[shark]

Bombshell re my main holding Volvere VLE as the CEO Jonathan Lander has died (only 55!) Really sad. His brother Nick who focusses on Operations takes over as CEO.

The share price has dropped 7% on the news and is currently ~£11. The stated NAV of mainly cash is £13.90 but this also understates their assets as their only holding - 80% of Shire Foods - is valued on the books at only £6.2m yet generates £2m cash so if sold on should fetch vastly more.

Unclear at this point as to whether Nick will continue the business or wind it up returning proceeds to shareholders. The SP may drop further on uncertainty. I cut back on my holding a few months ago as it got ridiculously large. Will probably sit it out and maybe add if it falls below £10.

Generally I’ve taken a far bit out of the stock market recently to help pay down a mortgage which was getting expensive.

Still in at LDG. Also QRT though did sell at the spike to 192p then bought back in after it dropped.

Probably quite a few bargains out their on value metrics in the current depressed market.

[shark]

Half year results out at QRT with significant drop in revenues and profit and therefore share price (down 20%)
However, they’ve moved to a net cash position and still cheap on value metrics.
Not a good week though.

[shark]

Not mentioned Quarto QRT before mainly because it’s a bit more complicated than the others I’ve mentioned.

Bought some a year ago without looking into it too much and it has doubled in value since then although dropped back a bit in the last week. Having recently looked into it some more which has been an education and invested more. I’m told it is one of cheapest shares out there based on cash generation as a metric and fair value should be in the region of £4/5 rather than current £1.50. I really should look into and understand this metric more as it’s going to be a more reliable value indicator than the more usual price earnings (PE) figure when the Earnings bit can be legally played about with by clever Finance Directors.

Anyway - why is it so cheap? According to this article it’s because there is a danger of it being taken private.

The story is that veteran investor CK Lau took a large stake as well as the Executive Director role at QRT (an underperforming book publisher) and successfully turned it around. He has been buying up more shares which along with their good results has driven up the price and he now has a 50% stake.

Because QRT is domiciled in Delaware it is not directly subject to UK company law even though it operates as a UK company - so for example it is audited as if it was a UK company. However, it is not subject to the UK takeover code where exemptions have to be obtained if a person’s holding (and any associated parties) exceed 30%.

Last year the FCA reduced its requirement for a listed company from 25% to 10% of shares being in public hands (the free float). There is another 20% owned by a vehicle associated with another Director so the free float currently is 30%. Therefore Lau can still potentially still buy up to another 20% stake before breaching listings rules. It is also possible that he could take just another 5% and come to an agreement with the investment vehicle to use their combined 75% vote to take the company private. The fear here is, as the linked article points out, that you are left with untradeable shares. However, normal practice is to make a reasonable offer to minority shareholders and Lau (I’m told) has a good track record in this respect.

My take is he will keep buying the shares whilst he thinks they are a good price and that in turn will help keep pushing the price up 🤞

Announcement today that it is to be taken private with a Chairman’s statement that the intention is to buy back shares at 150p in a tender offer after delisting (usually it would be before). Potential there to be screwed over royally but the risk seems remote.

Currently trading with a very wide spread. The opening RNS didn't state the mooted tender price which led to some unfortunate investors selling out below 60p before the mooted tender price was publicised and the price bounced back over 100p. I’ve talked to the Company Sec in the past and he is pretty dopey so not altogether surprised this happened.

I was fortunate to sell out completely at over 190p but then bought back in at 153p, 156p then a more substantial purchase at 113p after their previous poorly received trading update so will do pretty well if I’m able to tender all my shares at 150p 🤞

[shark]

The squeaky bum time is over. QRT delisted today and the tender offer at 150p per share has been released so very glad I held my nerve.

I was pretty confident this would be followed through based on reports from the meeting which nudged me to buy a further large amount yesterday at 133.4p. Feeling smug but it could all have ended differently but the balance of probabilities of this working out was high.

[shark]

If anyone happens to hold these and are participating in the tender offer be aware you can elect to receive the distribution in different ways (that could affect how you are taxed) which may require you to instruct your provider. The relevant form is this: http://www.quarto.com/public/pdf/investor/20240118_063542_Form_Section_302_certification.pdf

[shark]

Carpet bagging potential maybe with Skipton Building Society which is well capitalised so possible £2k to each member if it does demutualise. They have close ties to Barclays. There’s a 4% bond that confers membership and I believe £500 is the minimum to be a member. No downside so worth a punt IMO.

www.skipton.co.uk/savings/fixed-rate-bonds/5-year-fixed-rate-bond

[Johnny Brown]

From T&Cs:

When you sign the application form, you also make some declarations. One of the declarations is an agreement to assign windfalls to charity.
You agree that if we transfer our business to a company or another body corporate within five years of you becoming a shareholding member of Skipton Building Society, any conversion benefits to which you may become entitled as a result of that transfer will go to charity. If you have any questions about our charitable assignment scheme, please ask us.

Assuming you weren't doing this for charity?

[Will Hunt]

Big windfall coming for Old Oaks PLC, a charitable organisation dedicated to helping ageing Sheffield landlords enjoy the delights of continental bolt-clipping 

[shark]

From T&Cs:

When you sign the application form, you also make some declarations. One of the declarations is an agreement to assign windfalls to charity.
You agree that if we transfer our business to a company or another body corporate within five years of you becoming a shareholding member of Skipton Building Society, any conversion benefits to which you may become entitled as a result of that transfer will go to charity. If you have any questions about our charitable assignment scheme, please ask us.

Assuming you weren't doing this for charity?

Good spot!

[shark]

Big windfall coming for Old Oaks PLC, a charitable organisation dedicated to helping ageing Sheffield landlords enjoy the delights of continental bolt-clipping 

Not a bad thought.

Does seem like there are money spinners to be had. Identify areas where the government want to direct money. Set up a charity focussed on that area. Pitch for grants. Pay yourself a decent salary as CEO.

[lagerstarfish]

Big windfall coming for Old Oaks PLC, a charitable organisation dedicated to helping ageing Sheffield landlords enjoy the delights of continental bolt-clipping 

Not a bad thought.

Does seem like there are money spinners to be had. Identify areas where the government want to direct money. Set up a charity focussed on that area. Pitch for grants. Pay yourself a decent salary as CEO.

I know more than one "social entrepreneur" who has done this - and paid some mega pension contributions to themselves as well

It pisses me off how so many people use charities to make lots of money for themselves - I have contemplated becoming a stealth ninja charity profiteer assassin in order to encourage people to behave better, but I've seen too many Batman films to feel confident that the outcome would justify my actions

[petejh]

Does seem like there are money spinners to be had. Identify areas where the government want to direct money. Set up a charity an 'official' sporting body focussed on that area. Pitch for grants. Pay yourself a decent salary as CEO.

You're essentially describing the model of GB Climbing / a.n. other sporting governing bodies. 

[shark]

My favourite investment VLE (60%+ of portfolio) has just released their final results showing good progress in trading and profitability at their solitary holding Shire and an indication of the value being outed most likely through a share tender offer as that is what they have chosen to do in the past, though taking it private is not out of the question.

https://www.investegate.co.uk/announcement/rns/volvere--vle/final-results-to-31-december-2023-/8212955

Key passages:

“Group revenue from continuing operations (all of which related to Shire Foods) was £42.95 million (2022: £38.03 million) and the profit before tax from continuing operations was £3.64 million (2022: £2.33 million). Overall profit after tax for the year was £2.73 million (2022: loss £0.06 million).
 
Group total net assets were £37.51 million (2022: £35.75 million), with net assets per share* increasing to £14.83 (2022: £13.90).  Of this, cash and available for sale investments were £23.74 million (2022: £20.79 million).”

“In our interim results I said that shareholder returns remained at the forefront of the Board's strategy.  I want to reassure shareholders that this remains the case, not least in view of the Company's share price which, we believe, does not fully recognise the Group's underlying assets.  We are reviewing the best way to resolve this and are considering a number of options, which will be notified to shareholders when appropriate.  In the short term, the Group will continue to buy in its own shares whenever possible in order to narrow the Group's share price to NAV per share.”

The share price has bounced back from recent feb/mar lows by 40% to around the declared NAV so its interesting that they say the SP is undervalued and refer to ‘underlying assets’ which I take as a recognition that the Shire investment isn’t marked to market but just included at the acquisition book value in the stated NAV of £14.83 per share. Recognising the likely sale value of Shire would bump the NAV up to £20+ per share and so would expect a tender offer to be nearer to that figure so even at the current share price there is a case for buying for a speculative short term of maybe 20%.

One of the good things about tender offers is there’s no dealing costs and you don’t encounter a mark down in the sale price when you sell in size which can be significant in illiquid thinly traded small cap shares. I’ve sold my entire holding of VLE in the past when a share tender offer has been made and then rebuilt my stake as the share price drifted back down post tender.

[shark]

Taken a reasonable sized holding in NBrown Group (BWNG)
It’s a long established Manchester based mail order clothing company typically aimed at older, oversized customers and has struggled for several years which has led to its share price being trashed. The Alliance Family own a majority stake but Fraser’s have been buying in and hold 20% but unlikely that the family will sell out I’d have thought unless the price was multiples of where we are now.
The value of their customer loan book to never seems to have been properly reflected in their share price even though in theory it could be sold on to a factoring type company.
They have recently recorded a profit and have tangible assets of around 60p. I’d bought in a few weeks ago at 15p and added a lot more this morning at 20p having dumped Ultimate Products, another Manchester company.   

[petejh]

I don't subscribe to Connor Maguire's 'Value Situations' substack and this is no recommendation to. Just to note that he's one among many to highlight the current trend of undervaluation in UK markets. 

UK PLC In Play?
Update on WG and some other UK-listed Model Portfolio names that fit the current UK takeover theme.
CONOR MAGUIRE
JUN 10

“The UK has become structurally very attractive for M&A,” said Luck. “There’s a lot of frustration behind the scenes with valuations and the sense that the market is not properly rewarding UK companies.”

Takeover interest in UK companies hits highest since 2018, Financial Times, 12 May 2024.

“… knockdown share prices are piquing the interest of these groups’ foreign rivals or private equity buyers, making it a risky business to bet on share price declines… The numbers [valuations] are just so low in the vast majority of cases that a $2bn UK company is peanuts for any mid-sized American company.”

Hedge fund short sellers burnt by flurry of UK takeover bids, Financial Times, 4 June 2024.

I believe the increasingly frequent news reports of takeover bids for UK-listed companies are evidence of my long-held view that “UK Plc” is in play, with a diverse range of UK stocks subject to live takeover interest and/or fitting the profile of likely takeover candidates.

The UK public equity market currently offers a wide range of attractive “real” businesses (that is relating to tangible assets and essential services, as opposed to over-hyped or speculative tech stocks) that are cheap in both relative and absolute terms, trading at objectively low multiples compared to US comparables and to their historic average /through-the-cycle multiples. This has made many UK stocks obvious takeover candidates for both private equity and strategic acquirers as the opening quotes from the FT above allude to.

Of particular relevance here is the fact that the private capital industry currently sits on a record ~$3.9 trillion of dry powder, of which ~$1.2 trillion is in buy-out funds:

[graph]

Source: Bain & Co, Private Equity Outlook 2024.

Furthermore, within the private capital complex these buy-out funds are further supported by almost ~$500 billion of dry powder in private credit, which has mitigated some of the recent caution across the high yield bond and leveraged loan markets in funding M&A amid inflation and interest rate uncertainty.

In simple terms, I believe this combination of well-funded, highly incentivised private acquirers and cheap, out-of-favour UK-listed companies constitutes a thematic value catalyst for UK equities, which is now starting to play out as recent news headlines indicate.

[shark]

I don’t really look at the macro picture but in general value companies (high NTAV, low or no debt, low PE) are prone to being targeted for takeover as those metrics indicate they are under priced in the real world ( the stock market is driven by sentiment as much as valuation).
Interesting the buyout market for uk companies is buoyant when it’s likely that interest and inflation rate rises would be dampener. Companies trading in sterling might also cause concern.