8 July 2015
CRYSTAL AMBER FUND
LIMITED
(“Crystal Amber
Fund” or the “Fund”)
Monthly Net Asset
Value and Interim Dividend Declaration
Crystal Amber Fund announces that its unaudited net asset value
(“NAV”) per share on 30 June 2015 was
168.26p (31 May 2015: 160.84p per
share).
The proportion of the Fund’s NAV at 30
June 2015 represented by the ten largest holdings, other
investments and cash (including accruals), was as follows:
Top ten holdings |
Pence
per share |
Percentage of investee equity held |
Grainger plc |
34.9 |
3.4% |
Hurricane Energy
plc |
13.1 |
11.8% |
Leaf Clean Energy
Company |
12.9 |
29.9% |
STV Group plc |
12.3 |
6.7% |
Pinewood Group
plc |
11.5 |
4.1% |
Sutton Harbour
Holdings plc |
10.3 |
29.3% |
Coats Group plc |
9.0 |
2.4% |
Dart Group plc |
7.8 |
1.2% |
Balfour Beatty
plc |
5.2 |
0.3% |
4imprint Group
plc |
5.0 |
1.6% |
Total of ten largest
holdings |
122.0 |
|
Other investments |
31.6 |
|
Cash and accruals |
14.7 |
|
Total NAV |
168.3 |
|
Investment Adviser’s commentary on the
portfolio
Over the quarter to 30 June 2015,
NAV per share increased by 13.5 per cent. The Fund’s average cash
position over the quarterly period has been 5.3 per cent, implying
a return on the investment portfolio of 14.3 per cent. Over the
Fund’s financial year to 30 June
2015, NAV per share has increased by 4.6 per cent or 4.9 per
cent including the dividend paid.
The top three positive contributors to NAV growth over the
quarter to the end of June were Thorntons plc (5.7 per cent
contribution), STV Group plc (1.3 per cent) and Hurricane Energy
plc (1.2 per cent). The three main detractors have been Ophir
Energy plc (0.7 per cent), Plus500 Ltd (0.4 per cent) and Juridica
Investments plc (0.3 per cent). The Fund sold its remaining holding
in Plus 500 Ltd, realising a total profit including dividends of
£4.3 million.
During the quarter to 30 June
2015, the Fund disclosed notifiable positions in Grainger
plc and Pinewood Group plc, increased its position in Hurricane
Energy plc, Coats Group plc and STV Group plc and sold out its
holdings in Aer Lingus Group plc and Thorntons plc.
Aer Lingus Group plc (“Aer
Lingus”)
In June, given the limited upside, the Fund disposed of its
stake in Aer Lingus following the
favourable share price reaction to the Irish Government’s decision
to dispose of its stake to IAG. The proceeds have been re-invested
elsewhere where the risk reward profile appears to be more
compelling.
The Fund realised gains in Aer
Lingus of €15 million (£10.8 million) and banked dividends
of €0.8 million (£0.6 million) (compared to a total investment of
€21.1 million (£15 million)).
Balfour Beatty plc (“Balfour
Beatty”)
Over the period, the Fund started to build a position in Balfour
Beatty, the international engineering and construction group.
Following six profit warnings over the last two years, Leo
Quinn’s arrival as Chief Executive provides the opportunity to
address several legacy issues in construction and turn around a
business selling on an enterprise value to sales ratio of 0.2.
We believe that the value of Balfour Beatty’s Public-to-Private
Partnership (“PPP”) projects provide support to the company’s
current stock market value.
Coats Group plc (“Coats”)
Coats is the world’s leading industrial thread and consumer
textile crafts business. In 1890, it listed on the London Stock
Exchange.
During the quarter, the Fund increased its shareholding to 33.9
million shares, equivalent to 2.4 per cent of Coats’ issued share
capital. Coats is capitalised at £352 million and in the year to
31 December 2014, reported operating
profits of £64 million on revenues of more than £1 billion.
Coats had net cash of £206 million at 31
December 2014. During 2014, principally as a result of a 115
basis point decrease in the discount rate, Coats’ pension
liabilities increased by £197 million to £375 million. The board of
Coats is engaging with the UK Pensions Regulator following the
receipt of a Warning Notice in December
2014.
We believe that the share price currently fails to reflect the
underlying value of the business. The Fund notes recent
acquisitions by Coats which it regards as a sensible use of its
cash resources.
Grainger plc (“Grainger”)
In June, the Fund purchased a 3.2 per cent stake in
Grainger.
Grainger was established in 1912 and is the UK’s largest listed
residential property owner and manager. Its traditional
reversionary business is based predominantly on regulated tenancies
which provide substantial, high quality, predictable and resilient
cash flows. Its portfolio of 7,400 reversionary assets has a
carrying value of £1.5 billion. As these properties become vacant,
Grainger estimates that they will generate a surplus of £500
million, equivalent to 120p a share. This embedded value is the
difference between today’s market value compared to the vacant
possession value at today’s prices. It does not reflect any future
benefit from house price inflation. This portfolio is expected to
generate £120 million of gross cash each year until 2030. Grainger
also owns 8,400 properties as part of its market rented portfolio
valued in excess of £1.1 billion.
Grainger’s shares trade at a 21% discount to unaudited net asset
value of 293p at 31 March 2015. The
company has stated that sales prices achieved have been 6.6% higher
than vacant possession value and this supports our analysis that
current market values are in excess of vacant possession
values.
Grainger’s stated net asset value excludes the estimated
reversionary surplus of 120p a share.
We believe that Grainger’s portfolio, providing visibility of
cash realisations through to 2030, represents an attractive asset
for an insurance company seeking to match this asset profile
against long- term future liabilities.
We also note that Grainger pays an average interest rate of 5.1%
on its £1 billion of debt. This excludes commitment fees. We
believe that in the current interest rate environment, there is
considerable scope to secure better terms for shareholders, which
could increase pre-tax profits by more than £10 million a year.
In March, Grainger's CEO, Andrew
Cunningham, announced he will step down at the next AGM in
February 2016. On 30 June, his
successor was announced as Helen
Gordon, currently Head of Real Estate Asset Management at
Royal Bank of Scotland.
Pinewood Group plc (“Pinewood”)
Pinewood is a leading provider of studio and related services to
global screen-based industries.
In 2011, the Fund was Pinewood’s largest shareholder and held
the view that Pinewood’s iconic brand and technical excellence
should have enabled it to have delivered higher profitability.
Following a cash offer from Peel Holdings, the Fund then sold its
position realising a profit of £8.7 million.
We have continued to follow developments at Pinewood and during
the quarter acquired a 4.1% interest in Pinewood as a result of a
placing.
On 30 June 2015, Pinewood
announced its full year results to 31 March
2015. While the company stated that it had delivered strong
growth, the Fund notes that of the £8.1 million of profit after
tax, £3.1 million was derived from tax credits and a further £1.1m
from Pinewood’s share of results of joint ventures. Revenue was £75
million. We believe that Pinewood’s core business should be
achieving a much higher level of profitability.
On 1 July 2015, the Investment
Adviser to the Fund met with Pinewood’s management and expressed
this view. The company has responded by saying that it is seeking
to engage constructively with the Fund and is open to the Fund’s
plans.
The Fund is therefore engaging with Pinewood and is currently
optimistic of a more helpful dialogue than took place in 2010 and
2011.
Thorntons plc (“Thorntons”)
On 22 June, Thorntons announced the terms of a recommended cash
offer from Ferrero International S.A. (“Ferrero”) at 145p per
share. As a pre-condition, the Fund agreed to sell its entire
stake in Thorntons to Ferrero on the day of the announcement. The
Fund was the largest shareholder in Thorntons owning 18.9 per cent
of Thorntons’ issued share capital. We believe that the ability to
deliver this holding to Ferrero was an essential element of the
transaction.
In our view, the offer recognises the value that the Fund had
identified in Thorntons’ brand and production capability.
Thorntons’ recent profit warnings had exposed some operational
challenges in growing third party grocery sales. In our view,
Ferrero will bring its expertise in this sales channel and an
international marketing and distribution capability. This should
accelerate Thorntons’ growth. We believe that Ferrero, a family
owned business, can bring to Thorntons the long term focus that has
made Ferrero succeed worldwide.
The Fund realised profits of £7.5 million on its shareholding in
Thorntons (on a total investment of £11.5 million).
Dividend
The Board has declared an interim dividend of 2.5p per ordinary
share in respect of the year ended 30 June
2015. The dividend will be paid on 14 August 2015 to shareholders on the register
(the record date) on 17 July 2015.
The shares will be quoted ex-dividend on 16 July 2015.
Transactions in Shares
Over the period, the Fund bought back 4,455,630 shares at an
average price of 146.18p per share as part of its buyback
programme.
For further enquiries please contact:
Crystal Amber Fund Limited
William Collins (Chairman)
Tel: 01481 716 000
Sanlam Securities UK Limited - Nominated Adviser
David Worlidge/James Thomas
Tel: 020 7628 2200
Numis Securities Limited - Broker
Nathan Brown/Hugh Jonathan
Tel: 020 7260 1426
Crystal Amber Advisers (UK) LLP – Investment Adviser
Richard Bernstein
Tel: 020 7478 9080