Argo Group announced today the results of the tender offer I talked about previously. As I sort of expected slash hoped, the tender offer was undersubscribed, and as a result the company is accepting all 8.1 million tendered shares at the 26p/share maximum. A great result since the stock was trading around 15/16p before the tender offer was announced. Even though the company bought the stock at a pretty decent premium, the tender offer was accretive to NCAV/share. The big question is whether or not I should try to re-initiate a position in the stock, or that I should be happy to have been able to exit without having to face the ridiculous bid/ask spread on the London AIM market. It’s still trading at a pretty sizable discount to NCAV, but at the same time insiders are also increasing their control of the company. Their stake jumped from 52.7% to 63.7%, and if they would exercise their options for 4.3 million shares they get to 74.8%. Having 75% of the votes is for example enough to delist a stock from the AIM market, so corporate governance, never Argo Group strongest point, might become even more a risk.
Because of the long holding period my annualized return on my Argo Group position, ignoring some opportunistic buys and sells I made throughout the years, is sort of disappointing. It’s certainly not terrible, but a 10.8% internal rate of return is also not great:
| Date | Description | Cash flow |
|---|---|---|
| 1/3/2012 | Bought first shares | -14.69p |
| 6/20/2012 | Dividend payment | 1.3p |
| 4/26/2013 | Dividend payment | 1.3p |
| 4/8/2019 | Expected result tender offer | 26.0p |
| IRR: | 10.83% |
Disclosure
No position anymore as soon as Argo Group pays for my shares
I bought my first Argo shares in 2016 and did also tender my shares. It has reinforced my view of looking at these deep value situations with some “hair” on them (in Argo’s case governance, falling AUM etc.). At that point cash to mcap was probably 70% and company had repurchased som 20%+ shares so seemingly limited downside risks at that time
Did you ever consider shorting stocks?
It seems that some analysts are very good at this. E.g. Emerson Analytics has a 100% win/success rate according to gmt research. They covered only few stocks but the track record is still impressive. You can also see this on the latest page of this report: http://www.emersonanalytics.cloud/downloads/ZhouHeiYa-HK_1458-StrongSell.pdf
I have shorted some stocks in the past (you can see some on the list on the exited positions page), but it’s not easy. Usually the things you would like to short have no borrow available, or super high borrow fees…