Amber alert

When the company last reported its net asset value in mid-July, the portfolio valuation took place at the close of business on Thursday, 30 June. That was only four trading days after the result of the EU Referendum was announced and one that sent shock waves through equity markets. Crystal Amber’s portfolio was valued at 153.8p a share at the time, or around £151m, well down on the end May valuation of 165p. However, it has just reported its monthly net asset value this morning which showed a 6.6 per cent recovery with net asset value rising to 161.4p a share at the end of July after accounting for the payment of a 2.5p a share interim dividend scheduled later this month.

Moreover, having run through the company’s 10 largest holdings, details of which are outlined in the table below, I can reveal that these holdings are now worth in aggregate 155.75p a share, or a 7.75p a share more than their end July valuation of 148p a share. The primary reason for this is the re-rating in the company's 15.6 per cent holding in Hurricane Energy (HUR:23p), the UK-based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs. It’s a company my colleague Alex Newman is rather keen on, having recommended buying the shares at 13p less than three months ago (‘Here comes the hurricane’, 12 May 2016). The price has surged from 18p to 23p a share since Crystal Amber's portfolio was valued at the end of last week meaning that it’s now the company’s largest investment and one accounting for 35.7p a share of net asset value, rather than 28.3p a share at the end of July.

Crystal Amber’s other investments are still worth a total of 13p a share as per their end July valuation, and it has net cash of 0.4p a share, so I reckon that spot net asset value per share is currently around 169.15p a share, or 14 per cent above the current share price. Spot net asset value is also around 5 per cent higher than the end July valuation of 161.4p a share making a 10 per cent re-rating of the Aim-traded shares fully warranted in my view especially as the board have a policy of using surplus cash (see below) to make net asset value accretive share buybacks to narrow the share price discount.

Crystal Amber's Portfolio

Investments with potential

Moreover, it’s not as if the company’s holdings don’t offer further upside potential either. They clearly do. For instance, Aim-traded clean energy investment company Leaf Clean Energy (LEAF:44p), a company that is undertaking an orderly realisation of its unlisted assets in order to return the capital to shareholders in a tax-efficient manner, was awarded an important court judgement in relation to a $126m (£94.7m) claim against Invenergy Wind LLC, North America's largest independently-owned wind power generation company. That sum is almost double Leaf Clean Energy's own market capitalisation. I outlined the full details of the case in an update a month ago ('Turn over a new leaf', 5 July 2016). Clearly other investors are warming to the potential here as the shares have risen by more than 10 per cent since that article was published. Crystal Amber’s 29.9 per cent stake in Leaf Clean Energy is worth 14.4p a share of its net asset value.

That’s not the only investment with potential as Crystal Amber owns a 29.3 per cent stake in Aim-traded Plymouth marina and property company Sutton Harbour (SUH: 30p). The company issued its full-year results five weeks ago in which it revealed a doubling of pre-tax profits to £1.59m, flat net assets of £40.9m, a sum worth 42.4p per share. The main point here is that the company is in effect 'in play', having appointed Rothschild to undertake a strategic review of options which could include a sale of the company outright. With the shares priced 30 per cent below book value, then there could be significant upside if a bidder emerges.

There is more upside to Crystal Amber’s 5.7 per cent stake in film studio Pinewood (PWS:552p), a company that’s also in play. In fact, Pinewood's board announced last week that having appointed Rothschild in early February to assist with a strategic review of its capital base and structure that it has now reached agreement with Venus Grafton Sarl, an indirect wholly-owned subsidiary of PW Real Estate Fund III, on the terms of a possible cash offer for Pinewood by Venus Grafton. The indicative cash offer of 563p a share is above the current market price and the bidder has already received backing from shareholders controlling 65.76 per cent of Pinewood’s issued share capital. If a formal offer emerges, as seems highly likely, then it would free up around 17.8p a share in cash for Crystal Amber to deploy on further investments.

I would flag up too that there should be decent upside in residential investment landlord Grainger (GRI:219p) which are currently rated on a 23 per cent discount to their last reported EPRA net asset value of 283p. I noted the upside potential at the start of this year ('Stock check, 5 Jan 2016). The company issues a trading update on Thursday, 11 August.

Technicals improving

The upside from the investment portfolio aside, Crystal Amber’s share price appears to have successfully re-tested a support level around 141p coinciding with February’s price lows. Another hefty valuation uplift in the end August monthly net asset value update will be just the catalyst to give a further boost to the share price especially if the board recycles some of the funds from the Pinewood takeover into net asset value accretive share buybacks.

So, having previously included the shares as one of the constituents of my 2015 Bargain Shares portfolio when the price was 149.25p, and last advised holding at 147p when I updated the portfolio (‘How the 2015 Bargain share portfolio fared’, 5 Feb 2016), I now rate them a trading buy on a bid-offer spread of 147p to 148p given the deep discount to net asset value and likelihood of hefty cash returns on some of its holdings. Buy.