Broadly 40% NTAV
I hold a small shareholding in RGO (sub 1% of my portfolio) made smaller by its ongoing collapse in value
Even when you look at the breakdown and do some discounting, to reflect current events, or management exuberance, you still end up with a significant asset level over valuation
Asset Claimed Value Discount Actual Value
Cash £1,718,844 nil £1,718,844
Equity Investment £1,960,469 70% £1,372,329
Pre IPO £2,703,465 50% £1,351,733
Debt & Equity £5,227,524 60% £3,136,516
£11,610,302 £7,579,420
Whether these discount rates seem fair or too high to you there ought to be value there. Even after you put in a discount (20%)? For a small company with perhaps not as good a management as they think. Even after that you end up with a value of £6.063,536 or 0.78p a share against a share price of 0.625.
As a value investor I kind of feel I should buy.
However there is an added wrinkle, (and I am well aware of Walter Schloss’s admonition that sometimes you just hold your nose and buy), and that is just how much the management and Investment Advisor are taking out.
The directors look to be taking out in excess of £400k per year and there is £600k to Investment Advisors - Riverfort Global Capital.
At a time when the business is not doing well and is small, it is fairly clear that the Directors and Investment Advisor are still going to do well. That is until they take out so much that the business is unviable. Clearly at present levels the differential between market capitalisation and intrinsic value may soon end up in the Directors/Investment Advisors pockets rather than the shareholders. If you think we may be looking at a down market for a couple of years we may well be at the point where any meat on the bone is gone before the shares revive.
It is not all bad news. The company is talking about a public listing for its holding in Smarttech247 and suggest that this will be a strong return on the initial investment. But to quote Christine Keeler “Well he would say that”.
There have also been a couple of financing deals. But the exact detail on these has been limited and it is unclear to me whether these are OK, but unexciting or likely to be genuinely moving the game on.
As such my inclination is to give the company till the end of the quarter and if there is no obvious signs of either improvement, decent deal stream being done or a much more sensible cost base to reflect the paltry assets then I will have to bite my losses and move on.