CRYSTAL AMBER FUND LIMITED
(“Crystal Amber Fund” or the “Fund”)
Monthly Net Asset Value and Interim Dividend Declaration
Crystal Amber Fund announces that its unaudited net asset value (“NAV”) per share at 30 June 2017 was 204.37 pence (31 May 2017: 227.46 pence per share).
The proportion of the Fund’s NAV at 30 June 2017 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||49.6||12.2%|
|STV Group plc||25.7||16.8%|
|Fair FX Group plc||16.0||25.9%|
|Leaf Clean Energy Co.||12.9||29.9%|
|NCC Group plc||11.6||2.5%|
|Ocado Group plc||9.6||0.5%|
|GI Dynamics Inc||9.4||46.1%|
|Sutton Harbour Holdings plc||7.5||29.3%|
|Johnston Press plc||3.3||21.4%|
|Total of ten largest holdings||175.1|
|Cash and accruals||2.5|
Investment Adviser’s commentary on the portfolio
Over the quarter to 30 June 2017, NAV per share decreased by 15.4 per cent. Over the year to 30 June 2017, NAV per share increased by 32.9 per cent. Including the two dividends paid, NAV total return was 36.1 per cent.
The top three positive contributors to NAV growth over the quarter to 30 June 2017 were Fair FX Group plc (1.0%), Grainger plc (1.0%) and NCC Group plc (0.9%). Top detractors were Hurricane Energy plc (-14.8%), Northgate plc (-2.8%) and Johnston Press plc (-0.6%).
Hurricane Energy plc (“Hurricane”)
At the end of the quarter, Hurricane announced that it had raised $530 million of funding for the development of the Early Production System (EPS) at its Lancaster field. This comprised $300 million of new equity at 32p and $230 million of secured debt in the form of a convertible loan note. As a result, the company is targeting first oil from the EPS in 2019.
This followed a warrant issue on 12 May 2017, which raised £12.7 million for working capital purposes and the publication on 8 May 2017 of its updated Competent Person’s Report (CPR) on Lancaster. Factoring in the appraisal results over the last four years, the CPR raised the recoverable oil volume estimate from 207 million barrels to 523 million barrels. The Fund believes that Hurricane holds a very large, quality asset, with a resource potentially in excess of 1.6 billion barrels of oil.
In April 2017, the Fund commented that during the previous quarter it reduced its position into demand to manage its exposure to this successful investment. Over the quarter, Hurricane’s share price decreased by 42.7 per cent. We regard the principal cause of this substantial derating to be the mismanagement of the warrant issue. On 23 June 2017, the Fund released an announcement, expressing its disappointment at Hurricane’s poor handling of the warrant issue and comments made at its AGM on 7 June 2017, which referred to the near-term focus being on funding and delivering the EPS. Since the quarter end, the Fund has written to the company expressing its concerns. The Fund also strongly believes that the way the company has gone about the recent fundraisings has created a significant disconnect between the operational value of Hurricane and its strategic value.
GI Dynamics Inc (“GI Dynamics”)
On 3 May 2017, GI Dynamics announced that it had selected Allenby Capital to explore the option of a London AIM listing, which the Fund believes would be a positive step to increase the company’s investor profile in its main European markets. On 18 May 2017, GI Dynamics announced the suspension of its CE Mark approval due to non-conformity with internal regulatory procedures. Additional research released over the quarter continues to support the safety and efficacy of the device. Of note, a meta-analysis presented at the Digestive Disease Week meeting reviewed all clinical trials and confirmed improved glycaemic control and weight loss in patients.
In June 2017, the Fund was pleased to subscribe to a $5 million convertible note so that GI Dynamics is able to fully capitalise on its growth potential.
Over the quarter, GI Dynamics’ share price decreased by 11.4 per cent. The Fund continues to work closely with the management of GI Dynamics to optimise its strategy and realise shareholder value.
On 29 June 2017, Scott Schorer, CEO of GI Dynamics, presented at Crystal Amber’s Investor Conference. His presentation is available at: http://crystalamber.com/press#699
FairFX Group plc (“FairFX”)
During the quarter, FairFX published its final results for the year ended 31 December 2016, reporting strong revenue growth in the second half of 2016, with positive momentum continuing into 1Q2017. Highlights included a 27.9 per cent. rise in currency transactions in 2016, compared to 2015, and a 49.2 per cent. increase in international payments turnover year-on-year. We expect to see continued revenue growth as the company focuses on higher margin areas of the business, particularly in the corporate division.
On 19 May 2017, FairFX announced that it had signed a partnership agreement with online foreign exchange boutique, easyCurrency, which will see FairFX offer currency cards, cash and international payments services to easyGroup customers through easyCurrency.com. This partnership will simplify the process of foreign exchange for easyCurrency customers and will open up new revenue streams for FairFX. The deal reinforces the Fund’s view that FairFX is a market leader in this high growth market.
Over the quarter, FairFX’s share price increased by 16.7 per cent. After the quarter end, Fair FX announced that it was trading ahead of management expectations. The share price trades on 15 times prospective earnings for 2018 and less than 9 times prospective earnings for 2019.
On 29 June 2017, Ian Strafford-Taylor, CEO of FairFX presented at Crystal Amber’s Investor Conference. His presentation is available at: http://crystalamber.com/press#698
Grainger plc (“Grainger”)
During the quarter, the Fund exited its position in Grainger, the UK’s largest listed residential landlord, following a significant share price re-rating, which saw its discount to net assets narrow from 17.1 per cent. at 31 December 2016 to 8.5 per cent. in June 2017. The Fund acquired its 3.4 per cent. shareholding in Grainger in the summer of 2015 at a cost of £31.2 million. The Fund is pleased that following engagement, as requested by the Fund, Grainger undertook a strategic review, streamlined the business, reduced its administrative and other expenses from £42 million a year to £27.5 million a year and reduced its cost of debt from 5.3 per cent. to 3.6 per cent. The Fund realised total sale proceeds of £37.3 million and together with dividends received, generated a profit of £7.1 million on this successful investment.
Ocado Group plc (“Ocado”)
During the quarter, the Fund initiated an investment in Ocado. The Fund believes that the company’s Smart Platform potential is not reflected in the current valuation. This end-to-end operating solution for online grocery retail is based on proprietary technology and IP developed over fifteen years. It is suitable for its own business and those of commercial partners around the world facing the threat of Amazon and limited ability or time to develop a solution in-house. The Fund believes this scalable technology platform can generate substantial free cash flows.
On 4 June 2017, Ocado announced its first international deal with a regional European retailer. In June 2017, the Investment Adviser met with and held constructive discussions with Ocado’s senior management. The Fund looks forward to supporting Ocado.
The Board has declared an interim dividend of 2.5p per ordinary share in respect of the year ended 30 June 2017. The dividend will be paid on 18 August 2017 to shareholders on the register on 21 July 2017 (the record date). The shares will be quoted ex-dividend on 20 July 2017.