Tag Archives: ARGO.L

Argo Group completes share buyback programme

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.

Agro Group repurchase history

Disclosure

Author is long Argo Group

Vote AGAINST the Argo Group Share Buyback Proposal

Vote no!Most shareholders in Argo Group must have noticed that the company has launched a proposal to buy back shares that requires shareholder approval because it could increase the stake of insiders to a controlling stake. I think that this would not be a positive development if management is unwilling to cash out minority shareholders at a fair price, among other things. Wexboy makes the case to vote against the proposal in a lot more detail here, and I would urge every Argo shareholder to read it (and vote accordingly)! Unfortunately, I’m not able to vote against the proposal because my broker (Binck) doesn’t support it, but if I could I would certainly vote against the proposal.

Disclosure

Author is long Argo Group

Argo Group sells Indonesian investment

Argo Group, an alternative asset manager, has been one of my first write-ups on this blog, but certainly not one of my most successful investments. I initiated my position at 14.69p/share only to see it drop 60% in the following years to a low of 6.00p/share a few months ago. Unlike some of my earlier investments that I sold because I thought that my initial analysis was flawed this was one idea that I kept believing in, and adding along the way. Not that this means that my first Argo write-up was flawless (far from it!) since the Indonesian investment, that is the subject of this post, isn’t even mentioned.

What I learned later is that Argo Group manages a very concentrated portfolio, and a major holding was a minority stake in a troubled Indonesian refinery. How big this asset is as a percentage of The Argo Fund has never been disclosed, but it has to be very big. In the latest interim report, Argo already reduced the carrying value of their stake in their own fund from $18.2 million to $13.8 million based on the agreed sales of an “important asset”. That’s a 25% write-down! My educated guess is that their TPPI stake is now approximately 65% of the Argo Fund, and with the sale of this asset almost completed there is now a large amount of liquidity:

Argo Group Limited (“AGL”), the independent alternative investment manager offering a multi-strategy platform for investing in global emerging markets, announces that certain funds it manages (“Argo Funds” or “the Funds”) have reached an agreement for the sale of a significant investment they hold in Indonesia (“Indonesian Investment”). The transaction conditions precedent are now fulfilled and the Funds has received a part of the sale consideration with the balance due over the next two weeks.

Because of the previous illiquid nature of the Argo Fund it has a large amount of accrued management fees outstanding ($5.8 million!) that now can be paid to Argo. With a market cap of $10.2 million (based on a 10.18p share price) that is big news. In addition to this the company also owns a $13.8 million stake in their own fund that is now mostly liquid as well. If we simply add these two numbers we get a total value of $19.6 million, implying a liquidation value that is almost twice the current market cap, and it gives zero credit to their other assets and (potential) earnings power. I still see a lot of value here, and I think the completion of the sale of their Indonesian investment will act as a catalyst since the company has indicated that they intend to resume their annual dividend and/or implement a share buyback:

Once the full sale consideration has been received by the Funds, the Board will consider a resumption of annual dividend payments and or a potential return of capital to shareholders via a share buyback subject to a review of AGL’s future strategy and working capital needs.

What the following, from the same press release, is supposed to mean, no idea…

The disposal of the Indonesian Investment improves the liquidity of the Funds and creates an opportunity for further transactions with the same counterparty that could in the future mitigate the impact of the book value losses incurred by the Funds as a result of the disposal.

TPPI refinery

Disclosure

Author is long Argo Group

A follow-up letter to Argo

Wexboy has sent a follow-up letter to Argo Group with a more focused and concrete proposal to create shareholder value. With the company trading significantly below net cash/investments per share management has a great opportunity to create value by buying back shares, or paying a special dividend. So this is certainly a proposal I fully support!

Disclosure

Long Argo Group

Wexboy’s letter to Argo

Argo Group has the questionable honor of being the worst performing stock that I bought and have blogged about: it’s down ~33% since the beginning of the year. Fellow blogger and Argo owner Wexboy decided to not stand idle at the sidelines, and send a letter to Argo to urge management to take action. If you are a shareholder you should check it out.

I don’t fully agree with all suggestions, but buying back shares when the company has 20.9p/share in cash and investments while it is trading below 10p/share is something I absolutely want to see! Better disclosure on what’s exactly inside the Argo fund is also a good suggestion since it is such a huge part of Argo’s balance sheet. I don’t think management needs to be urged to increase AUM. I’am sure that they know this, and will try to do this if they can since it’s already in their best interest to do so. The launch of a new emerging market fund earlier this month is a good sign in this direction. I also don’t really care about promotional investor relations activities. Influencing the share price of the company is in my opinion not managements job. They just need to run the company, and if they are doing a good job the market will take care of the share price.

Disclosure

Long Argo Group