Hidden Value in London Finance & Investment Group?

Friday, Nov 27 2015 by
7

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

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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London Finance & Investment Group P.L.C. is a United Kingdom-based investment finance and management company. The Company's objective is to generate growth in shareholder value in real terms over the medium to long term, while maintaining a progressive dividend policy. The Company's investment policy is to invest in a range of strategic investments, a general portfolio consisting of liquid stock market investments, both in equity instruments and bonds, and other investments, property and other physical assets. The Company's general portfolio consists of interests in food and beverages, natural resources, chemicals and tobacco industries. The Company's subsidiaries include City Group P.L.C., which is engaged in providing management services, and Lonfin Investments Limited, which is engaged in investment holding. more »

LSE Price
39.5p
Change
 
Mkt Cap (£m)
12.3
P/E (fwd)
n/a
Yield (fwd)
n/a

Bilby Plc is a building services company serving local authorities, housing associations and domestic customers. The Company operates through provision of support services segment. It provides outsourced services to the public and private sectors. The Company and its subsidiaries operate in the gas heating, electrical and general building services industries. The Company's building services include internal and external building maintenance, refurbishment and conversion projects, living solutions, domestic and commercial plumbing, bathroom plumbing and installations, ground works and roofing. Its electrical services include testing and commissioning services, and installations. Its gas services include servicing and repairs, fault finding, system upgrades, meter connections, full central heating systems, boiler installations and cooker installations. The Company is a holding company for P & R Installation Co Ltd, Purdy Contracts Ltd, DCB (Kent) Ltd and Spokemead Maintenance Ltd. more »

LSE Price
32p
Change
-0.8%
Mkt Cap (£m)
13.0
P/E (fwd)
2.3
Yield (fwd)
10.2

Northbridge Industrial Services plc is a United Kingdom-based company engaged in hiring and selling of specialist industrial equipment to a non-cyclical customer base. The Company operates through the Crestchic loadbanks and transformers, and the Tasman oil tools and loadcells segments. Its Crestchic loadbanks and transformers segment is engaged in the manufacturing, hiring and sales of loadbanks and transformers and includes the Crestchic Loadbanks Crestchic (Asia-Pacific) Pty Limited and China businesses, among others. Its Tasman oil tools and loadcells segment is engaged in the hiring and sales of oil tools and loadcells. It offers a range of equipment, including drill strings and collars, blowout preventers, stabilizers, mud pumps, loadcells, strain gauges, drilling instrumentation, power tongs and torque wrenches. It serves various industries, such as healthcare, oil and gas, banking, power and utilities, marine engineering, air transport, military and government. more »

LSE Price
157.5p
Change
 
Mkt Cap (£m)
43.9
P/E (fwd)
45.8
Yield (fwd)
n/a



  Is LON:LFI fundamentally strong or weak? Find out More »


8 Comments on this Article show/hide all

gus 1065 27th Nov '15 1 of 8
1

If you're reading this at 4.10 Friday, there is an error in the table that is hopefully being sorted by the guys at Stockopedia as we speak! The new table will be consistent with the text. Apologies.
Thx.
Gus.

As of 4.45pm all sorted with the correct table

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gus 1065 23rd Feb '16 2 of 8

RNS just released with 2015 results statement.

http://www.investegate.co.uk/lon-fin---38-inv-grp---lfi-/prn/half-yearly-report/20160223133000P8B85/

NAV re appraised to 22/2/16 at 57.5p per share and EPS increased fourfold to 8.6p per share (largely driven by a part sale of some of their holding in Finsbury Food (LON:FIF) ). Shares still at about 37p, approx 40% discount to NAV. Main drawback to increasing my investment is the horribly wide bid/ask spread and general illiquidity. Anyone with a spare £12m might like to take it private and unlock some of this value.

Gus.

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TMFMayn 23rd Feb '16 3 of 8

Well, I have seen worse spreads on AIM than LFI's 37-39 quoted on ADVFN just now :-)

I think anyone with a spare £12m will have to stump up a bit extra, too, as they will have to buy the part of Western Selection that LFI does not own.

In theory, Western needs to be liquidated first, then LFI. Trouble is, Western has sizeable holdings in minnows Swallowfield, Northbridge, etc, and I dare say the reality of dumping 10%-plus of such stocks onto the market won't get you the latest quoted bid price. I don't know if such disposals will then attract tax, but I suspect the market is right to price in a discount here to the NAV going on the practicalities of liquidation etc.

What is interesting are the directors collecting fees for running Western as well as fees for running LFI -- the latter of which is simply a chunk of Western, a chunk of Finsbury Food and a large spread of blue chips.

I think the ultimate outer here will be the progress of Western's underlying investments, and Finsbury. If they do well, then the NAV should increase and the discount may narrow. I recall Northbridge has been a bit touch and go with debts of late, while Swallowfield has been a sub-NAV value share for at least a decade or two.

I now remember why I no longer dabble with these sub-NAV situations! 



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gus 1065 23rd Feb '16 4 of 8

Agreed - the idea of buying the whole shooting match was pretty tongue in cheek and very unlikely to be done without paying a significant bid premium.

Dividend is well covered if pretty middling (about 2.7%) so not in and of itself a strong reason to hold, but I am happy to park a bit of cash here with a pretty robust asset underpinning that isn't property reliant. Their holding in Finsbury Food (LON:FIF) is currently worth about £10.2m (85% of London Finance & Investment (LON:LFI) market cap) and at 7.5% of total Finsbury Food (LON:FIF) equity could be of strategic value to a possible bidder - although I suspect LFI would be pretty supportive of incumbent Finsbury Food (LON:FIF) management. 

In summmary, I guess a pretty low Beta investment with limited downside and a possible bonus special dividend from time to time as and when one of their early day investment ships come in.

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VegPatch 24th Feb '16 5 of 8

Interesting post, thanks

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sirsege 5th Sep '16 6 of 8

Gus, thanks very much for this write-up. LFI seems quite interesting after showing up on a number of my screens. On a cursory glance, FIF and swallowfield have increased since by about 13% and 19% respectively, although Bilby and Northbridge are down. Seems the NAV could be higher than 58.1p now. And with results due at the end of this month, there could be more interesting share price acitivities. Any updated views? Thanks.

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sirsege 3rd Oct '16 7 of 8

"Net assets have increased over the year by 22.6% from 50.1p per share to 61.4p per share". Think it should appreciate further.

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gus 1065 3rd Oct '16 8 of 8

In reply to post #152543

Morning sirserge.

Quite possibly.

Current share price at 43.5p represents a discount to NAV of about 30% and with no debt and relatively low overheads it's a pretty clean investment to value. EPS at about 5p together with the recent sale of 2m shares in Finsbury Food (LON:FIF) would suggest they could up the dividend payout (currently about 2.3%) but no comment made on this in the results.

I don't think this investment will make us a fortune but a nice, steady accumulation of value with strong Stockopedia rankings.

Best,

Gus.

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About gus 1065

Gus 1065

Ex investment banker specialising in ABS/RMBS and Principal Finance. Now a slightly less stressed house husband, dog walker, long distance cyclist and scuba diving PI.



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