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I typically put money into medium- and large-sized firms with confirmed enterprise fashions. However I personal the odd penny share. One I’m significantly enthusiastic about has soared 28% up 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: lots of money getting dusty
The corporate in query is Logistics Growth 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 should be run. I see that as a threat for a small shareholder like me, however it is usually a possible alternative.
Final yr, an activist investor launched a marketing campaign — finally unsuccessfully — searching for to wind down the corporate and distribute its property to shareholders.
The rationale 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, nearly 60% of its total present market capitalisation.
Unlocked worth in funding portfolio
Not solely that, however the firm owns stakes in plenty 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 worth 41% increased than its share worth the day earlier than the takeover was made public.
LDG not directly owns 13% of Alliance. It’s going to obtain an equal stake within the new non-public 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 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 count on will probably be), LDG will purchase again a certain quantity 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 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 is no such thing as a assure of what number of shares I might be able to 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 cut back by shopping for again some shares at effectively above their present worth. It’s also sitting on plenty of investments that, because the debt notice sale and Alliance takeover illustrate, may finally become value greater than their present carrying worth on the corporate’s stability sheet.
They might not, in fact. However on stability, I reckon LDG is a share that would finally be value considerably greater than its present worth suggests.
