13 October 2016
CRYSTAL AMBER FUND
LIMITED
(“Crystal Amber
Fund” or the “Fund”)
Monthly Net Asset
Value
Crystal Amber Fund announces that its unaudited net asset value
(“NAV”) per share at 30 September
2016 was 202.02p (31 August
2016: 189.96p per share).
The proportion of the Fund’s NAV at 30
September 2016 represented by the ten largest holdings,
other investments and cash (including accruals), was as
follows:
Top ten holdings |
Pence per share |
Percentage of investee
equity held |
Hurricane Energy
Plc |
58.7 |
15.3% |
Grainger Plc |
33.2 |
3.4% |
Northgate Plc |
25.1 |
4.3% |
Pinewood Group
Plc |
18.6 |
5.7% |
Leaf Clean Energy
Co. |
14.4 |
29.9% |
STV Group Plc |
13.9 |
9.2% |
Sutton Harbour
Holdings Plc |
8.3 |
29.3% |
FairFX Group Plc |
7.3 |
24.9% |
Hansard Global
Plc |
5.0 |
3.3% |
Shepherd Neame
Ltd |
2.6 |
1.3% |
Total of ten largest
holdings |
187.1 |
|
Other investments |
14.4 |
|
Cash and accruals |
0.5 |
|
Total NAV |
202.0 |
|
Investment Adviser’s commentary on the
portfolio
Over the quarter to 30 September
2016, NAV per share increased by 31.4 per cent. This was
after the payment of an interim dividend of 2.5p. Adjusting for
this, total returns in the quarter were 33.0 per cent.
The top three positive contributors to NAV growth over the
quarter to 30 September 2016 were
Hurricane Energy plc (21.7 per cent), Northgate plc (3.6 per cent)
and Grainger plc (1.7 per cent). The main detractor was
FairFX Group (-0.3 per cent).
Hurricane Energy plc (“Hurricane”)
On 6 July 2016, Hurricane
announced the spudding of its new exploration well in the Lancaster
field. On 9 September 2016, Hurricane
announced positive drill results from its Lancaster well, guiding
towards contingent resources significantly higher than previous
estimates of 200 million barrels, high flow rates (6,600 barrels of
oil per day) and good quality oil. The Fund believes that
these results materially de-risk the assets for further
development.
The Lancaster 7 drilling campaign was funded by a placing of new
shares in April 2016 led by Kerogen
Capital and Crystal Amber. In
recognition of its strategic input, the Fund was awarded warrants
over 23.3 million shares at 20p.
Over the quarter to 30 September
2016, the share price increased by 131 per cent to
39.25p.
Grainger plc (“Grainger”)
Grainger was established in 1912 and is the UK’s largest listed
residential property owner and manager. Its traditional
reversionary business is based predominantly on regulated
tenancies, which provide substantial and predictable cash flows.
Its portfolio of 3,710 reversionary assets has a market value of
£1.3 billion. As these properties become vacant, Grainger estimates
that they will generate a surplus of £332 million. This surplus is
not capitalised and we regard these gains as ‘off balance sheet
assets’ providing probable future economic benefits. This
reversionary surplus is the difference between today’s market value
as a lower yielding tenanted property compared to the vacant
possession value at today’s prices. It does not reflect any future
benefit from house price inflation.
We have long believed that annual administrative expenses of £36
million are excessive. This equates to an administrative expense
ratio of 3 per cent on £1.2 billion of net assets, which is
substantially higher than its peer group. In May 2016,
Grainger announced that an operational review had identified a
minimum of £8.6 million in overhead cost savings relative
to September 2015, representing a reduction of 24 per cent,
which will reduce the 2017 overhead cost to £27.5
million. Whilst the Fund welcomes this improved efficiency, we
have identified far greater savings and efficiencies.
The Fund continues to engage with the management of Grainger. As
well as addressing the opportunity to lower the operating and
financial costs of the company, the Fund is in active dialogue with
management regarding optimising structures. We note that
in July 2016, the company converted its PRS Fund, GRIP, into a
Real Estate Investment Trust and commented on the suitability of
this structure for PRS investment. Grainger’s share price continues
to trade on a discount to net asset value of more than 20 per cent.
Despite our discussions, we note management’s continued refusal to
implement a share buy-back programme which would secure an
immediate risk free return of 28 per cent and increase net asset
value per share. As a result, the Fund is now seeking alternative
solutions to release value within Grainger.
Northgate plc (“Northgate”)
On 4 July 2016, Crystal Amber disclosed that it had acquired
three per cent of the issued share capital of Northgate. The Fund
announced it had written to the company setting out its assessment
of the company’s prospects with suggested actions, which included a
strategic review to consider a potential sale of all or part of the
business.
During the quarter, Northgate’s share price increased by 32.4per
cent, recovering from its post Brexit decline. The Fund
maintains the view that there is a significant opportunity to
better capitalise on the Northgate brand and market
positioning. During the quarter, the Fund increased its
position in Northgate to 4.3 per cent of Northgate’s share
capital.
Pinewood Group plc (“Pinewood”)
During the quarter, Pinewood received a formal takeover offer
worth £320 million (563.2p per share). The offer was made by
Aermont Capital, a subsidiary of PW Real Estate Fund, reinforcing
Crystal Amber’s view that Pinewood’s real estate portfolio was
undervalued. At 30 September 2016, the Fund held
3.2 million Pinewood shares equal to 5.7 per cent of Pinewood’s
issued share capital. Since investing in April 2015, the Fund’s total gains have been £6.1
million, equivalent to a return of 43 per cent. on the investment
cost. The proceeds receivable from the offer are anticipated
to be received on 18 October
2016.
Restaurant Group plc (“Restaurant
Group”)
The Fund increased its position in Restaurant Group following
the Brexit sell-off, which saw an immediate share price mark down
of more than 20%.
In August 2016, the company
announced the departure of the CEO with immediate effect and the
appointment of Andy McCue, former
CEO of Paddy Power. Following
a 50% increase in the share price from post-Brexit lows, the Fund
took profits and sold its position in the company, realising a gain
of £1.3 million.
Transactions in Own Shares
Over the period, the Fund bought back 160,000 of its own shares
at an average price of 157.7p per share as part of its buyback
programme. These shares are held in Treasury.
For further enquiries please contact:
Crystal Amber Fund Limited
William Collins (Chairman)
Tel: 01481 716 000
Allenby Capital Limited -
Nominated Adviser
David Worlidge/James Thomas
Tel: 020 3328 5656
Winterflood Investment Trusts - Broker
Joe Winkley/Neil Langford
Tel: 020 3100 0160
Crystal Amber Advisers (UK) LLP – Investment Adviser
Richard Bernstein
Tel: 020 7478 9080