Jup Ord. Share Discussion Threads

[skyship] 26/4/2021 14:32

CLS Holdings (CLI) – the next to look anomalously cheap in the REIT/Propco sector:
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Having banked turns in RGL & AIRE, I was casting my eyes over the 18 REIT/Propcos in my constantly updating spreadsheet.

What a difference a few months has made, with NAV discounts shrinking back from the many in the 35% range to now at an average of just over 21% - I exclude CREI, LXI & WHR in that calculation as they are all secure yield plays trading at a premium.

After a long deliberation I have reinvested the sale proceeds into the only one still looking cheap, other than SREI of course........CLS Holdings (CLI).

CLI is a rather different player in that its portfolio is almost wholly Office (92%) and the geographical split was last declared as: GB 52%; DE 34%; FR 14%. However after recent acquisitions, predominantly in Germany, I estimate the mix now to be: GB 49%; DE 39%; FR 12%.

Currently it has not converted to REIT status; though they recently stated in the Q&A session after the post-Finals presentation (see link below), that that might change if corporation taxes were to rise – a subject of much global political discussion at the moment. CLI @ 235p are still on a 31.9% discount; though an aggravatingly low yield of just 3.2%. Full REIT status would obviously be beneficial for income seekers as the last annual dividend of 7.55p would need to rise to 11.0p to comply with the REIT regs. EPRA EPS was 12.2p.



I would strongly advise watching the Presentation as there is a wealth of good information in there. So much so that you will surely wonder, with discounts tumbling across the board, just why are CLI still available on a 31.9% discount.

# Rent collection at 99%.
# Well diversified tenant base, with c50% Government or large corporations
# Low average rents at under £19/sq ft
# ERVs 11% above contracted rents
# Debt cost 2.28%
Etcetcetc

All of us playing the property sector will be enjoying good profits; but many may have missed CLI. I strongly recommend you take a look… (Obvious disclosure – I hold from 230p; and added today)

Incidentally, a PS: After the sad death last December of CLI’s founder, IMO there is also the likelihood of corporate action later this year as the family trust trustees have to decide on the future of their 51.5% stake. They will need to maximise value; but more important, they will surely need to diversify the Trust’s assets. A sale to Private Equity may be the future.

[gary1966] 22/4/2021 13:15

Sold PRIM today to release funds to buy Rolls Royce. Technicals looking pretty bombed out, and nice gap on the chart at £1.17. Just feel as though it is due a bit of a bounce now.

Nice profit on PRIM thank you Sky and if RR performs will be very happy to return.

[gary1966] 22/4/2021 08:24

Well done on NBPE they are on a roll and strong NAV update this morning to push the discount back out after recent gains.

[gary1966] 20/4/2021 20:06

Well done on those Sky. As I said in my reasons for selling IMB, the markets were in overbought territory and the RSI needed to cool down. Today’s falls have helped with that. Luckily shifted some TRIN from the ISA to the joint account today first thing at 13.5p and so had more money in the ISA to buy back IMB. Added just over 10k of TRIN today at 12.5p to use up some residual cash.

[skyship] 20/4/2021 16:51

Yes, but missed the cheap stock - paid 12.675p for another 50k.

A surprising drop today, though not affected by it; and enabled you to get back into your IMB. REITs were good - sold the last of my RGL (84.12p) & AIRE (69.6p); just as SREI seem to be breaking North...

[gary1966] 20/4/2021 15:38

Well good old Joe took my decision making away from me with his comments about the tobacco industry. Happy to have bought back my position in IMB today but probably at a too high an average price of £14.97 including costs. Anyway a few £k made which has effectively gone into TRIN.

Did you take advantage of the drop on TRIN today Sky?

[skyship] 19/4/2021 11:13

JPEL shoot the lights out with their Feb'21 NAV figure - 187c - a 7.5% increase on January's 174c.

At 117c the discount climbs to 37.4%.

They surely must have revalued Swania - can't think what else would have had such a large effect.

Limited marketability in JPEL; but with them being in voluntary liquidation mode, surely right to have a few if you can get them.

[gary1966] 19/4/2021 09:08

Apologies 8w I referenced Sky there. Many thanks and clearly need to wake up.

[skyship] 19/4/2021 08:57

Yes, SIGC a bizarre stock. What's the point of it? 83% held by top institutional holders. If you like Barclays - buy Barclays!

8w - thnx for the comment. Once again reassuring to know that there may be others out there reading this thread occasionally.

[gary1966] 19/4/2021 08:48

Thanks Sky, knew you wouldn’t let me down.:-)

[8w] 19/4/2021 08:43

Adventurous investor David Stevenson has highlighted SIGC in the past. Unfortunately cannot recall in detail his take on it. I think he was suggesting it was worth looking at and possibly worth a punt but there has not been a catalyst for change for quite sometime? If you can look back through the AI archives you should find his article.

[gary1966] 18/4/2021 17:16

SIGC looks interesting if I have understood it correctly. Basically just holds shares in Barclays Plc and looks like they will continue to hold for some time yet as actively engaging with management and are Barclays second largest shareholder. NAV at 31/3 was 79.2p per share. Quoted spread 53-55.5p but real spread on Friday looks like it was 54-55p. No stamp duty. Board remuneration £160Kpa so not a lifestyle company. Anyone looked at them previously and have any thoughts? Appreciate the banks share prices have come some way of late but if we are in full recovery mode then in time I would guess that there is quite a bit more to come and this would appear to be a very cheap way to play it.

[skyship] 18/4/2021 14:20

Gary - no, didn't add to my 100k; but may yet do so as they do look seriously under-valued.

Yes, MVI is a difficult one with governance a perpetual issue. As I mentioned here or elsewhere, one can perhaps take comfort from their recent action following "shareholder consultation". They returned to 100% distribution via dividends, rather than the previous 50:50 twixt dividends and buybacks.

What that distribution rate might be however, was not explained.

[gary1966] 18/4/2021 14:00

Sky,

Thank you for the article. MVI do look very cheap and are even cheaper than your quoted discount effectively as Zegona is itself trading at a discount to the cash it has coming its' way and already holds. I just have question marks over the management of MVI and what they will do with the cash and how much shareholders will ever see of it. Would be interested to hear your take on this.

I ended up buying another 52306 (There is a reason why such a strange amount) TRIN shares yesterday which seemed to trigger a burst of activity on the stock. Did you buy any more in the end?

Hope you are having a good weekend. I have removed MODE from that list I mentioned to you based on the past record of Jonathan Rowland.

[skyship] 18/4/2021 12:34

A good article on the PE sector. NBPE made up some of their under-valuation last week; but still on 20.5% discount - higher than all their peers on an average of just 12%. MVI also perhaps worth a speculative dabble as their increasing NAV delivers a 35% discount.
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Is private equity in for a rerating?
By Richard Hickman - FT - 12 Apr’21

Many investors focus heavily or exclusively on the public markets when screening for new opportunities.

However, this overlooks a fast-growing part of the global investment landscape that has delivered historic outperformance: the $4.7tn (£3.4tn) in funds focused on private companies.

When unlisted companies announce their intention to IPO, the news is often greeted with excitement in the press amid speculation around the offer price and the potential returns for investors buying in at that point.

This type of investing often carries higher risk, however, and therefore requires specialised skills and experience to identify the potential successes.

Less commonly, details emerge of the gains accruing to the original backers: the venture capital funds able to invest at an early stage, often many years prior. Typically these funds pool money from professional investors and institutions.

The experienced fund managers then deploy investors’ capital into a range of start-up or early-stage businesses. Many of these young companies fail but some go on to become so-called 'unicorns' – billion-dollar-plus companies disrupting or dominating their industries.

Think Airbnb in the US or Trustpilot in the UK – both backed at an early stage by venture capital funds.

The examples above are well-known to a UK audience, but increasingly this type of opportunity is available further afield. China now has the largest number of unicorn companies globally thanks to a fast-growing and dynamic venture capital ecosystem.


This type of investing often carries higher risk, however, and therefore requires specialised skills and experience to identify the potential successes while trying to avoid the failures.

Market opportunities

Many public market investors may not realise they have the opportunity to gain exposure to professionally managed portfolios of private companies around the globe, well ahead of any IPO or exit, simply by purchasing shares in a London-listed private equity investment trust or company.

The first investment trust, Foreign and Colonial, was established in Britain more than 150 years ago in 1868 to pool money from “investors of moderate means” and purchase a portfolio of overseas government bonds.

According to the Association of Investment Companies, today there are 392 investment trusts that provide exposure to a whole range of assets, including conventional listed equities, infrastructure portfolios, commercial property and, of course, private equity.
The latter group fell out of favour during the global financial crisis of 2008-09 and has yet to fully recapture the attention from investors that it once enjoyed.

Trust discounts

Most trusts in the sector are trading today on wide discounts to net asset value while the more mainstream sectors are at par or even a premium.
The discounts are perhaps surprising when you realise that the listed private equity sector offers early stage exposure to the kinds of opportunities described above, and that the same private equity groups who manage these portfolios often raise billions of dollars a year from institutional clients away from the public markets.

For investors who may be interested in gaining exposure to private equity, one potential concern today is the prospect of a rotation out of growth-oriented technology stocks and into value, that is, unloved traditional businesses trading at low valuations.

Were this to happen, however, listed private equity trust portfolios would potentially benefit from another type of exposure that they typically provide: the more mature buyout investments whereby a manager takes a controlling stake in an established business.

Many of the investee companies are large enough to be listed on stock exchanges, but their owners have chosen to keep them private rather than file for IPO.
Instead, they seek capital injections from private equity managers who offer to partner with management teams and drive value creation over a period of several years, without obsessing unduly over short-term results, as is often the case in the public markets.

In private equity, the interests of owners and managers are aligned in pursuit of the best possible outcome for the business. Historic track records indicate strongly that this partnering approach delivers returns in excess of the public equity indices over extended time periods.

Good value

It might also be said that the listed private equity investment trusts in themselves represent value: they have generally performed well yet are available at wide discounts to their published NAVs.

At present, there may be additional latent value in their portfolios, as some of the NAVs are still based largely on valuations last updated at the end of September 2020.

This is because valuing private company investments takes time, often resulting in a lag of several months before the latest quarterly figures are included in the fund NAVs.

Private companies are often valued with reference to a comparable set of public companies. Given the strong performance that we saw from the public markets in Q4 2020, the December valuations have the potential to drive significant gains.
Some brokers are anticipating further NAV upside; increases that may not yet be priced into the listed private equity trusts’ shares.

Leave it to the professionals

Since the returns in private company investing can vary widely, it is better left to experienced professionals to try and identify the best opportunities, while also limiting downside risk and managing the complex processes and cash flows involved.
Furthermore, these managers are increasingly focused on environmental, social and governance considerations and, as private owners, are often able to take decisive action where necessary to enhance a company’s performance in these areas.

This may partly explain why private equity coped relatively well with the Covid crisis: managers know their portfolio companies intimately and can help them adapt quickly to changing circumstances, protecting and enhancing value for stakeholders long-term.

Some listed private equity trusts have delivered double-digit returns consistently for many years, yet their persistent discounts suggest the market is not giving full credit for this outperformance.

However, investors familiar with the sector have quietly been reaping the rewards, with share prices more than tripling in some cases over the past 10 years.

There are signs that more professional money managers are waking up to the opportunity, with share prices ticking higher in recent weeks in anticipation of the prospective results to come. Are we seeing the beginnings of a rerating?

[gary1966] 13/4/2021 09:39

Another very good update from STCM today with production up and realised prices up markedly. Domestic demand outlook very good with infrastructure projects announced by the Kazak government.



Preliminary results and dividend announcement due later this month.

[gary1966] 09/4/2021 10:58

Have taken a chance and sold my entire position in IMB today. They have had a great run since the lows of the 26th Feb, as has the FTSE. RSI on both moved into overbought territory yesterday hence me thinking the odds are in favour of a retrace and good chance of buying them back a little cheaper.

[skyship] 07/4/2021 16:53

The Private Equity sector is on a bit of a roll. I made my last NBPE top-up yesterday @ 1160p; now at my MAX 10% allocation.

Still don't understand why NBPE is so cheap versus peers; but pleased to see Cazenoves agree - see excerpt below from MoneyWeek.

The average NAV discount of the 4 peers HVPE, PEY, PIN & SLPE is now a mere 11.6%. At today's 1185p NBPE is at 23.7%... The share price is a clear anomaly IMO; and should be 10% higher.

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"NB Private Equity (LSE: NBPE) managed a 12-month return of 21% but still trades on a discount of 25% to estimated NAV, reckons analyst Chris Brown at JPM Cazenove, making it “excellent value”. He estimates the discount for Harbourvest (LSE: HVPE) to be 19%, which looks anomalous given its excellent record (a return of 100% over five years) and high exposure to the tech sector (29%). The record of Princess Private Equity (LSE: PEY) is even better, 106% over five years, but Brown rates it as only a “hold” as its discount of 16% is “fair relative to peers”. In absolute terms, it still looks attractive."

[skyship] 31/3/2021 21:19

End of Q1 - portfolio up 8.0%; so a reasonably good start to the year.

Main gainers being PRIM (my Tip for 2021 - see Header - up 40%YTD) & recently bought ZEG - thnx to Tiltonboy. It was on my Monitor, but I know I wouldn't have committed without his positive posts on the ZEG thread.

Plenty more to go for there possibly; and then also perhaps for MVI who have a big ZEG stake & loads of cash.

[gary1966] 18/3/2021 16:23

Thanks Sky, I have got just over £6k as a result of the M&G trade and so I will take a look at ARIX. Was going to hold the cash back to assist with some Bed&ISA transactions in the new tax year.

[skyship] 18/3/2021 16:11

Yes, pleased to still be holding PRIM.

Well done with that M&G trade.

I've been watching for a pullback in ARIX since Simon Thompson wrote an update article last week - put the shares up to 200p & temporarily out of reach for a time. That article can be read on the ARIX thread.

Now on offer @ 183p so have bought a few at that level. With buybacks likely soon they again look quite good value on a c27% NAV discount to the Jefferies 250p estimate.

[gary1966] 18/3/2021 15:51

Reversed my M&G trades this morning and got back in at an all inclusive price of 204.5p and so really happy with that and feel more comfortable now the gap is closed on the chart. Made the equivalent of just over 2pps elsewhere while the money was out and so for once got it right.

Nice move on PRIM today and so once again your suggestions doing well Sky.

[gary1966] 16/3/2021 09:24

Sky,

Only took a small position and sold on the 26/02 at just below 26p as it kept hitting around that level and dropping back. Can't believe how far it has gone since then but was hoping you were still in for the ride.