Category Archives: Portfolio

Retail Holdings announces sale of Singer Bangladesh

Retail Holdings announced today that a 54.1% owned subsidiary has entered into an agreement to sell their whole stake in Singer Bangladesh for $75 million. Given that Singer Bangladesh is the largest remaining piece of Retail Holdings assets this gets the company pretty close to the finish line with regards to their plan to fully liquidate. Besides Singer Bangladesh they only have a 60.8% stake in Singer India left that is also owned indirectly through the same subsidiary.

While the sale of Singer Bangladesh is nice, the price is very disappointing. Retail Holdings owns (indirectly) a 37% stake of Singer Bangladesh that is worth $91 million based on the latest market price in Bangladesh. Besides this stake, they also own a 20% stake consisting of non-remittance shares and these shares have $15 million in accumulated unremitted dividend distributions. Given the restrictions these shares have with regards to paying distributions to shareholders outside Bangladesh it makes sense that these are worth substantially less than normal shares, but I think they should certainly be worth something. Selling their whole Singer Bangladesh stake for a discount to the latest market price and throwing in the non-remittance shares and their accumulated unremitted dividend distributions for free seems a pretty bad deal. In a best case scenario, with a zero percentage discount, these assets could be worth $155 million, more than twice the agreed upon price of $75 million.

Despite the bad deal the stock is up a tiny bit today, which makes sense. Most of Retail Holdings market cap will soon consist of cash, and presumably be returned to shareholders. Taking into account the $75 million that will be received for their Singer Bangladesh stake, NAV/share stands roughly at $12.40 which means that there is actually a little bit of upside left from today’s share price of $11.66. Guess that shows that buying stuff with a sufficiently big discount does offer some margin of safety, but still: I’m pretty disappointed by this outcome.

Disclosure

Author is long Retail Holdings

Sorrento Tech liquidation payment: resolved

Almost four months ago I wrote a blog post about Sorrento Tech, formerly known as Roka Bioscience (NASDAQ:ROKA), thinking I probably got screwed out of a liquidation payment. I bought shares on the last day of trading on December 28, 2017 while the company closed it stock transfer books on the same date, probably giving no thought to the fact that it takes two days for trades to settle. In 2018 the company announced its first liquidation distribution, and with a record date of December 28, 2017 it seemed like people who bought shares in the last two days of trading were out of luck.

Not how it should be, because when I bought the shares they weren’t trading ex-dividend, and as the legal owner of the shares I should be entitled to any and all future distributions. But being right is one thing, getting paid what you deserve is something else. Luckily the company proved willing to work with DTC to resolve the situation, and while it took a couple of months, DTC rescinded the original payment last month and made the new distribution payable to beneficial owners as of October 24, 2018. Most brokers processed the new payment instruction on March 1st, but for some reason it took Interactive Brokers a full three weeks more. A little bit annoying, but quite happy that this mess finally got resolved :).

I would also like to thank all the readers that contacted me about the situation with tips and information about their attempts to get the situation fixed. It’s pretty amazing to be able to find people who are in the same situation as you, especially when we are talking about two days of trading in a $4 million market cap company. Doesn’t get much more obscure than that!

Disclosure

Author is long ROKA

Argo Group launches big tender offer

My oldest position in my portfolio is Argo Group. I bought my first shares not long after starting this blog in 2012 at 14.69p/share and while there have been a couple of dividends since, and the opportunity to buy more at significantly lower prices, the stock hasn’t exactly been a home run with a current price around 18p/share. Nevertheless, the company remains very cheap, trading at roughly a 50% discount to net current asset value. Argo’s management has recognized this, and reduced the number of outstanding shares with 30% since 2012. But at the same time this has cemented their control over de company as well since they now control 52.7% of the outstanding shares.

Last week Argo announced that it is launching a tender offer to purchase between £2.0 million and £2.5 million worth of shares in a Dutch auction action with a price range between 18p/share and 26p/share. If you don’t have a position yet in the company you can stop reading here, because the offer is only open to shareholders who held their shares on the record date of 6 March. But since I already own the stock I had a decision to make.

Argo Group has a net current asset value of 36.5p per share so I’m absolutely not interested in selling at 18p/share. But at 26p I think it’s a reasonable deal. I get paid a 50% premium to the latest market price, and the company would still be purchasing shares at a 30% discount to NCAV. I’m okay with a deal that’s a win-win for both parties, and at that price the discount is basically split “fairly” between exiting shareholders and remaining shareholders. By tendering at the highest price of the range there is of course a risk that none, or not all my shares, will be accepted in the tender offer, but I think that’s a risk worth taking. If the tender offer is completed at a lower price it would provide a nice boost to NCAV/share anyway, and most likely the stock price will follow. And most importantly, at 26p I’m selling it cheap enough already!

A sort of interesting twist in the tender offer is the fact that the company can pick if they want to buy back £2.0 million worth of shares or £2.5 million worth of shares. At a price of 18p that corresponds to 50% to 60% of the float while at 26p it corresponds to a percentage between 35% and 43%. Given that it’s such a big percentage of the float, I expect that it’s quite likely that the tender offer will go at the maximum of the range. But because the company has the ability to scale back the number of shares they have to buy I do think it’s important to not tender low with the expectation that it will not really matter in the end result.

Disclosure

Long Argo, tendered my whole position at the maximum price

Another update on my basket of Italian real estate funds

Four years ago I bought a basket of various Italian real estate funds because I liked the combination of a 50% discount to NAV and the fact that these funds all have a fixed maturity date. When I started tracking these funds there were 24 different entities with a total NAV of €4.0 billion. Two years ago that number had shrunk to 21 different funds with a NAV of €2.6 billion and now just 14 funds are remaining with a total NAV of €1.5 billion. It’s taking quite some time to sell the assets of these funds, but they are liquidating. At the same time the average discount of the remaining funds has shrunk a little bit, but is still quite high at 41%:

So far my investment in this basket has worked out to my satisfaction. As of today my internal rate of return stands at 14.7% which I think is pretty okay for real estate. While all the funds I bought have appreciated in price, most of the return can be attributed to just two funds that have now been fully liquidated. While things have worked out for me, just blindly buying all these funds would probably have been a bit less successful. Most funds have been quite successful in slowly selling their assets close to NAV, but some have sold them at sizable discounts. The Obelisco fund liquidated this year, writing down their NAV to zero, and without making a single distribution to shareholders…

Another fund that is close to liquidating is Unicredito Immobiliare Uno. In the latest annual report the management company reports that they have received offers from multiple investors to acquire the remaining real-estate portfolio of the fund. I think it’s quite likely they will be able to sell their remaining assets close to NAV, and thus with the discount remaining above 20% I think it’s an attractive bet. It’s my only new position in my basket of Italian real estate funds, all the other ones in the list below have been in my possession for multiple years:

Ticker Purchase Date entry Sell Date dividend Price/Exit Return
QFUNO.MI Mar 1, 2019 727.00 765.00 5.3%
QFSEC.MI Mar 27, 2017 260.10 66.5 248.00 20.8%
QFARI.MI Mar 27, 2017 725.50 860.00 18.4%
QFSOC.MI Mar 27, 2017 237.30 27.00 244.15 5.5%
QFAL.MI Feb 26, 2015 1,150.00 278.00 1,457.00 26.6%
QFARE.MI Feb 23, 2015 1,120.00 575.50 860.00 23.4%
QFDI.MI Feb 26, 2015 41.01 85.18 107.5%
QFEI1.MI Mar 2, 2015 720.00 Mar 27, 2017 450.00 948.50 93.8%
QFID.MI Feb 27, 2015 70.90 3.50 95.25 18.4%
QFIMM.MI Feb 27, 2015 1675.00 1002.00 1,256.20 34.6%
QFVIG.MI Feb 27, 2015 1635.00 1,751.95 554.00 40.9%

Disclosure

Author is long everything in the table that hasn’t liquidated yet

PD-Rx Pharmaceuticals reports FY2018 results

On the first trading day of 2019 PD-Rx Pharmaceuticals reported its annual results for the 2018 fiscal year that ends on June 30. PD-Rx is one of these stocks that is wonderfully easy to keep track of. The company releases financial information just once a year, and the two dozen pages that make up the annual report and the accompanying financial statements are easy to comprehend while painting a useful picture of how things have been going.

Last year was actually packed with an unusual amount of action for PD-Rx. The company paid a nice $0.66/share dividend in May, and a big $2.20/share dividend in December (after the end of the fiscal year). I was hoping that the dividends signaled that business was going well, but after looking at the latest results it seems that they simply decided to return excess cash. An excellent decision in my opinion, and even after these two dividends half of PD-Rx’s market cap consists of cash and certificates of deposit. Knowing that they are happy to return large amounts of cash to shareholders makes me more confident that we don’t have to place a discount on their remaining cash reserves.

Looking at the results of 2018 we see a bit of a mixed result. Revenue went down a bit while their gross profit margin increased. If they managed to keep their SG&A costs stable, 2018 would have been a pretty good year, but unfortunately they didn’t, and as a result they earned exactly the same $0.38/share this year as last year. Especially with a lower effective tax rate in the 2nd half of their financial year that’s a bit disappointing. Some of the increase in SG&A spending can be traced back to increased levels of advertising spending, which presumably isn’t money thrown down the drain, but I can’t say I like the sudden jump, so I can sort of understand why the stock price went down after the publication of the results. At the same time, it also makes that the stock remains a pretty attractive deal. For $4.19/share you are getting $2.09/share in cash and $0.38/share in earnings. You don’t need a fancy valuation model to know that that’s not bad.

Last five years of PD-Rx’ financial results with the 2018 cash balance adjusted for dividend in December 2018

Disclosure

Long PDRX