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 31 March 2018 was 206.46 pence (28 February 2018: 202.98 pence per share).
The proportion of the Fund’s NAV at 31 March 2018 represented by the ten largest shareholdings, other investments and cash (including accruals), was as follows:
|Ten largest shareholdings||Pence per share||Percentage of investee equity held|
|Hurricane Energy plc||52.2||8.0%|
|FairFX Group plc||26.2||18.5%|
|STV Group plc||21.4||16.6%|
|NCC Group plc||10.8||2.0%|
|Leaf Clean Energy Co.||9.0||29.9%|
|Ocado Group plc||7.9||0.2%|
|De La Rue plc||7.0||1.3%|
|Woodford PCT plc||5.0||0.7%|
|GI Dynamics Inc||4.3||47.5%|
|Total of ten largest shareholdings||172.6|
|Cash and accruals||0.8|
Investment Adviser’s commentary on the portfolio
Over the quarter to 31 March 2018, NAV per share grew by 8.3%.
On 18 January 2018, the Fund paid a 2.5p dividend declared in December 2017.
Within the portfolio, the top contributors over the quarter were Ocado Group plc (+2.9%), FairFX Group plc (+1.8%) and Hurricane Energy (+1.1%). The main detractors were Northgate plc (-1.7%), NCC Group plc (-1.3%) and Leaf Clean Energy Co. (-0.6%). The Fund’s put options contributed 6.5% to the NAV.
Hurricane Energy plc (“Hurricane”)
Hurricane’s share price rose by 4.3% over the quarter as it reported progress with its Early Production System (EPS), the new chairman recruitment and governance improvements.
In February, the company announced the successful trial fit test of its production vessel Aoka Mizu with its newly manufactured buoy. A new buoy had to be constructed to withstand the West of Shetland weather conditions, and an incorrect fit with the vessel was a significant risk to delivering the EPS project on time and on budget. In March, Hurricane’s contractor TechnipFMC completed the “Xmas trees” required for the two EPS wells together with the subsea control system that will be installed on the Aoka Mizu. Those long lead items were ordered by the company with the capital raised in October 2016. At the end of March, Hurricane confirmed that the seabed where the EPS infrastructure will be based had been satisfactorily cleared by TechnipFMC, and it is ready to commence installation operations.
Over the period the Fund engaged with the board and key shareholders over the selection of the new chairman and corporate governance issues. The Fund looks forward to the announcement of the new chairman and seeing through the delivery of the Hurricane’s EPS.
The Fund has supported Hurricane’s progress since 2013 and it is pleased to see that the company is on track for first oil in the first half of 2019.
FairFX Group plc (“FairFX”)
Over the period, FairFX’s share price increased by 13.2% on the back of positive trading updates and the acquisition of City Forex.
In 2017, the company’s turnover increased by 39% to £1.1 billion. Growth benefited from the acquisition of CardOne Banking completed in August 2017. Increased scale has brought additional capabilities that can be delivered to its growing customer base. Management depth will accelerate product innovation in 2018. Scale has also brought cost savings and the opportunity to improve supplier terms. Additional cost savings opportunities were unveiled in April with the announcement that FairFX will self-issue its Mastercard branded cards.
In February, FairFX announced the acquisition of City Forex for £6 million. City Forex services the international payments and travel currency segments, both in retail and business markets. The company had been a partner of FairFX since 2007 in the Travel Currency segment. As with previous acquisitions, the combination brings revenue and cost synergies, and confirms FairFX as the key consolidator in the space.
At 31 March, the business had a market value of £140.6m with net cash of £10m with consensus market forecasts placing the share price on a current year PE of 18x and a 2019 PE of 10x.
Northgate plc (“Northgate”)
Over the quarter, Northgate’s share price declined by 11%. The Fund is currently the third largest shareholder in Northgate.
Despite a favourable macroeconomic backdrop, Northgate’s share price is trading at close to its five year low, a discount of approximately 15% to tangible net asset value.
The Fund is deeply disappointed by the performance of the company. Despite operational improvements made by the new Chief Executive, the board has failed in two important respects:
i) an alarming lack of strategic focus and a refusal to engage seriously with proposals made by the Fund and supported by other shareholders to unlock value and prompt a revaluation of the business by the market and
ii) poor management of communications with the stock market, including apparent selective briefings, reneging on dividend commitments made on the investor call of 22 February 2018 and changing disclosure in recent financial statements resulting in reduced transparency.
After multiple frustrating engagements with the Board, we have concluded that these failures should be laid primarily at the feet of the Chairman, Andrew Page, who has demonstrated to us an inflexibility and unwillingness to listen to the views of shareholders or lead the board in a manner conducive to good relationships with investors and the creation of value.
The Fund notes last month’s disclosure by The Restaurant Group PLC that, in the period 2006 to 2017, the dividends paid by the company were not in accordance with the Companies Act 2006. The Fund also notes that Andrew Page was Chief Executive of The Restaurant Group PLC from 2002 until 2014.
Ocado Group plc (“Ocado”)
Ocado had another strong quarter with the share price increasing 33.7%. It signed a second major international partnership with Sobeys of Canada. Ocado also raised £143m in equity to have the financial firepower to sign multiple international deals.
The Fund took profits on this position, realising a £5.5m gain, but continues to believe that additional international deals are likely this year.
Transactions in Own Shares
Over the quarter, the Fund bought back 361,500 of its own shares at an average price of 194.75p per share as part of its buyback programme. These shares are held in Treasury.