Craven House share issue

For those that aren’t aware, Craven House Capital is far and away my largest holding, and sat at 22% of my portfolio yesterday. I have no other holdings above 10% which should give you an idea of how much I like this stock.

In my previous post (which I suggest you read if you haven’t already) I spoke of how management issuing new shares at 1.25p (a premium to today’s share price) was beneficial for existing shareholders and that I expected management to drastically increase the size of the balance sheet. Well today has confirmed that assumption was correct, as they have just announced a new deal which I calculate has increased my adjusted book value from £2.6m to £3.8m, a 45% increase.

Of course the number has shares has increased, but only by 16%, meaning adjusted net asset value per share has increased from 0.44p to 0.55p, a 13% increase. That is simply from expansion of the balance sheet, and not related to the performance of the fund itself.

New Investments

The issue of shares was in exchange for new assets on the balance sheet. You can read about the investments in some detail in the RNS linked above, but in brief they are farm land in sub-Saharan Africa. They are currently loss making, but running below capacity and the management of CRV believes that with an injection of more working capital they can be brought to full capacity and return to profitability.

Market Reaction

The market clearly likes the deal – the shares are up 62% as I am writing this. But this is an illiquid stock and who knows where the price will stabilise at. As it stands now, CRV makes up 34% of my portfolio which I am still comfortable with.

I’m not tempted to sell any of my position, I think management will continue to issue shares for 1.25p and so existing shareholders still have substantial upside. That isn’t even accounting for the investments themselves. So far I have no reason to doubt managements ability. If it ever reaches 50% of portfolio I may sell some simply for rebalancing but will begrudge doing so.

Disclosure: CRV – long

Founder of Investing Sidekick. Works as a research analyst and is an avid value investor, always searching for undervalued shares.

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