Ricardo Share Discussion Threads

[kinbasket] 06/12/2024 16:34

I agree 100% with your comments on the UK equity market. The ineffective nature of the market is the flip-side of the rise of passive. With so much money (now 45% of US market) pursuing a passive approach, there are almost no active managers left.

Those that remain have suffered multiple years of redemptions as people move to passive.

It makes it almost impossible to run any kind of value fund and they are shutting up shop everywhere. I doubt there is a single equity props desk left at any of the big houses. There are whole sectors of the market where there is zero institutional coverage.

However, it does mean there are genuine bargains to be had but the outer is no longer "the market" catching up and buying in. The outer is PE/off market takeovers and shareholder returns via high dividends and/or share buybacks. David Einhorn described this as wanting to be the last shareholder holding the last share after buybacks.

His interview "market structures are broken" explains the problem and how he is working around it to still make money. Well worth listening to.



Every small investor needs to understand this dynamic as the game has permanently changed. Value won't "out" anymore. Not in the way it used to.

[indiestu] 06/12/2024 16:00

Interesting comments Jon. Regarding liquidity, it is pitiful. Maybe folk don't sell their Ricardo shares due to the reliable dividend. It's hard to shake people out. My purchase early afternoon was honoured by my broker but not entered on the book. What does this mean? They didn't have an option on the shares to sell me and intend to square it up later. Liquidity is getting very tight.

[1968jon] 06/12/2024 13:27

....three years not four.....

[1968jon] 06/12/2024 13:25

With the disclaimer that I am massively long and irrationally fond of Ricardo (though thankfully I have other holdings)........

The UK equity market is more trouble than it is worth for most companies sub a market-cap threshold. I would argue sub £5bn. If Ricardo had been started in the last 20 years there is no way it would have IPO'd. Capital is readily available elsewhere.

It trades really poorly on the stock market. I watch it obsessively. Wide spreads and automatic trades go through at the bid or offer. In the last 90 minutes clips of 5,5,7,18 and 11 shares and one "decent" print of 2115 shares. I would guess they are part of an asset managers/etf ongoing portfolio shaping. It's a waste of time. Aviva aren't fund "managers" - I'm not surprised they're getting out. If you had bought this in the last 5 years you have probably lost money - so a "good" short.

There is a possibility that I am wrong and that the company is rotten. Something broken that I haven't seen. I would be surprised if that were the thesis of Ennismore's short. More likely a momentum/sector pairs trade.

I believe on any metric it is undervalued. I don't own it as a takeover play but if taken out it could be another classic "PE vulture buying up UK companies" headline. Well UK funds don't own it!!

Interesting that you say the directors might welcome a PE move Indiestu - I don't think they own enough of the stock. I thought the previous management was sleepy - well the new CEO has had four years.

[kinbasket] 06/12/2024 11:55

FWIW, I think the intended sale of the defence business is to "pretty" up the remainder for a potential buyer.

Being in the defence sector makes you less desirable to a lot of investors. Conversely, being "a world-leading strategic and engineering consultancy in environmental and energy transition" makes you hot stuff in the beauty parade.

[indiestu] 06/12/2024 11:28

I admire your faith in the integrity of the UK financial industry.

[kinbasket] 06/12/2024 11:12

"Regarding Gresham House and a takeover plan. Gresham are wholly owned by Searchlight Capital. If Searchlight are interested in a takeover of Ricardo, Gresham need to declare their position as a concert party. I don't see any legal reason to prevent Gresham House from casting their voting rights in favour of a Searchlight offer."

This is serious straw clutching. If this were the case it would suggest Gresham has been buying with fund holder money whilst being aware Searchlight want the company. Which is insider trading to say the least and it's with other peoples money. Chinese walls prevent any of the activity you suggest. Greshams funds being invested in RCDO should be viewed as no more complicated than that. It's a investment they like.

On the other hand, a separate PE approach seems highly likely to me. Like all small UK tech/engineering companies, it's undervalued.

[indiestu] 06/12/2024 09:48

Re-reading the Aviva holdings RNS. They went from 4.2 to 3.53, they have lent out 0.58 to short and retain a right to these shares but current actual ownership is under 3%, 0.58 likely lent to Ennismore. So 0.67 unaccounted for and possibly sold in the market. Maybe it's not their intention to dump them all. Its all smoke and mirrors here. Something very odd is going on.

Regarding Gresham House and a takeover plan. Gresham are wholly owned by Searchlight Capital. If Searchlight are interested in a takeover of Ricardo, Gresham need to declare their position as a concert party. I don't see any legal reason to prevent Gresham House from casting their voting rights in favour of a Searchlight offer.

Any potential suitor must retain the staff, without the people Ricardo don't have a business. I speculate the Directors would be welcoming of a private equity takeover.

[indiestu] 05/12/2024 17:43

Jon. Covering the dividend on a 2 percent short was not cheap but I'm not really talking about the cost of the short. I'm wondering how they intend to cover a 2 percent short if there is news that attracts buyers. We are expecting imminent news of the digital product launch which could leave them in a bind. Unless they have a calculated exit strategy of course.

[1968jon] 05/12/2024 16:20

Thanks for flagging that Indiestu.
I might come back with some thoughts on your question tomorrow but I did ask one of my brokers what it would cost to borrow. Basically easy, general collateral with a 0.9% charge. I thought it would be more than that but maybe I would have been more worried if it was expensive to short and they still shorted it!

[kinbasket] 05/12/2024 16:04

There is zero chance that Gresham house is buying here with any kind of takeover plan. The shares they hold are divided between their funds (UK micro, multi cap inc and UK smaller co's).

They just like the company and have it in their funds.

[indiestu] 05/12/2024 15:11

I have been thinking why Ennismore Fund Management built a near 2% short position in Ricardo in the second half of October this year. It was this short selling that killed the rally off the October lows.



I don't remember a hedge fund taking a short position in Ricardo before. Considering they have the same information as we do it seems unusual to short a healthy, profitable, dividend paying UK small cap. Ricardo is fairly illiquid and the price can move quickly on light volume, not to mention the looming possibility of a takeover. It appears a very dangerous move unless you have an escape route prepared.

Gresham House were building their position as Ennismore were shorting. Coincidence?

Aviva have notified they are below 3 percent, we will not hear any more from them as they have no further duty to report changes but we can assume, if they have gone under 3 percent they are completely out or intending to be.

So who is right on the future of Ricardo? Is a takeover brewing or have I missed something in the fundamentals and future strategy that indicates trouble ahead?

[norbert colon] 22/11/2024 13:57

Up from 14% at the end of 2023

[indiestu] 22/11/2024 13:23

Meanwhile Gresham House move closer to 30% and the requirement for a mandatory offer.

[norbert colon] 22/11/2024 13:06

Yep me too in both AJB and ii accounts

[tenapen] 22/11/2024 12:26

My dividend dropped into my account this morning.

Regards.

[tenapen] 20/11/2024 20:10

We had the results October 11th followed by an Investor Meets presentation a week or so later. No mention of the proposed sale. Circa six weeks later they issue the proposed sale RNS. Four weeks on and silence. It must be Me !.

As for the share price - I have my holding no more and no less - see where the future takes me.

[norbert colon] 20/11/2024 19:51

Why is it hard to fathom? When they set out their strategy a couple of years ago it was to move away from capex heavy / low margin work (and I'd imagine they would like to have less manufacturing (if any) to make them a more pure-play consultant / advisory biz.Whilst defense margins (currently) aren't small, the planned divestment aligns with those strategy and so it shouldn't be a surprise - at least not too investors who've been here more than 2 yrs.The current buoyant defense market would seem to be a good backdrop into which to sell their defense biz and if it's going through a competitive process it won't happen overnight.That's said, I'm equally as frustrated as anyone re: the valuation.

[tenapen] 20/11/2024 17:52

The above RNS about the possible sale of the defence business was / is hard to fathom. One month later we still await any news of the sale and for how much.

They take home the big bucks and have a plan !.

[spooky] 20/11/2024 10:52

You would probably have made more money doing the reverse of his recommendations on this stock. He doesn't have a great record. Tipped them as a buy at the end of September this year.

[1968jon] 20/11/2024 09:30

I have just seen the sell comment from Questor in the Telegraph from yesterday. Reasonable rationale for a whatever it is that Questor is.

[tenapen] 14/11/2024 18:31

Hi Indiestu, everyone.

Big bad donald casts a dark cloud over the clean tech sector. Hopefully Ricardo and the UK can look east for growth !.

Regards.

[tenapen] 14/11/2024 18:25

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