Hidden Value in London Finance & Investment Group?

Is LF&I an illiquid, passive fund manager or a specialist food and beverage incubator of future high growth stocks trading at a substantial and rising discount to its NAV?

LF&I is an established, LSE listed investment and management company specialising in the food and beverages industry. Its latest report and accounts for year end 30th June, 2015 can be found here www.city-group.com. At the time of writing, the company’s share price is c.35p compared to a NAVps of 50.1p as of June 30th, representing a discount to NAV of c.30%. The LF&I share price is largely unchanged since June – it is a relatively thinly traded stock and with a market cap of about £11m it is quite petite. A quick review of the latest accounts suggests a tightly run ship with minimal overhead, relatively low gearing (about £1.5m of bank debt) and none of the potential horrors such as a looming pension deficit or dilutive outstanding executive share options. Indeed, the Board remuneration seems positively frugal with a combined remuneration through Director’s Fees of £73,500. 

LF&I’s investments include a directly held General Portfolio of 26 UK, European and US blue chip stocks with a June 2015 market value of £5.8m (see page 10 of the accounts). The list includes many household names such as Nestle, BAT, Heineken, Unilever, Exxon etc., with typical positions being in the region of £100-320k. A cursory scan of a sample of the investments suggests they have generally risen in value since June although it would be a straightforward exercise to set up the portfolio in Stockopedia to see exactly how these investments have fared. 

Perhaps of more interest is the Strategic Portfolio where the company seeks to identify small pre-IPO/IPO companies and then work closely with them by placing a common director on the board to provide advice while these companies grow to critical mass pending an eventual sale of the equity. Most of LF&I’s Strategic Investments are made via an affiliate, Western Selection (itself listed on ICAP S&D Exchange) in which LF&I holds a 43.8% share. As of June 2015, the Strategic Portfolio included substantial holdings in Northbridge Industrial Services, Swallowfield, Bilby, and Hartim (an unlisted company). In addition, as of June LF&I held directly 10 million shares in