess is that it has to do with taxes or other rules that make disposing of the whole stake in one go less attractive. Following the transaction the acquiring party is obligated to launch a tender offer for all shares so presumably they want to acquire everything, while Retail Holdings wants to exit. No reason to think that the remaining position won’t be sold in the time frame of the option.

While Retail Holdings is up a bit based on this news I think the stock is still cheap. It is currently trading at a discount of 25% to underlying asset value, which is not that huge, but if you take into account that shareholders will most likely receive $9/share in dividends the discount on the remaining holdings rises to 37%.

Disclosure

Author is long Retail Holdings

Locus Capital starting activist campaign on Tejoori

Earlier this year I bought a small position in Tejoori. After selling substantially all its assets the company consists solely of cash, and cash like instruments. My thesis at the time was that the Tejoori would eventually fully liquidate, and distribute the cash to shareholders. Since then nothing has really happened, and the company has remained noncommittal in distributing the cash. In the latest interim report the same language as in the previous report was used that promised that there is the intention “to return to shareholders a certain proportion of the cash generated from the sale of the Arjan Plots”.

Locus Capital has decided that things have taken long enough, and is trying to start an activist campaign with the intention to get management to return all shareholder capital. In order to get this kick-started they have created a Google Sheet to collect the information of fellow shareholders who have a similar goal. I suggest you fill it out here if you are a shareholder.

Disclosure

Author is long Tejoori

Black Earth Farming merger arbitrage update

I wrote about the Black Earth Farming merger slash liquidation in April. At that time the company expected to distribute between $185 and $193 million to shareholders at the end of June. Due to some delays in regulatory approvals that date has been pushed backwards to early September, and the amount of the distribution has been adjusted downwards as well. Shareholders are now expected to receive between $180 and $182 million which translates to SEK 6.68 and SEK 6.76/share, significantly lower than the initial company estimate that was between SEK 7.2 and SEK 7.5/share. In dollars the new estimate is just marginally lower than the bottom of the old range, but in Swedish krona the difference is a lot bigger so it seems that the biggest reason is simply a change in exchange rates (even though the company was partially hedged). Other contributing factors were lower crop prices, and some additional money that is being retained to fund litigation in the US.

I exited my position in Black Earth Farming a couple of weeks ago, because the spread at that time was negative if you would take into account the change in exchange rates. With the stock now trading at SEK 6.50 the merger is once again becoming marginally attractive. It’s a spread of just 2.8% compared to the bottom of the estimated range, but with the payment expected to arrive the 6th of September the annualized return of a long position is pretty solid 23%. With no real risks remaining I think that that is not bad, so I initiated a small position again today.

Disclosure

Author is long Black Earth Farming again