Net of transaction fees the board plans to make an initial capital return to shareholders of 98p a share within three months of completion of the transaction, and a further 2p a share by way of a members winding up of the company. The total payout is 100p, or £159m. Shareholders will be given the opportunity to vote on the transaction at an EGM on 9 November and a 50 per cent majority is required for the deal to proceed. Completion is then expected sometime in November.
To recap, both GIC and Global Environment Emerging Markets Fund III LP hold shares in Greenko Mauritius which can be exchanged for ordinary shares in the company with effect from 1 July 2015. If converted this would lead to Greenko's existing ordinary shareholders being significantly diluted. I explained the implications of a dilutive share issue in early summer when the share price was 55p ('A slick investment', 25 June 2015). I last updated the investment case when the price was 80p and recommended holding onto the shares at the time (‘Four small caps with further to go’, 10 September 2015).
Admittedly, Greenko’s shares have endured a roller coaster ride since I initiated coverage at 138p ('Buy signal flashing green', 18 March 2013). Having hit a high of 180p at the end of September 2014, the share price fell steadily thereafter and I subsequently downgraded my view to hold at 104p after it became apparent that the operational progress of the company was being undermined by its capital structure ('Small cap updates', 31 March 2015). In particular, the guaranteed minimum protective returns offered by Greenko to both GIC and Global Environment Emerging Markets Fund III LP when the company raised development funding, coupled with constraints on raising fresh capital, meant that the equity share of the two investment groups in Greenko was in effect spiralling upwards at the expense of other shareholders.
A sensible compromise
In my view, this looks like the best compromise that can be reached, albeit shareholders are being offered an exit from their investment at a much lower price than the company was being valued at 12 months ago. The flip side being that the operational progress made this year has been behind what had been predicted.
Moreover, with Greenko’s shares trading on a bid-offer spread of 86/5p to 87p, I would expect the discount to the 100p proposed cash return to narrow once shareholders vote the sale through as I anticipate will happen. In effect, they have little choice because if they were to reject the proposals, the company’s share price would collapse and in turn this would enable both GIC and Global Environment Emerging Markets to immediately exchange their investments in Greenko Mauritius for an even larger share of the company’s equity.
So although the investment has not worked out as I had planned, I would recommend voting for the disposal and continue to hold Greenko’s shares as I firmly expect the share price to rise to around 100p before the end of this year. Hold.
Please note that I have written articles on three companies today, and on 13 companies in total since the start of last week, all of which are listed in chronological order below.
MORE FROM SIMON THOMPSON...
I have published articles on the following 45 companies in the past four weeks:
■ Trakm8: Run profits at 195p, target 220p; Character Group: Run profits at 518p, target 575p; Marwyn Value Investors: Buy at 220p; Global Energy Development: Speculative buy at 30p; Software Radio Technology: Buy at 27p, target range 40p to 43p; Globo: Buy at 33p, target 69p; Pittards: Hold at 105p ('Cashed up for cash returns, 22 Sep 2015).
■ KBC Advanced Technologies: Buy at 112p, initial target 142p; K3 Business Technology: Run profits at 298p; Cenkos Securities: Buy at 177p; Netplay TV: Buy at 10p ('Small cap value plays', 23 Sep 2015).
■ Miton: Buy at 26.5p, target 35p; 32Red: Buy at 73.75p, target 90p; Stanley Gibbons: Buy at 138p; Vislink: Buy at 40p, target 70p ('Building momentum', 29 Sep 2015)
■ Moss Bros: Buy at 97p, target 120p; GLI Finance: Buy at 52p, target 80p; Town Centre Securities: Buy at 315p, target 350p; Globo: Buy at 39p, target 69p ('Platforms for success', 30 September 2015)
■ Safestyle: Run profits at 255p; Epwin: Run profits at 138p; Manx Telecom: Buy at 188p, target 210p ('Income plays with capital upside', 1 October 2015)
■ LXB Retail Properties: Buy at 86p, target 99p ('Bag a retail property bargain', 5 October 2015)
■ Creston: Run profits at 162p, target 171p; Fairpoint: Run profits at 184p, new target range 200p to 220p; Trifast: Buy at 114p, target 140p; 600 Group: Buy at 16p, target 24p; Renew Holdings: Buy at 315p, target range 350p to 375p; Stanley Gibbons: Hold at 105p ('Engineering ratings upgrades', 6 October 2015)
■ STM Group: Buy at 71p, target 80p ('Riding small cap winners', 7 October 2015)
■ First Property Group: Buy at 39.5p, target 49p ('In pole position for re-rating', 7 October 2015)
■ Tristel: Run profits at 99p, target 110p ('Cleaning up with superbug buster', 7 October 2015)
■ Equity market strategy ('Bull market pointers', 8 October 2015)
■ Gresham House: Buy at 320p, target 450p ('A mandate for strong growth', 12 October 2015)
■ Tristel: Run profits at 123p, new target 130p to 135p ('Cleaning up', 13 October 2015)
■ AB Dynamics: Run profits at 267p ('Under-promising, over delivering', 13 October 2015)
■ Trakm8: Run profits at 245p ('Motoring ahead', 13 October 2015)
■ PROACTIS: Buy at 102p, new target 130p ('Secured growth for re-rating', 13 October 2015)
■ Avation: Buy at 148p, target 200p ('Flying higher', 14 October 2015)
■ Cohort: Run profits at 400p ('Cohort on a roll', 14 October 2015)
■ Vertu Motors: Buy at 68p, target 80p to 85p ('The virtue of Vertu', 15 October 2015)
■ Urban&Civic: Buy at 274p, target 325p ('Plotting a break-out', 15 October 2015)
■ MS International: Buy at 180p, initital target price 240p ('Making waves', 19 October 2015)
■ Pure Wafer: Buy at 175p, new target 200p (‘Valuation anomaly worth exploiting’, 20 October 2015)
■ Greenko: Hold at 87p, new target 100p (‘Greenko’s cash return’, 20 October 2015)
■ Elegant Hotels: Buy at 108p, target range 130p to 135p (‘An elegant investment’, 20 October 2015)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
