Monday, February 14, 2011

CYS.L - Chrysalis VCT - an asset play

 VCTs (Venture Capital Trusts), private equity and "enterprise" trusts seems to have been having a bad hair day currently. The AIC (Association of Investment Companies) publishes monthly summary stats. The discounts to NAV are quite wide, alhtough that's difficult to discern from their summary stats. They often don't print the discounts. It's difficult to imagine why, seeings as it's a very basic number. Presumably they either think some of those stats are misleading, the dog ate their calculator, or they're just too plain embarassed to print them.

Fortunately, over at Trustnet, the dog hasn't eaten their calculator, or maybe they are just shameless; so it is possible to pull together some stats on the sector. I haven't attempted to compile the discounts of all the companies in the sector - I just picked a few companies at random to give you a flavour of the discounts (shown as negatives) that are available:

Company                 Disc%
Dunedin Enterprise       -35
Graphite                 -33
Northern Investors       -36
Private Equity Investor  -25

Pretty big discounts, huh. I guess we should be grateful for the AIC statistics tables omitting half their statistics - after all, if it was too easy, the pie would be eaten already. In theory, private equity/venture capital should provide above-average returns to investors due to the intensive growth nature of the companies they invest in. That theory does not appear to have panned out particularly well in practice. No doubt the banking mess we experienced a couple of years ago is to blame; and we're quite possibly still not out of the woods yet.

What got me attracted to this sector is that I noticed that in January 2011, directors of GPE.L (Graphite) were buying shares. I didn't make any purchases, though. Then, on Friday, I noticed that directors of CYS.L (Chrysalis VCT) were buying shares. Baddeley and Knight bought 35,000 shares each at 49p - or £17.5k apiece. Clearly they are not betting the farm, but I did notice that the company is buying back shares, too. On 9 Feb, for instance, CYS bought back 138k shares at 49p, costing 67k. In 2010, directors also made some purchases at 60.5p, and 62p - showing that even directors don't get it right all the time.

Anyway, the omens seem quite favourable to me - director buying and company buybacks on a company that is trading well below asset value.

CYS is a tiddler of a company, with assets of £25m and a market cap of £15m. The reason I prefer it over GPE is that the discount is slightly wider, and more invitingly, it is yielding 6% (based on total expected divvies of 3p a share), compared with a miniscule 0.7% for GPE. So you do get paid to wait. You can see their recent annual report here , together with their portfolio. I summarise their balance sheet below (all numbers are in £m):

Equity investments       16.8
Fixed income securities   3.8 (basically gilts)
Long term investments    20.6
Net current assets        4.9 (2.0 is "curr inv")
Net assets               25.6

Their equity investments consists of a portfolio of 29 investments, and accounts for 65% of total assets.

At a share price of 50p, and NAV at 83p ( reported at y/e 31 Oct 2010), the discount is 40%.

DISCLOSURE: Bought CYS earlier today at 50p. I'm quite overweight in financials, and thought it prudent to cut back on my previous holdings in financials to pay for the holdings. I had to decide whether I was going to reduce my holdings in AV. or BARC. I opted to reduce AV., because I thought there was probably less upside to it, and besides, the holding was bigger than BARC. I think AV. and BARC are not without their risks, and I'm planning to reduce my exposure to financials generally. I have spotted a nice financial trust that looks a good bet, so I might reduce and consolidate my holdings of AV. and BARC into the trust that I had in mind. I am hoping that, with CYS, I can repeat my rather successful call on POL.L (Polo Resources), which I now see is getting some mention on Interactive Investor. Too bad (for them, not for me!) that they didn't spot it 6 months ago, when prices were much lower.

1 comment:

Mark Carter said...

Link on The Motley Fool: