Picture supply: Getty Photos
I usually put money into medium- and large-sized firms with confirmed enterprise fashions. However I personal the odd penny share. One I’m notably enthusiastic about has soared 28% previously month, though over 5 years it has fallen 90%.
However some latest developments led me to purchase extra shares on this firm – right here’s why.
A pleasant downside: lots of money getting dusty
The corporate in query is Logistics Improvement Group (LSE: LDG).
With a market capitalisation of £75m, it is a pretty modest operation. It additionally has vital shareholders which have particular (and competing) visions of how the corporate should be run. I see that as a danger for a small shareholder like me, however it is usually a possible alternative.
Final 12 months, an activist investor launched a marketing campaign — in the end unsuccessfully — looking for to wind down the corporate and distribute its property to shareholders.
The rationale for that’s attention-grabbing in my opinion. LDG is mainly sitting on a big pile of money. The group’s money place final month was about £44m, virtually 60% of its complete present market capitalisation.
Unlocked worth in funding portfolio
Not solely that, however the firm owns stakes in quite a lot of different companies.
For instance, it’s a shareholder in Alliance Pharma. Final week, it was introduced that Alliance had agreed to a takeover bid at a value 41% increased than its share value the day earlier than the takeover was made public.
LDG not directly owns 13% of Alliance. It can obtain an equal stake within the new personal firm. Final month, LDG additionally introduced that it had redeemed a £10m debt notice it held in one other firm for £13.1m.
At that time, the corporate additionally laid out a plan I believe is geared toward mollifying its activist shareholder, proposing a young provide at 19p per share to return as much as £21m to shareholders.
If that’s authorised by shareholders (which I count on will probably be), LDG will purchase again a specific amount of shares for 31% increased than they are often purchased for on the open market proper now.
Why I’ve been shopping for
That information led me to extend my stake on this penny share. The sizeable low cost of the share value versus the proposed tender provide factors to ongoing dangers.
The tender provide could not full, for instance. Even when it does, its scale is capped, so there isn’t any assure of what number of shares I might be able to promote again to the corporate on the 19p value.
Even contemplating that although, I proceed to see potential deep value right here. LDG is sitting on a big money pile it has explicitly got down to cut back by shopping for again some shares at effectively above their present value. Additionally it is sitting on quite a lot of investments that, because the debt notice sale and Alliance takeover illustrate, may in the end become value greater than their present carrying worth on the corporate’s balance sheet.
They might not, after all. However on steadiness, I reckon LDG is a share that would in the end be value considerably greater than its present value suggests.
