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I usually spend money on 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 current 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 Growth Group (LSE: LDG).
With a market capitalisation of £75m, this can be a pretty modest operation. It additionally has vital shareholders which have particular (and competing) visions of how the corporate must be run. I see that as a danger for a small shareholder like me, however additionally it is a possible alternative.
Final yr, an activist investor launched a marketing campaign — in the end unsuccessfully — looking for to wind down the corporate and distribute its belongings to shareholders.
The explanation for that’s fascinating for my part. 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 few 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 worth 41% greater than its share worth the day earlier than the takeover was made public.
LDG not directly owns 13% of Alliance. It’ll obtain an equal stake within the new personal firm. Final month, LDG additionally introduced that it had redeemed a £10m debt be aware it held in one other firm for £13.1m.
At that time, the corporate additionally laid out a plan I feel is aimed toward mollifying its activist shareholder, proposing a young provide at 19p per share to return as much as £21m to shareholders.
If that’s authorized by shareholders (which I anticipate it will likely be), LDG will purchase again a specific amount of shares for 31% greater 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 worth versus the proposed tender provide factors to ongoing dangers.
The tender provide might not full, for instance. Even when it does, its scale is capped, so there isn’t any assure of what number of shares I could possibly promote again to the corporate on the 19p worth.
Even contemplating that although, I proceed to see potential deep worth right here. LDG is sitting on a big money pile it has explicitly got down to scale back by shopping for again some shares at effectively above their present worth. It is usually sitting on quite a few investments that, because the debt be aware sale and Alliance takeover illustrate, might in the end transform value greater than their present carrying worth on the corporate’s stability sheet.
They could not, after all. However on stability, I reckon LDG is a share that might in the end be value considerably greater than its present worth suggests.
