Crystal Amber Fund Limited - Monthly Net Asset Value
(“Crystal Amber Fund” or the “Fund”)
Monthly Net Asset Value
The proportion of the Fund’s NAV at
Ten largest shareholdings Pence per share Percentage of investee equity held Hurricane Energy plc 46.2 5.2% Northgate plc 38.2 8.2% Equals Group plc 35.2 21.6% GI Dynamics Inc. 30.6 71.4%** De La Rue plc 16.8 6.9% STV Group plc 12.7 8.3% Allied Minds plc 9.3 6.9% Leaf Clean Energy Co 6.6 25.3% Board Intelligence Ltd* 5.7 * Kenmare Resources plc 4.1 1.5% Total of ten largest 205.4 shareholdings Other investments 16.4 Cash and accruals 0.5 Total NAV 222.3
** Following the exercise of warrants on 30 September.
Investment adviser’s commentary on the portfolio
Over the quarter to
The top three positive contributors to NAV growth over the quarter to
Hurricane Energy plc (“Hurricane”)
Since achieving first oil on
Over the period, Hurricane drilled and tested two new wells at its Great
The excellent results from the EPS have materially de-risked the company. Whilst the Fund is disappointed that Hurricane’s shares fell by 18.9% over the period, we are encouraged by management’s focus on growing cash flows. The operational initiatives in progress and the addition of the Lincoln Crestal well to the EPS could see production grow from 2020’s guidance of 17k barrels of oil per day to 30k in 2021. Assuming an oil price of
Having instigated the departure of previous Chairman
At 325p, Northgate’s shares trade at a substantial discount to the company’s reported net tangible asset value of 412p per share as at
Northgate’s well-managed Spanish business, which generates over half of the group’s operating profit, is the clear leader in its market with a strong brand, good geographic coverage and an attractive return on assets. Its performance has benefited from a prolonged macroeconomic recovery, unaffected by Brexit-related uncertainty. Over the course of several years, the considerable value of the Spanish business has not been reflected in Northgate’s share price, and the Fund believes that the company should now prioritise releasing the value of this asset.
The Fund believes that Northgate Spain would be particularly attractive to a number of multinationals currently attempting to increase their presence within the European flexible vehicle rental market. The business would be worth more to these companies than it is to Northgate plc and its
Over the last three years, Northgate Spain has delivered an average ROCE of 11.6%. Northgate considers its post-tax cost of capital to be 5.5%, which is higher than those of its larger and more diversified peers able to operate with greater leverage. If the Spanish business were worth to an acquirer a conservative 30% premium to net asset value (equating to a premium of 16% to total asset value), then a disposal could release over £300m of proceeds net of debt repayments. At the current share price, investors in Northgate would then be paying less than one third of net asset value for the residual
Over the quarter, Northgate’s share price fell by 5.0%, or by 1.6% including the 12.1p dividend paid.
De La Rue
Notwithstanding this unwelcome development and the company’s disappointing results announcement, the Fund continues to believe that De La Rue enjoys both strong competitive positions in high return businesses and a range of attractive growth opportunities. The company’s total order book grew by 20% over the last financial year and its security features revenue increased by 38%.
In the Fund’s view, De La Rue has suffered from very poor leadership and oversight, which has resulted in an unacceptable financial performance over many years, despite tailwinds from most of the company’s end-markets and the consequent benefits evidently enjoyed by its competitors.
In recent weeks, a new Chairman and new Chief Executive have been appointed. There is early evidence that the new Chief Executive will adopt a focused and sensible approach targeted at rebuilding the value of De La Rue’s banknote business and capitalising on the opportunities presented by its high-growth, high-margin authentication activities. The new Chairman has also made clear his determination to ensure that the business adheres to the highest standards and practices.
De La Rue’s pension liabilities were restructured during its 2017/18 financial year. This, in conjunction with the disposal of two businesses for over £100m, has substantially strengthened the balance sheet. Net debt, adjusting the latest announced figures for the disposal of International Identity Solutions, is only £66m, which equates to less than one times forecast EBITDA.
De La Rue also has obvious strategic value, as evidenced by the takeover approach from its competitor
Over the quarter, De La Rue’s share price fell by 26.7%, or by 21.2% including the 16.7p dividend paid.
Notwithstanding the recent news regarding HawkEye 360 and
Over the quarter, Allied Minds’ share price fell by 27.9%. The Fund believes that the scale of the share price discount has still not been addressed by the board of Allied Minds and therefore intends to take appropriate action.
Transactions in Own Shares
During the quarter, the Fund issued 125,000 shares to five charities following the authority granted at its last Annual General Meeting.
The Fund bought back 1,260,000 of its own ordinary shares at a price of 192.56p per share during the quarter, as part of its buyback programme.
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