My biggest portfolio holding is Craven House Capital (AIM:CRV), which today has a 30% weighting. It is a tiny nano-cap flying beneath the radar of most investors that I have held since 0.28p up to the current 0.47p. I still think this could double from here though and it’s been a while since I went over the stock so here is an up to date look.
In my first post on CRV, I noted the importance of management expanding the balance sheet. It was then at net assets of £2.6m (0.44p per share) and the operating fees where substantial when compared to that. I also noted about it issuing shares for 1.25p, which was then almost 5x the current share price, and how further inevitable share issues would benefit current shareholders. My expectations turned out correct and book value is now £6.9m (0.87p per share); that thesis continues to play out.
Investments
Its portfolio now looks like this.
South African agriculture – a 49% shareholding in a portfolio of agricultural and food processing businesses in South Africa, for a total consideration of £1.16m. This portfolio comprises a 1,017-hectare vegetable and cattle farm located in Nelspruit; the second largest vegetable dehydration factory in Africa, also in Nelspruit; and a food storage and distribution centre located in Johannesburg.
Irish hotel debt – Craven House completed the restructuring of a distressed loan (the “Loan”) on the 270-room Green Isle Conference and Leisure Hotel in Dublin. The Company acquired the loan for £0.57m in May 2013, becoming the sole secured lender for the Hotel. Craven House successfully negotiated the sale of the Hotel to the new owners and agreed with the new owners to convert the Loan into a mortgage of £1.2m. The Mortgage carries an interest rate of 4% per annum and will be repaid in full within three years, with a 6-month grace period.
Farm Lands of Africa Inc. (“FLAF”) – a green-field agribusiness operating in West Africa, which is listed on the OTC Markets in New York. On 1 August 2013, the Company completed a settlement agreement with FLAF, resulting in it receiving $60,000 cash and 20,000,000 shares in Farm Lands of Africa Ltd (“FLAL”), which owns 90% of Land and Resources (Guinea) SA (“LRG”), following FLAF breaching certain investor protection mechanisms in September 2012. Therefore, Craven House now holds a 45% stake in LRG, today essentially worth nothing, yet carried on the books for £67k.
Pressfit – a UK company with subsidiaries manufacturing specialist stainless steel pipe fittings in China. Craven House owns 25.3% of Pressfit, through investments totalling £1.47m with a further 2.1% of the shares in Pressfit being available to the Company in the event that an outstanding convertible loan is exercised. Mark Pajak, Director of both Craven House and Desmond, is also the Chairman of Pressfit.
Ceniako – a 49% stake in this company whose sole asset is 1,967 hectares of productive agricultural land with significant development potential. Situated directly on the Atlantic coast of Brazil, between Salvador and Rio de Janeiro, the property features over two kilometres of beachfront in addition to productive cattle pastures and cropland. The last independent valuation valued the land at circa £3.7m (£1.85m to CRV), yet it bought it for £0.8m. It is seeking a buyer or development partner for all or part of the site.
Finishtec – 50.1% of this Brazilian manufacturing company, based in Curitiba, specialising in the manufacture of industrial electrical switching, distribution and insulating equipment for the domestic power sector in Brazil. Finishtec benefits from an impressive list of blue-chip clients, which include ABB, Siemens, Alstom, Toshiba and Odebrecht. It bought the stake for £0.6m, 2x Finishtec’s book value at the time.
Depston – a South African company, based in Cape Town that trades under the name of “The Bicycle Company” (“TBC”). Further information on the business can be found at www.thebicyclecompany.co.za. TBC’s unaudited management accounts for the year-to-May 2013 show revenue of R42,941,000 South African Rand, equivalent to c.£2.4m with a significant increase in revenues forecast for the current year. CRV bought a 49% stake for £1.2m.
Potential Catalyst
Pressfit will soon be listed on AIM, and a stock market listing will allow CRV to realise the true value of it. Unfortunately only its 2012 Annual Report is currently available, when it was still a new company so not making any money.
It is hard to know what Pressfit is currently worth, but the IPO should give some more clarity and hopefully show the market how Craven House has grown the business.
Conclusion
With shares trading between 0.45p and 0.55p, there is a significant discount to the current book value of 0.87p per share. Management has shown they can make successful investments such as those of Ceniako and the Irish hotel debt. However it has also shown it can make some bad decision like with FLAF.
But the important point is it is expanding the balance sheet with share issues at 1.25p, and if it continues doing this then the margin of safety keeps on growing for current shareholders. I remain long but may reduce the position if the price ever hits book value.
Disclosure: Author is long AIM:CRV
Investing Sidekick
Founder of Investing Sidekick. Works as a research analyst and is an avid value investor, always searching for undervalued shares.