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Arden Partners (LSE:ARDN), a small stockbroking based in the Midlands and London, was bought for my net current asset value, NCAV, portfolio in September 2015 at 42.2p. They have paid no dividend and the share price has fallen to 33p, so the paper loss on this investment is 22%.
Should I cut my losses, continue to hold or buy more?
To start the analysis, note that market capitalisation is now £7.1m (19.275 shares x 37p), whereas my estimate of NCAV is £7m, of which £5.2m is cash.
When I first bought into this company it had a market capitalisation of £8.1m, but a larger NCAV of £8.86m (including £5.9m cash).
(Previous Newsletters for Arden: 1st – 7th Sept 2015, 25th – 29th Feb 2016, 8th Mar 2016)
Brief description of the business
It was founded in 2002 by a group of brokers. A great start, e.g. making a profit of £2.1m in 2003, led to an AIM market float in 2006 at a MCap of £40m. It offers three services:
1.Corporate Finance
Continuing advice. As nominated advisor and/or broker to a company it receives tens of thousands of pounds pa from each client company for advice on market regulation and compliance (e.g. UKLA listing or AIM rules), corporate governance, investor relations, sounding board on stock market reactions to client’s possible corporate actions, institutional visiting schedules, results and announcements.
Advice on transactions. When a company wants to make a major financial/strategic move it consults its advisor and/or broker. This covers events such as new issues (IPOs), secondary market fund raisings, public company takeovers, disposals, corporate restructuring, public to private and reverse takeover.
Currently it has 38 clients for which it acts as nominated advisor, broker or both.
2. Market making for the companies it represents as nominated advisor or broker
For a limited range of small and mid-cap companies it offers bid and offer prices. An idea of the activity level can be gained by looking at the BS entry in table below “Financial assets designated at fair value through the profit and loss”. These are mostly the outstanding long market making equity positions at the balance sheet date.
3. Equity research and sales
Providing research on scores of companies and then giving that research to institutional fund managers, including hedge funds.
Funds reciprocate by putting trades through Arden and do not look too closely at the transaction fee – by implication, a lot of it goes to pay for the “free” research they received. (But this system will change radically due to new EU regulations – see later).
Net Current Asset Value, NCAV
When considering the NCAV table bear in mind that the liabilities entry is dominated by “market payables” of £1.477m. That is, in its division which buys and sells shares for institutional investment funds, it has purchased securities and therefore has a legal obligation to settle the transactions (pay for them), but at the accounting date (30th Oct 2016) it has not yet done so.
Linked to this trading, it has also entered into transactions just before the yearend in which it sold shares and is awaiting payment from the buyers. These “market receivables” at 30th October 2016 amounted to £1.409m……………………………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
