REG-Crystal Amber Fund Limited: Monthly Net Asset Value

Crystal Amber FundAnnouncement

13/07/2018 08:45

13 July 2018
 

CRYSTAL AMBER FUND LIMITED

(“Crystal Amber Fund” or the “Fund”)

Monthly Net Asset Value

Crystal Amber Fund announces that its unaudited net asset value (“NAV”)
per share at 30 June 2018 was 244.62 pence (31 May 2018: 230.75 pence per
share). 

The proportion of the Fund’s NAV at 30 June 2018 represented by the ten
largest shareholdings, other investments and cash (including accruals), was as
follows:

 Ten largest shareholdings           Pence per share  Percentage of investee equity held  
 Hurricane Energy plc                      62.1                      6.5%                 
 Northgate plc                             35.3                      6.3%                 
 FairFX Group plc                          34.9                      19.2%                
 STV Group plc                             32.1                      18.2%                
 De La Rue plc                             18.8                      3.2%                 
 Woodford PCT plc                          15.9                      2.3%                 
 Leaf Clean Energy Co.                     8.9                       29.9%                
 NCC Group                                 5.6                       1.0%                 
 GI Dynamics Inc                           4.3                       48.3%                
 Cenkos plc                                3.9                       6.8%                 
 Total of ten largest shareholdings       221.8                                           
 Other investments                         34.2                                           
 Cash and accruals                        -11.4                                           
 Total NAV                                244.6                                           

Investment adviser’s commentary on the portfolio

Over the quarter to 30 June 2018, NAV per share grew by 18.5%. Over the year
to 30 June 2018, NAV per share increased by 19.7%. Including the two dividends
paid, NAV per share total return was 22.1%.

The top three positive contributors to NAV growth over the quarter to 30 June
2018 were Hurricane Energy plc (13.0%), STV Group plc (4.5%) and Fair FX Group
plc (4.4%). Top detractors were Johnston Press plc (-0.3%), Leaf Clean Energy
Co (-0.1%) and Hansard Global plc (-0.1%).

Northgate plc (“Northgate”)

Over the quarter, Northgate's share price rose by 20.4% as it re-rated to
around net asset value.  We were pleased to see that Northgate’s share
price recovered following the Fund’s public comments in April and its
commencement of a more proactive activist role.

The company’s trading update and full year results confirmed that the number
of UK vehicles on hire has returned to year-on-year growth – an important
milestone if the business is to reverse its market share losses over coming
quarters.  However, the Fund remains disappointed by the continuing lack of
visibility on the prospects for underlying earnings growth and importantly the
lack of any catalyst to increase shareholder value.

The Fund believes that there is substantial value in Northgate’s large
Spanish business that remains unrecognised by the UK equity market despite
repeated evidence of strong trading and financial performance.  We continue
to press Northgate’s board to consider a sale of this business or a partial
listing in order to release this value at a moment of high investor interest
in Spanish assets supported by a strong Spanish economy.

The Fund is concerned by the lack of strategic leadership and the
communication from Northgate’s Chairman, Andrew Page.  In his introductory
remarks to last month’s full year results presentation, Mr Page referred to
Northgate’s 29% fall in earnings as “slightly depressed”.  We consider
that he has failed to take responsibility for the under-delivery of the
company, both operationally and for shareholders during his tenure. 

Despite enjoying the tailwind of a growth market, Northgate’s number of UK
vehicles on hire has fallen 11% organically since autumn 2015, when Mr Page
was appointed Chairman.  The company’s total shareholder return over this
period has been -3%, whilst UK equities have delivered over 30%.  The Fund
notes that the company’s website continues to highlight its total
shareholder returns until the end of April 2017 when the share price was 540p,
more than 20% higher than the current price.

The Fund would have welcomed Northgate’s directors purchasing shares
following the full year results announcement, as a demonstration of their
belief in the company’s prospects and undervaluation.

The Fund remains keen for the company to properly consider all available
options that might release value.

Ocado Group plc (“Ocado”)

In the second quarter of last year, the Fund commenced building a stake in
Ocado. This was a contrarian view, particularly against a backdrop of around
20% of the company’s share capital being shorted by several hedge funds. At
that time, we felt that the business was wrongly perceived as simply an online
food retailer.

In private engagement with the company, we suggested that it focus on
highlighting the growth prospects and scalability of the Ocado Smart Platform
(“OSP”) to technology analysts rather than to food retail analysts. We
welcomed the decision to separate out the OSP business in segmental reporting.

A year after our investment, the company has closed four deals commercialising
its OSP, most significantly with The Kroger Co. We consider that market
participants now recognise the value of this scarce asset, sought after by
grocers facing the threat posed by Amazon.

As the Ocado share price has rerated very substantially, the Fund exited this
position realising a profit of £8.3m.

Leaf Clean Energy Company (“Leaf”)

In April, the company announced a disappointing outcome in its litigation
against Invenergy. The Court found that Invenergy had breached its contractual
obligations, but surprisingly that Leaf was only entitled to nominal damages.
Following legal advice received, Leaf has lodged an appeal to this judgment.

In June, the final Court order set a value of $50.7m for Leaf’s investment
in Invenergy.  A payment for $36.4m was received by Leaf, with $15.3m paid by
Invenergy into an escrow account pending the result of the appeal. At the end
of June, the company announced a capital redemption worth £19.5m. In July,
the Fund received £5.8m as a cash return and £0.8m as loan repayment.

Following the redemption, Leaf’s market capitalisation is approximately
£10m. Leaf has £3.1m (equivalent to 6p a share) in uncommitted cash
resources to fund its legal and corporate costs, $15.3m (equivalent to 22p a
share) in escrow from the Court order and is appealing for an additional
payment of $85.8m (equivalent to 123p a share) for damages.

Leaf’s shares were down 3.1% over the period.

Woodford Patient Capital Trust (“WCPT”)

Over the period, the Fund increased its position in  WPCT,  a closed end
investment fund specialised in early stage companies. It listed in the spring
of 2015 and the share price promptly traded at a 15% premium to NAV. With
hindsight, this was perhaps the peak of inflated expectations, given the
long-term nature of returns of its investments.

At the time of the Fund’s investment in WPCT, not only had the premium
eroded, but the shares were trading on a double-digit discount. The Fund
believes that the share price represented the trough of disillusionment and
was more a reflection of some setbacks within the portfolio of Woodford’s
Equity Income Fund.

The Fund has been tracking WPCT for some time. The $150m cash injection in
March 2018 into Prothena by Celgene, the world’s largest haematology
biopharma company, represented a major endorsement. The Fund commenced
purchasing shares immediately following this news flow.

In June, WPCT shares faced selling pressure as a result of leaving the FTSE
250 Index. The Fund took advantage of this index related selling and
significantly increased its shareholding. Since then, positive portfolio
developments including the listing of Autolus, have contributed to an increase
in net asset value to 91.9p at the end of the quarter. The Fund continues to
believe that the current share price represents an attractive entry level to
access a growth portfolio of highly scalable businesses.

At the period end, the Fund owned 2.3% of WPCT’s issued share capital at an
average cost of 78.2p per share. WPCT’s share price increased by 4.6% over
the period. 

Hurricane Energy plc (“Hurricane”)

Over the quarter, Hurricane’s Early Production System (“EPS”) continued
to make progress. The newly-fabricated buoy for the Aoka Mizu arrived in
Shetland and the installation of the turret mooring system is underway. The
EPS remains on budget and on schedule for first oil in early 2019.

Steven McTiernan was appointed chairman in April. He brings a wealth of
experience from his 45 years in the oil and gas industry and investment
banking. He was formerly Senior Independent Director at Tullow Oil and is
currently chairman of premium listed Kenmare Resources. Having met him before
his appointment, we are confident that he will maintain high standards of
corporate governance. His extensive M&A experience should help management
along the path of monetisation. We are pleased that the Fund’s concerns
regarding the need to improve corporate governance and standards have not only
been recognised by the company but are now being addressed.

Hurricane’s shares were up 47% over the period, and the Fund realised
profits of £7m. This brings total realised gains from Hurricane to £23.6m at
the end of the period, when the Fund remained Hurricane’s largest
independent shareholder and the Fund’s largest investment.

Transactions in Own Shares

Over the quarter, the Fund bought back 150,000 of its own ordinary shares at
an average price of 217.4p per share as part of its buyback programme.  These
shares are held in treasury, where a total of 1,798,982 ordinary shares are
currently held.

For further enquiries please contact:

Crystal Amber Fund Limited

Chris Waldron (Chairman)

Tel: 01481 742 742

www.crystalamber.com

Allenby Capital Limited - Nominated Adviser

David Worlidge/Liz Kirchner

Tel: 020 3328 5656

Winterflood Investment Trusts - Broker

Joe Winkley/Neil Langford

Tel: 020 3100 0160

Crystal Amber Advisers (UK) LLP - Investment Adviser

Richard Bernstein

Tel: 020 7478 9080



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