Monthly Net Asset Value and Interim Dividend De...
8 July 2015
CRYSTAL AMBER FUND LIMITED
(“Crystal Amber Fund†or the “Fundâ€)
Monthly Net Asset Value and Interim Dividend Declaration
Crystal Amber Fund announces that its unaudited net asset value (“NAVâ€) 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 Lingusâ€)
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 Beattyâ€)
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 (“PPPâ€) projects provide support to the company’s current stock market value.
Coats Group plc (“Coatsâ€)
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 (“Graingerâ€)
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 (“Pinewoodâ€)
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 (“Thorntonsâ€)
On 22 June, Thorntons announced the terms of a recommended cash offer from Ferrero International S.A. (“Ferreroâ€) 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
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