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I’ve sold all my remaining shares in Northamber at 30.3p having weighed the odds of David Phillips, founder director and dominant shareholder, of coming to his senses and ceasing the throwing of good money after bad. He has demonstrated a high degree of irrational behaviour in continuing to back the component distribution business with shareholders’ money.
So, despite there being about 71p of disposal assets available to distribute to shareholders, after three years of association with this company, I’ve lost heart that the directors will give the money back to shareholders in anything like a timely fashion.
They are most likely to keep trying to revive the dead corpse of the operating business with infusions of a million pounds or so each year, running down the £20m of net asset available (MCap = £9.3m).
I could wrong, of course. There could be an announcement with next week’s preliminary report that they have decided to sell the £10m+ property assets and give the money to shareholders, and then to gradually release cash from the inventory and receivables to hand another £9m+ to shareholders.
But having met David and the other directors a few times I don’t think there is a high probability of that sensible approach being taken. When I’ve suggested it in the past I’ve been accused of being an “asset-stripper”.
The lesson learned:
Even if a company has a net current asset value together with saleable property double market capitalisation it does not make it a good investment unless the controlling powers behave rationally with regard to shareholders’ interests.
The qualitative criteria of able and high-integrity management is just as important as the quantitative criteria of NCAV exceeding MCap; indeed, any bad outcome on one of the qualitative factors overrides the quantitative.
(Earlier Newsletters: 19th – 27th Nov 2014, 13th Dec 2014, 18th and 19th Mar 2015, 8th – 10th Sept 2015, 23rd Oct 2015, 2nd Nov 2015, 16 Dec 2015, 12th and 13th Sept 2016)
Here is some background
It is a small player in an industry with very poor economics, no pricing power…….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
