- Proforma cash of £44.4mn (8.3p) in price for free
- Four listed holdings worth £59.1mn (11p)
- Finsbury Foods in a takeover situation
- 41 per cent share price discount to NAV
Investor risk aversion is so extreme right now that there have been some disproportionate de-ratings of quality companies in the small and micro-cap hunting ground.
For instance, the share price of Logistics Development Group (LDG:11.4p), an investment company managed by asset management firm DBay and one of my 2023 Bargain Share Portfolio constituents, has fallen 18 per cent since I reiterated my buy call, at 13.9p, at the recent interim results (‘Exploit this double-discounted small-cap fund’, 7 September 2023).
I estimate that LDG has net cash of £44.4mn (8.3p) after factoring in £0.8mn spent on net asset value (NAV) per share accretive share buy-backs since last month’s article as well as the purchase of a further £4.8mn of shares in Finsbury Foods (FIF) (pictured). The speciality bakery manufacturer of cake, bread and morning goods is in the process of being acquired for £143mn by funds managed by Dbay.
LDG now holds a 12.5 per cent stake in Finsbury worth £17.8mn (3.3p), or 29 per cent above cost. It’s not as if Dbay is overpaying. The offer is pitched on a price-to-book value of 1.13 times and values Finsbury on an enterprise valuation of £165mn. It equates to 5.2 times cash profit and 8.3 times operating profit reported in the financial year to 1 July 2023, low multiples for a business that has just reported double-digit annual profit growth and is forecast to continue growing.
LDG also holds three other listed investments: 10.5 per cent stake valued at £21.2mn (4p) in Alliance Pharma (APH), a distributor of consumer healthcare and pharmaceutical products; 9.5 per cent holding worth £17.2mn (3.2p) in SQLI S.A. (FR:SQI), a leading pan-European digital transformation business; and a 2.8 per cent stake in Trifast (TRI), an international distributor of industrial fasteners, that has an open market value of £2.9mn (0.5p).
| Portfolio companies | Sector and description | Group interest | Consideration paid | Fair value of stake | Fair value per LDG share |
| Finsbury Foods | Food and cake maker | 12.4 per cent equity stake | £13.8mn | £17.8mn | 3.3p |
| Alliance Pharma | Distributor of healthcare and pharmaceutical products | 10.5 per cent equity stake | £33.4mn | £21.2mn | 4.0p |
| Synsion | Pan-European digital transformation business | 9.5 per cent read through equity stake in SQLI S.A. (FR:SQI) | €15mn (£12.8mn) | £17.2mn | 3.2p |
| Trifast | International distributor of industrial fasteners | 2.8 per cent equity stake | £2.7mn | £2.9mn | 0.5p |
| Total holdings | £62.7mn | £59.1mn | 11.0p | ||
| Proforma cash | £44.4mn | 8.3p | |||
| Spot NAV estimate | £103.5mn | 19.3p | |||
Source: LDG interim results at 31 May 2023 and subsequent London Stock Exchange RNS filings. Latest share prices for portfolio companies correct on 23 October 2023.
Strip out the group’s proforma net cash of £44.4mn (8.3p) from its market capitalisation of £61.1mn (11.4p), and the four listed holdings are in the price for £16.7mn, or 71 per cent less than their latest market valuations of £59.1mn (11p). Frankly, that’s absurd given that LDG’s NAV per share has only declined 4 per cent from 20.1p to 19.3p since the start of last month, so the portfolio is hardly taking a beating, unlike LDG’s share price. Moreover, the latest valuation of the four holdings is only slightly below the £62.7mn cost.
Or put it another way, the four holdings back up almost all of LDG’s share price of 11.4p, so you are getting nearly all the 8.3p a share cash pile thrown in for free. Buy.
