Category Archives: Portfolio

Sio Gene Therapies announces first liquidation distribution

Almost a year ago I wrote about the pending liquidation of Sio Gene Therapies (OTCMKTS:SIOX) with the expectation that a first liquidation distribution would be made in a couple of months. It took a lot more time than initially estimated, apparently because it was more time consuming than expected to liquidate some of the foreign subsidiaries. But the long wait was worth it, because today we finally got a press release with a small surprise to the upside. The initial liquidation distribution will be $0.435/share while the company originally provided a range between $0.38 and $0.42/share. My guess is that we can thank the current interest rate environment for this bump in combination with the delay.

A key part of the investment thesis in Sio Gene Therapies was the expectation that after the initial liquidation distribution we could expect one or more additional distributions. The company is keeping $7.2 million as a contingency reserve, and in the initial proxy statement the possibility of distributing this money to shareholders wasn’t even mentioned. This could add up to $0.10/share, and in the latest press release at least they write something about distributing excess cash (subject to uncertainties inherent in winding up the business). Might take a couple of years or more, but I expect to get something at some point.

Disclosure

Author is long Sio Gene Therapies

2023 end-of-year portfolio review

My most popular post of the year is invariably the annual performance review. It is pointless to compare yourself to a random person on the internet, but I get it, curiosity also gets the best of me when someone else is sharing results. In 2023 the portfolio produced a return of 10.47% which in absolute sense is pretty good, but at the same time it is setting some negative records.  It’s a bit of a first-world problem when you can bitch about a double digit positive return, but besides being the lowest absolute return so far it is sadly also breaking my streak of beating the MSCI All County World Index every single year in a row. The key distinction between me and the index lies in my positive return the previous year, and if you don’t need to recover from a loss you start with a big head start. Taking 2022 as starting point the MSCI ACWI is up a meager 3.7% while my portfolio produced a 23.3% return. Like I said, first-world problems…

Year Return* Benchmark** Difference
2012 18.44% 15.01% 3.43%
2013 53.38% 18.11% 35.26%
2014 30.11% 19.23% 10.88%
2015 24.23% 9.34% 14.89%
2016 64.97% 11.73% 53.24%
2017 29.04% 9.47% 19.57%
2018 13.07% -4.34% 17.41%
2019 32.34% 28.93% 2.70%
2020 19.31% 7.18% 12.13%
2021 31.31% 28.08% 3.23%
2022 11.63% -12.58% 24.21%
2023 10.47% 18.65% -8.18%
Cumulative 1706.73% 282.47% 1424.26%
CAGR 27.27% 11.83% 15.45%

* Return in euro’s after transaction costs, net dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) gross total return index in euro’s

Long-time followers of the blog will see a familiar picture in the performance attribution graph below, with the special situations bucket being the driving force behind the portfolio. But I will admit that sometimes the lines are a bit blurry between which stock goes where. The number two position in the list is Garrett Motion, that I bought as a special situation when it entered bankruptcy proceedings, but was promoted to a long-term value pick after a successful restructuring. On the other hand, one of the major contributors in the special situation bucket is a stock that was spun-off after a successfully completed merger arbitrage, and it would certainly make sense to reclassify it to a long-term position. And sometimes the line is already blurry from the start. I think most investors would see investing in spin-offs as special situation investing, but how long can you hold it and still see it that way?

Also noteworthy is that during the year a meaningful contribution was made by interest income. Not only because interest rates went up a lot and you finally get paid something on your idle cash balance, but also because my cash balance was unusually high. We are looking to buy a house, and while that search is ongoing I want to keep my options open. That presumably incurred a significant opportunity cost, but investment results aren’t always the most important in life. Or maybe never? With that philosophical question I want to conclude this post, and wish my readers a happy, healthy and prosperous 2024.

Disclosure

Author is long most of the stuff mentioned in the performance attribution graph

ALJ Regional Holdings merger completed

A bit less than two months ago I wrote about the ALJ Regional Holdings going private transaction. The merger closed at the end of last month, but because of some confusing language in the merger documents people where not totally sure if accredited investors would get cash, or would be forced to accept the stock option. I thought it would basically impossible for the company to take this route, because issuing unregistered shares to non-accredited investors could get them in a lot of trouble. Today my broker put the corporate action in their system, and that makes it crystal clear that, if you do nothing, you indeed get the cash option:

Holders electing for the Stock election, Option 2, must complete the Verification Request Form and send back to IBKR for submission to the agent. Once the Verification Request Form has been received by the Information Agent, New ALJ will instruct a third-party accredited investor verification service, VerifyInvestor.com, to initiate the verification process. Holders will receive an electronic communication from the Verification Provider at the email address provided on the Verification Request Form containing instructions to follow in order to complete the verification process. In addition, the Verification Provider or New ALJ’s other representatives or agents may further reach out to confirm whether such investor would qualify as a sophisticated investor in New ALJ’s sole discretion.

Once the verification process is complete, and you receive the confirmation to move forward with the stock election, IBKR will be able to submit the tender electronically via DTC. IBKR cannot tender the shares without receiving the approval from the verification process.

It will probably take till the end of this month for the merger payout to hit my account, but I think we can safely call this trade a success.

Disclosure

Author has no idea if he is still long or not. The shares are still visible in my account, but since the merger closed I guess I technically don’t own them anymore?

PDL Biopharma liquidation making progress

At the end of 2020 I wrote enthusiastically about the PDL Biopharma liquidation. At the time the stock was trading at $2.35/share while I estimated approximately $3.35 in liquidation distributions. Last Friday the company paid a third distribution to shareholders, bringing the total amount distributed to shareholders to $2.05/share. While I’m close to recovering my initial investment, I think it’s clear that my 27% IRR estimate was way too optimistic. Based on the third quarter ’22 update remaining net assets are approximately $1.61/share. Even if the remainder of the liquidation is now quickly concluded, and we get that amount in one year time, the IRR is “just” 19%. If we have to wait another full 3 years, which might be more realistic, the IRR drops to 14.5%. While PDL Biopharma seems to follow the golden rule that liquidations always take more time than you expect, I think the end result will be nonetheless quite satisfactory.

Balance sheet before taking 2nd ($24.1 million) and 3rd ($95.9 million) liquidation distributions into account

Disclosure

Author is long PDL Biopharma

Conduril releases 2022 annual results

I have been a shareholder of Conduril for over a decade now, but unfortunately, it hasn’t been a real successful investment so far. I bought my initial stake at €22/share and the stock is currently trading marginally higher at €26.20/share. Although there have been some dividends along the way, they haven’t been enough to compensate for the opportunity cost of holding this position. I believe in buying cheap companies without a catalyst, having faith that something will eventually happen to unlock the value that is there. But assuming I’m right about the value being there in there first place (a big if!), there is still no guarantee that something will happen.

With a more than 10 year holding period I think you can make a good case for throwing the proverbial towel in the ring, but I’m not quite ready to do that. Conduril is still cheap, trading at a 62% discount to NCAV, a 0.20x P/B-ratio and a 5.86x P/E-ratio, but there are also some signs of change on the horizon. In 2022 the company bought back, for the first time in its existence, 10% of the outstanding shares. Given the price the stock trades at I think this is quite accretive to intrinsic value (sadly there is no plan to continue the buybacks this year). Secondly, the chairman of the board recently passed away. He was a major shareholder of the company with a 28.60% ownership stake, and a large transition in the ownership of the company could potentially pave the way for some (hopefully positive) change.

The results for 2022 itself look promising, with earning per share at €4.47, the highest it’s been in the past 8 years. The order backlog is at a healthy level as well, slightly higher than the previous year, and it appears that some of the financial assets on the balance sheet (Angolan government bonds) have been converted to cash. According to the footnotes of the financial statements the remaining bonds have maturity dates in 2023, 2024 and 2026. The majority only matures in 2026, so some patience may be required. Fortunately, I’m a patient investor…

Disclosure

Author is long Conduril