13 July
2018
CRYSTAL AMBER FUND
LIMITED
(“Crystal Amber
Fund” or the “Fund”)
Monthly Net Asset
Value
Crystal Amber Fund announces that its unaudited net asset value
(“NAV”) per share at 30 June 2018 was
244.62 pence (31 May 2018: 230.75
pence per share).
The proportion of the Fund’s NAV at 30
June 2018 represented by the ten largest shareholdings,
other investments and cash (including accruals), was as
follows:
Ten largest
shareholdings |
Pence per share |
Percentage of investee
equity held |
Hurricane Energy
plc |
62.1 |
6.5% |
Northgate plc |
35.3 |
6.3% |
FairFX Group plc |
34.9 |
19.2% |
STV Group plc |
32.1 |
18.2% |
De La Rue plc |
18.8 |
3.2% |
Woodford PCT plc |
15.9 |
2.3% |
Leaf Clean Energy
Co. |
8.9 |
29.9% |
NCC Group |
5.6 |
1.0% |
GI Dynamics Inc |
4.3 |
48.3% |
Cenkos plc |
3.9 |
6.8% |
Total of ten largest
shareholdings |
221.8 |
|
Other investments |
34.2 |
|
Cash and accruals |
-11.4 |
|
Total NAV |
244.6 |
|
Investment adviser’s commentary on the
portfolio
Over the quarter to 30 June 2018,
NAV per share grew by 18.5%. Over the year to 30 June 2018, NAV per share increased by 19.7%.
Including the two dividends paid, NAV per share total return was
22.1%.
The top three positive contributors to NAV growth over the
quarter to 30 June 2018 were
Hurricane Energy plc (13.0%), STV Group plc (4.5%) and Fair FX
Group plc (4.4%). Top detractors were Johnston Press plc (-0.3%),
Leaf Clean Energy Co (-0.1%) and Hansard Global plc (-0.1%).
Northgate plc (“Northgate”)
Over the quarter, Northgate's share price rose by 20.4% as it
re-rated to around net asset value. We were pleased to see
that Northgate’s share price recovered following the Fund’s public
comments in April and its commencement of a more proactive activist
role.
The company’s trading update and full year results confirmed
that the number of UK vehicles on hire has returned to year-on-year
growth – an important milestone if the business is to reverse its
market share losses over coming quarters. However, the Fund
remains disappointed by the continuing lack of visibility on the
prospects for underlying earnings growth and importantly the lack
of any catalyst to increase shareholder value.
The Fund believes that there is substantial value in Northgate’s
large Spanish business that remains unrecognised by the UK equity
market despite repeated evidence of strong trading and financial
performance. We continue to press Northgate’s board to
consider a sale of this business or a partial listing in order to
release this value at a moment of high investor interest in Spanish
assets supported by a strong Spanish economy.
The Fund is concerned by the lack of strategic leadership and
the communication from Northgate’s Chairman, Andrew Page. In his introductory remarks
to last month’s full year results presentation, Mr Page referred to
Northgate’s 29% fall in earnings as “slightly depressed”. We
consider that he has failed to take responsibility for the
under-delivery of the company, both operationally and for
shareholders during his tenure.
Despite enjoying the tailwind of a growth market, Northgate’s
number of UK vehicles on hire has fallen 11% organically since
autumn 2015, when Mr Page was appointed Chairman. The
company’s total shareholder return over this period has been -3%,
whilst UK equities have delivered over 30%. The Fund notes
that the company’s website continues to highlight its total
shareholder returns until the end of April
2017 when the share price was 540p, more than 20% higher
than the current price.
The Fund would have welcomed Northgate’s directors purchasing
shares following the full year results announcement, as a
demonstration of their belief in the company’s prospects and
undervaluation.
The Fund remains keen for the company to properly consider all
available options that might release value.
Ocado Group plc (“Ocado”)
In the second quarter of last year, the Fund commenced building
a stake in Ocado. This was a contrarian view, particularly against
a backdrop of around 20% of the company’s share capital being
shorted by several hedge funds. At that time, we felt that the
business was wrongly perceived as simply an online food
retailer.
In private engagement with the company, we suggested that it
focus on highlighting the growth prospects and scalability of the
Ocado Smart Platform (“OSP”) to technology analysts rather than to
food retail analysts. We welcomed the decision to separate out the
OSP business in segmental reporting.
A year after our investment, the company has closed four deals
commercialising its OSP, most significantly with The Kroger Co. We
consider that market participants now recognise the value of this
scarce asset, sought after by grocers facing the threat posed by
Amazon.
As the Ocado share price has rerated very substantially, the
Fund exited this position realising a profit of £8.3m.
Leaf Clean Energy Company (“Leaf”)
In April, the company announced a disappointing outcome in its
litigation against Invenergy. The Court found that Invenergy had
breached its contractual obligations, but surprisingly that Leaf
was only entitled to nominal damages. Following legal advice
received, Leaf has lodged an appeal to this judgment.
In June, the final Court order set a value of $50.7m for Leaf’s investment in Invenergy.
A payment for $36.4m was received by
Leaf, with $15.3m paid by Invenergy
into an escrow account pending the result of the appeal. At the end
of June, the company announced a capital redemption worth £19.5m.
In July, the Fund received £5.8m as a cash return and £0.8m as loan
repayment.
Following the redemption, Leaf’s market capitalisation is
approximately £10m. Leaf has £3.1m (equivalent to 6p a share) in
uncommitted cash resources to fund its legal and corporate costs,
$15.3m (equivalent to 22p a share) in
escrow from the Court order and is appealing for an additional
payment of $85.8m (equivalent to 123p
a share) for damages.
Leaf’s shares were down 3.1% over the period.
Woodford Patient Capital Trust
(“WCPT”)
Over the period, the Fund increased its position in
WPCT, a closed end investment fund specialised in early stage
companies. It listed in the spring of 2015 and the share price
promptly traded at a 15% premium to NAV. With hindsight, this was
perhaps the peak of inflated expectations, given the long-term
nature of returns of its investments.
At the time of the Fund’s investment in WPCT, not only had the
premium eroded, but the shares were trading on a double-digit
discount. The Fund believes that the share price represented the
trough of disillusionment and was more a reflection of some
setbacks within the portfolio of Woodford’s Equity Income Fund.
The Fund has been tracking WPCT for some time. The $150m cash injection in March 2018 into Prothena by Celgene, the world’s
largest haematology biopharma company, represented a major
endorsement. The Fund commenced purchasing shares immediately
following this news flow.
In June, WPCT shares faced selling pressure as a result of
leaving the FTSE 250 Index. The Fund took advantage of this index
related selling and significantly increased its shareholding. Since
then, positive portfolio developments including the listing of
Autolus, have contributed to an increase in net asset value to
91.9p at the end of the quarter. The Fund continues to believe that
the current share price represents an attractive entry level to
access a growth portfolio of highly scalable businesses.
At the period end, the Fund owned 2.3% of WPCT’s issued share
capital at an average cost of 78.2p per share. WPCT’s share price
increased by 4.6% over the period.
Hurricane Energy plc (“Hurricane”)
Over the quarter, Hurricane’s Early Production System (“EPS”)
continued to make progress. The newly-fabricated buoy for the Aoka
Mizu arrived in Shetland and the installation of the turret mooring
system is underway. The EPS remains on budget and on schedule for
first oil in early 2019.
Steven McTiernan was appointed
chairman in April. He brings a wealth of experience from his 45
years in the oil and gas industry and investment banking. He was
formerly Senior Independent Director at Tullow Oil and is currently
chairman of premium listed Kenmare Resources. Having met him before
his appointment, we are confident that he will maintain high
standards of corporate governance. His extensive M&A experience
should help management along the path of monetisation. We are
pleased that the Fund’s concerns regarding the need to improve
corporate governance and standards have not only been recognised by
the company but are now being addressed.
Hurricane’s shares were up 47% over the period, and the Fund
realised profits of £7m. This brings total realised gains from
Hurricane to £23.6m at the end of the period, when the Fund
remained Hurricane’s largest independent shareholder and the Fund’s
largest investment.
Transactions in Own Shares
Over the quarter, the Fund bought back 150,000 of its own
ordinary shares at an average price of 217.4p per share as part of
its buyback programme. These shares are held in treasury,
where a total of 1,798,982 ordinary shares are currently held.
For further enquiries please contact:
Crystal Amber Fund Limited
Chris Waldron (Chairman)
Tel: 01481 742 742
www.crystalamber.com
Allenby Capital Limited - Nominated
Adviser
David Worlidge/Liz Kirchner
Tel: 020 3328 5656
Winterflood Investment Trusts -
Broker
Joe Winkley/Neil Langford
Tel: 020 3100 0160
Crystal Amber Advisers (UK) LLP -
Investment Adviser
Richard Bernstein
Tel: 020 7478 9080