Back in November 2013, I invested in Retail Holdings (ReHo). At that time, the company was already in the process of selling its assets and returning net proceeds to shareholders with the ultimate goal of full liquidation.
At that time, I derived at the following valuation:
”ReHo has currently approx. 5.3 m shares outstanding. I came up with a market value for ReHo’s share in Singer Asia of USD 133.2 m or USD 25.16 per share. In addition, a value of USD 19.3 m for the SPV Notes translates into USD 3.64 per share. Last but not least the company has USD 6.5 m in cash or USD 1.23 per share. This leads to a NAV of USD 30.03 per share. At a current price of USD 19.25 the share is offering a 56% discount to NAV.”
While it turned out that the SPV notes were worthless, management was able to maximize Singer Asia’s asset value and sell many assets with almost perfect timing (e.g. sale of Singer Thailand). In addition, management repurchased 12% of shares outstanding at attractive prices. The good sales process was also a consequence of executives/insiders directly profiting from a smooth liquidation in the form of equity ownership and incentive fees.
After 4.5 years, I have so far received USD 19 per share in dividends. The stock is currently trading at USD 13 per share or a 30% discount to reported NAV.
During the first quarter 2018, I sold my position at 13 USD per share realizing a total return of 98.6% and an IRR of 21.2%. Total contribution to portfolio performance since inception was 2.9%.
The rationale for this transaction is that around 70% of the assets are in the form of shares held in Singer Bangladesh. Therefore, the remaining portfolio has become much more concentrated than it was the case in 2013. More than a third of the Singer Bangladesh shares are restricted as “to the remittance of dividends and the proceeds from the sale of these shares.” Management is seeking an elimination of this restriction, but currently a sale would only be possible at a material discount I assume. Apart from that, last year’s momentum of continuous sales activity has stopped for quite some time now. Therefore, I think that the investment has become more risky and that the current discount to NAV reflects a fair assessment by market participants.
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