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Bargain Shares: Exploiting valuation anomalies

A Guernsey-based closed investment company that takes a private-equity-style approach to investing has increased its NAV by 19 per cent this year, and could be a M&A target itself
Bargain Shares: Exploiting valuation anomalies
  • NAV per share up 19 per cent to 92.6p since 1 January 2021
  • Net cash of £9.7m accounts for 19 per cent of £50.9m portfolio valuation following takeover of Proactis
  • Corporation Financière Européenne S.A raises shareholding in CIP from 18.2 to 29.1 per cent since 30 June 2021

CIP Merchant Capital (CIP:56p), a Guernsey-based closed investment company that takes a private-equity-style approach to investing, is starting to produce the stellar investment performance I was hoping for when I included the shares, at 57p, in my market-beating 2020 Bargain Shares portfolio.

Net asset value (NAV) per share increased by 14 per cent to 88.85p in the first half of 2021, or double the return on the FTSE All-Share index, and has since risen to 92.6p. Top performers include a £9.1m stake in CareTech (CTH:643p), a heavily asset-backed provider of social care services and favourite of mine, which is showing a 76 per cent paper gain. Shares in Milan-based digital marketing company Alkemy S.p.A. (It:ALK) have more than trebled in value since the start of the year, which means that CIP’s £6.5m shareholding is 60 per cent in profit.

The investment company is also showing a healthy 41 per cent paper gain on its £3.1m holding in EKF Diagnostics (EKF:83p), a £378m market capitalisation point-of-care business that is trading ahead of expectations and is expected to grow pre-tax profits by more than a quarter this year, buoyed by contract manufacturing activities.

CIP has benefited from merger and acquisition (M&A) activity, too, realising a 2.3 times cash return on its £0.9m investment in Proactis, an e-procurement solution provider that has been taken over by private equity. The £2.1m cash proceeds has increased CIP’s cash pile to £9.7m (17.6p a share), representing almost a fifth of the company’s latest NAV of £50.9m (92.6p).

Intriguingly, major shareholder Corporation Financière Européenne S.A raised its stake in CIP from 18.2 to 29.1 per cent over the summer, having previously made an opportunistic bid approach in January. The current 40 per cent share price discount to NAV not only fails to recognise the dramatic improvement in CIP’s investment performance this year, but the possibility of M&A activity. Buy.


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