Deep Value Post Moratorium – Origo -33%/-67%/ Polo / Tau – ValueWalk Premium
Origo Partners

Deep Value Post Moratorium – Origo -33%/-67%/ Polo / Tau

Things haven’t been going well for me of late.

Origo has proven to be a disasterous investment – mitigated a touch by me getting out relatively early but worsened by absoloutely no liquidity relative to my size.  My original investment thesis is here.  I thought that the prefs could be redeemed and that the NAV was possible / there was payout potential.  The evidence for this was a balance sheet in theory worth about $80m when I got in vs a capitalisation of 23m across the prefs and ordinaries – so potential for a decent return.

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Q2 hedge fund letters, conference, scoops etc

Origo Partners

I started selling after the RNS on the China Rice Asset Impairment – coupled with the other RNS that stated

“The Board is currently of the view that expected realisation amounts will be significantly less than the Company’s last reported net asset value. The Board expects to update shareholders in the Company’s 2017 Annual Report, which should be released before the end of June in accordance with the AIM rules.“

As China Rice was about a third of the NAV and it had been impaired to 0 following non repayment of debt this made me sell quite a bit.

I had real problems selling – lots of liquidity on the way in – non on the way out.  I took a 40% loss on the prefs and a 67% loss on the ords.  I think I bear much of the responsibility for driving the share price on the ords down from 1p to 0.3..

Lessons learnt – I think main one is where there is a whif of fraud around a company – as there always was with this one to seriously limit size.  I dont think the error was getting in at all – there are lots of suspected frauds out there which really aren’t.  Main one I am thinking of is Plus 500 which was hinted as a fraud in the FT – and has since quadrupled.

Also have exited Polo.  They have issued options to the execs with an exercise price of 4.5p.  The current share price is 3.4-3.98p.  Nav in theory c 15p.  One listed holding is worth about 30m, or triple the current share price.  Management can put these options deep in the money simply by making a phone call.  To me this seems like little more than theft.  Possibly a little rash on my part, as there is potentially value here.  The CEO also pays himself $500k a year for overseeing this – so after 3 years they get 8% of the co or $5m on top.  Not convinced I wont be robbed here so getting out.

Ambigous news from Tau Capital as well – suspended after missing the results deadline.  Apparently they can’t value their 40.35% investment in Stopharm – so can’t publish accounts.  Though they have had an offer that would result in a substantial impairment.

As the co has a market cap of £1.4m, Cash of £0.76m and Stopharm was valued (unimpaired) at £4.5m. Hopefully it will be difficult for me to lose too much here – could even be seen as a buying opportunity.  Not sure how much of an impairment ‘substantial’ is – even if it is 50% I make an OK – but not great profit.  Stopharm is pretty profitable – EBITDA of $4.8m forecast for 2017, Net profit $1.8m.  Doesnt take much of a PE to make this attractive.

Overall performance last 6 months has not been great – I managed to get out of Crypto with reasonably good timing but still vs the end December high took a bit of a hit.  Down c9% now – but this is actually worse as I had profit on Tejoori which was kind of in the bag  ex this I am down about 13%.  Lots of this is due to Origio.

Portfolio is now c50% cash – mostly reflective of me having been occupied on other things (CFA Level 2) the last few months and being somewhat short of ideas.  I also picked up a bit in gold / silver.

Good ideas welcome – particularly now!

Article by Rob Mahan, Deep Value Investments Blog


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