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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% prior to now 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: masses of cash 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 important 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 it’s also a possible alternative.
Final yr, an activist investor launched a marketing campaign — finally unsuccessfully — in search of to wind down the corporate and distribute its property to shareholders.
The rationale for that’s fascinating 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 total 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% larger than its share worth the day earlier than the takeover was made public.
LDG not directly owns 13% of Alliance. It is going to 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 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 accredited by shareholders (which I anticipate will probably be), LDG will purchase again a specific amount of shares for 31% larger 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 could not full, for instance. Even when it does, its scale is capped, so there isn’t a 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. Additionally it is sitting on quite a few investments that, because the debt notice sale and Alliance takeover illustrate, might finally grow to be value greater than their present carrying worth on the corporate’s stability sheet.
They might not, after all. However on stability, I reckon LDG is a share that might finally be value considerably greater than its present worth suggests.
