Crystal Amber Fund Limited Monthly Net Asset Value

 
TIDMCRS 
 
16 October 2019 
 
 
                          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 September 2019 was 222.31 pence (31 August 2019: 224.06 pence per 
share). 
 
The proportion of the Fund's NAV at 30 September 2019 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               46.2             5.2% 
 
Northgate plc                      38.2             8.2% 
 
Equals Group plc                   35.2             21.6% 
 
GI Dynamics Inc.                   30.6             71.4%** 
 
De La Rue plc                      16.8             6.9% 
 
STV Group plc                      12.7             8.3% 
 
Allied Minds plc                   9.3              6.9% 
 
Leaf Clean Energy Co               6.6              25.3% 
 
Board Intelligence Ltd*            5.7              * 
 
Kenmare Resources plc              4.1              1.5% 
 
Total of ten largest shareholdings 205.4 
 
Other investments                  16.4 
 
Cash and accruals                  0.5 
 
Total NAV                          222.3 
 
*Board Intelligence Ltd is a private company and its shares are not listed on a 
stock exchange. Therefore, the percentage held is not disclosed. 
 
** Following the exercise of warrants on 30 September. 
Investment adviser's commentary on the portfolio 
 
Over the quarter to 30 September 2019, NAV per share fell by 10.8%, or 9.8% 
adjusting for the 2.5p dividend paid in August. 
 
The top three positive contributors to NAV growth over the quarter to 30 
September 2019 were GI Dynamics Inc (2.5%), Leaf Clean Energy Co (1.0%) and STV 
Group plc (0.5%). Top detractors were Equals Group plc (-6.0%), Hurricane 
Energy (-4.0%) and De La Rue plc (-1.9%). 
 
Hurricane Energy plc ("Hurricane") 
 
Since achieving first oil on 4 June 2019, the company has been producing from 
its two Lancaster wells. The reservoir has performed at the higher end of 
expectations. Initiatives are under way to increase production over the next 
two years. For example, the reactivation of the gas compression system will 
enable gas export and increase the production vessel's throughput. 
 
Over the period, Hurricane drilled and tested two new wells at its Great 
Warwick Area, funded by Spirit Energy as part of their farm out deal. The 
Warwick Deep found hydrocarbons in the target fractured rock, but oil did not 
flow at commercial rates. The Lincoln Crestal produced oil at commercial rates 
and will be tied back in 2021 to the Lancaster Early Production System (EPS). 
This will allow production appraisal and generate additional cash flows at 
little additional capital expenditure. One final exploration well is currently 
underway. 
 
The excellent results from the EPS have materially de-risked the company. 
Whilst the Fund is disappointed that Hurricane's shares fell by 18.9% over the 
period, we are encouraged by management's focus on growing cash flows. The 
operational initiatives in progress and the addition of the Lincoln Crestal 
well to the EPS could see production grow from 2020's guidance of 17k barrels 
of oil per day to 30k in 2021. Assuming an oil price of US$60 per barrel, the 
base case guidance for operating cash flow could grow from $200m in 2020 to 
$300m in 2021. In our view, those cash flows will underpin the optionality that 
Hurricane will have to plan its future development. 
 
Northgate 
 
Having instigated the departure of previous Chairman Andrew Page, the Fund 
welcomes the appointment of Avril Palmer-Baunack as his successor, and her 
initiation of a strategic review "focused on clarifying the significant 
intrinsic value of Northgate". 
 
At 325p, Northgate's shares trade at a substantial discount to the company's 
reported net tangible asset value of 412p per share as at 30 April 2019. 
 
Northgate's well-managed Spanish business, which generates over half of the 
group's operating profit, is the clear leader in its market with a strong 
brand, good geographic coverage and an attractive return on assets. Its 
performance has benefited from a prolonged macroeconomic recovery, unaffected 
by Brexit-related uncertainty. Over the course of several years, the 
considerable value of the Spanish business has not been reflected in 
Northgate's share price, and the Fund believes that the company should now 
prioritise releasing the value of this asset. 
 
The Fund believes that Northgate Spain would be particularly attractive to a 
number of multinationals currently attempting to increase their presence within 
the European flexible vehicle rental market. The business would be worth more 
to these companies than it is to Northgate plc and its UK public equity 
shareholder base, given synergies such as lower fleet financing costs, ability 
to grow an established flexible rental platform across a larger geographic 
market, operational flexibility to move and dispose of vehicles across several 
left-hand drive countries, and vehicle procurement savings. 
 
Over the last three years, Northgate Spain has delivered an average ROCE of 
11.6%. Northgate considers its post-tax cost of capital to be 5.5%, which is 
higher than those of its larger and more diversified peers able to operate with 
greater leverage. If the Spanish business were worth to an acquirer a 
conservative 30% premium to net asset value (equating to a premium of 16% to 
total asset value), then a disposal could release over GBP300m of proceeds net of 
debt repayments.  At the current share price, investors in Northgate would then 
be paying less than one third of net asset value for the residual UK and 
Ireland businesses. 
 
Over the quarter, Northgate's share price fell by 5.0%, or by 1.6% including 
the 12.1p dividend paid. 
 
De La Rue 
 
On 23 July 2019, the UK Serious Fraud Office announced the commencement of an 
investigation into De La Rue and its associated persons in relation to 
suspected corruption in the conduct of business in South Sudan. This caused the 
share price to fall by 22% over the subsequent two days. 
 
Notwithstanding this unwelcome development and the company's disappointing 
results announcement, the Fund continues to believe that De La Rue enjoys both 
strong competitive positions in high return businesses and a range of 
attractive growth opportunities. The company's total order book grew by 20% 
over the last financial year and its security features revenue increased by 
38%. 
 
In the Fund's view, De La Rue has suffered from very poor leadership and 
oversight, which has resulted in an unacceptable financial performance over 
many years, despite tailwinds from most of the company's end-markets and the 
consequent benefits evidently enjoyed by its competitors. 
 
In recent weeks, a new Chairman and new Chief Executive have been appointed. 
There is early evidence that the new Chief Executive will adopt a focused and 
sensible approach targeted at rebuilding the value of De La Rue's banknote 
business and capitalising on the opportunities presented by its high-growth, 
high-margin authentication activities. The new Chairman has also made clear his 
determination to ensure that the business adheres to the highest standards and 
practices. 
 
De La Rue's pension liabilities were restructured during its 2017/18 financial 
year. This, in conjunction with the disposal of two businesses for over GBP100m, 
has substantially strengthened the balance sheet. Net debt, adjusting the 
latest announced figures for the disposal of International Identity Solutions, 
is only GBP66m, which equates to less than one times forecast EBITDA. 
 
De La Rue also has obvious strategic value, as evidenced by the takeover 
approach from its competitor Oberthur in 2010, at a valuation of around two 
times annual revenue. Crane Currency, another banknote producer, was itself 
acquired in 2018 for US$800 million, which also equated to around two times 
expected annual revenue. De La Rue is currently trading at an enterprise value 
of less than one times expected revenue. 
 
Over the quarter, De La Rue's share price fell by 26.7%, or by 21.2% including 
the 16.7p dividend paid. 
 
Allied Minds 
 
On 6 August 2019, HawkEye 360, one of Allied Minds' top-four portfolio 
companies, announced it had raised US$70 million at a valuation more than 
double its September 2018 round. The Fund believes that this fundraising added 
at least 8p to Allied Minds' net asset value per share, after accruing for the 
Phantom Plan. 
 
On 24 September 2019, Allied Minds announced the sale of its stake in HawkEye 
360 for US$65.6m, which represents the first successful exit in the 13 years 
since the company commenced investing. Disappointingly, the sale reduced net 
asset value per share by about 3p, as it was discounted by more than 13% from 
the valuation of the fundraising agreed one month earlier. Furthermore, despite 
having ceased all new company investment activity, Allied Minds' management 
proposes to return only half of the proceeds to shareholders. Astonishingly, 
the sale will trigger a cash payout of almost US$5m out of the remaining 
proceeds to current and former executives of Allied Minds under the Phantom 
Plan, despite its shareholders having suffered a drop of around 90% in the 
share price over the four years since it first invested in HawkEye 360. 
 
On 4 September 2019, Federated Wireless, another of the top-four portfolio 
companies, announced it had raised US$51 million at a valuation more than 20% 
higher than its September 2017 round, adding around 3.5p to Allied Minds' net 
asset value per share. Federated Wireless received regulatory approval for its 
Initial Commercial Deployment on 16 September, allowing it to launch its 
Citizens Broadband Radio Service (CBRS) offering and begin to generate

meaningful revenues. 
 
Notwithstanding the recent news regarding HawkEye 360 and Federated Wireless, 
the Fund notes that the share price of Allied Minds continues to trade at a 
very material discount to its estimated net asset value. Following the closure 
of Precision Biopsy (a company that received at least $26m of funding from 
Allied Minds) and the disposal of HawkEye 360, the portfolio will consist of 
only seven investments, one of which has already been written to zero. This 
makes it all the more difficult to comprehend the increase in the company's 
guidance for ongoing HQ cash operating costs (which excludes other costs such 
as severance, share-based payments and Phantom Plan payouts) from US$5-6m as 
announced on 26 April 2019, to US$7.5m as stated on 26 September 2019. 
 
Over the quarter, Allied Minds' share price fell by 27.9%. The Fund believes 
that the scale of the share price discount has still not been addressed by the 
board of Allied Minds and therefore intends to take appropriate action. 
 
Transactions in Own Shares 
 
During the quarter, the Fund issued 125,000 shares to five charities following 
the authority granted at its last Annual General Meeting. 
 
The Fund bought back 1,260,000 of its own ordinary shares at a price of 192.56p 
per share during the quarter, as part of its buyback programme. 
 
 
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 
 
 
 
END

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