Worsley Investors - is this a new ‘activist’ vehicle, its shares are significantly undervalued
22nd March 2021
This little Guernsey-based company is only capitalised at just £8.6m, yet I reckon that it is worth some £14.1m.
Nearly 30% of its shares are owned by Blake Nixon, aged 60, said to be one of the pioneers of ‘activism’ in the UK.
He has only been on the board since late January 2019, however I would not be at all surprised if his intention is to use Worsley Investors (LON:WINV) as a ‘vehicle’ for his future operations.
So who is Blake Nixon?
Nixon, was a stockbroker in New Zealand working for what is now a Goldman Sachs subsidiary. After three years there he moved over to Australia, where he worked as an investment analyst for New Zealander Ron Brierley’s Industrial Equity group.
At that time IEL was the fourth largest listed company in Australia.
For IEL Nixon transferred over to the UK in 1989 and early the next year he led the takeover of the failing financial conglomerate Guinness Peat Group. He was the UK Executive Director for GPG for the next twenty years.
A veteran of activism
QuotedData states that “Nixon is a veteran of more than 30 activist campaigns and has a demonstrated record of producing substantial returns,” using the strategy of taking influential holdings in British quoted securities of smaller companies priced at a deep discount to their intrinsic value, with the employment of ‘activism’ as necessary.
Those intrinsic values are determined by a comprehensive and robust research process.
He selected the company in 2018
Nixon homed in on the former real estate fund AXA Property Trust in 2018, acquiring 29.8% of the fund company, which had been winding down its fund and with the view of returning capital to its shareholders.
AXA had historically invested in commercial property in Europe, which was held through subsidiaries.
His holding blocked its delisting
Putting together his stake in the company effectively blocked the proposal to delist, with a 75% vote being required to carry through the process.
Instead, Nixon’s Worsley Associates activist investment advisory company took over the running of the investment company in May 2019. Worsley Associates was seeded in 2013 by Nixon and JO Hambro co-founder Christopher Mills.
Going for capital gain in UK Small Caps
His declared aim was to provide investors ‘with an attractive level of absolute long-term return, principally through capital appreciation and exit of undervalued securities’ and through investing in ‘undervalued’ UK small companies.
He then started to reduce significantly the company’s operating expenses and began to look to sell off the fund’s major property asset.
The £8.3m property asset to be sold
Now renamed Worsley Investors Limited, its main legacy investment from its property days is its UCI cinema complex in Curno, on the outskirts of Bergamo in Italy.
The multiplex unit, which was opened by UCI in Italy in 2003, is considered to have at least a 50-year economic life. It has some 2,389 seats and 228 associated car parking spaces.
The cinema lease had been amended in June 2020 at €915,000 pa, but the closure of the cinema under Italian regulations for a second time, in October 2020, led UCI in February this year to seek a further renegotiation of 2021 rentals under the lease, talks in respect of which are ongoing.
UCI has the right to terminate the lease on 30 June 2035, which has a final termination date of 31 December 2042. UCI have given a rental guarantee for the lease.
Discussions with potential purchasers went into limbo until the cinemas are re-opened. Knight Frank valued the property at €9.6m in December 2020.
Investment portfolio up over 60% in less than a year
Apart from the valuable property asset the company has a small investment portfolio of thirteen stocks, including declarable equity stakes in a couple of quoted UK small caps.
It owns a 3.0054% position in Northamber (LON:NAR), which is the longest established trade-only distributor of IT equipment in the UK. The combined value of that group’s net cash and freehold property on its own broadly matches its £20m market capitalisation. That stake of 818,427 shares is worth £613,820 today.
The second main position is its 4.01% stake in my old favourite Smiths News (LON:SNWS), which is the UK’s leading newspaper and magazine wholesaler. Its holding of 9,938,849 shares is now valued at £3,727,068.
I gather that its other, as yet undisclosed, positions also have excellent potential.
Only about 15m loose shares
Worsley Investors has 33,740,929 shares in issue.
Large holders include Nixon’s PH Nominees (29.8%), Mercantile Investment Co (AUS) (6.59%), M&G Investment Management (6.15%), Brompton Asset Management (5.93%), and New Star Investment Trust (5.33%).
Last week’s interims showed a £722,000 profit
Last Wednesday the debt-free company reported its interim results for the six months to end December 2020. It showed a pre-tax profit of £722,000 for the period against a net loss of £419,000 as at June 2020.
Earnings came out at 2p a share at the halfway.
Net assets worth more per share
What also came through with the interims was a 4.42% increase in net asset value per share at 39.89p.
However, from what I can see the net assets today are worth more than that figure: Curno £8.3m, portfolio £5.4m, cash £0.4m = £14.1m = 41p per share nav.
Current significantly undervalued shares
Because Blake Nixon enjoys his ‘activist’ tag, I would suggest that as soon as he can sell off the Curno property, he would then have plenty of cash or near cash assets to back up any adventurous moves that he might like to make using his near 30% controlled Guernsey vehicle.
On that basis I would rather class this company as an undervalued ‘situation’ stock waiting for a deal or two to get it really moving.
An intriguing proposition
Considering the incredible amount of overvalued trash that there is out there in the quoted marketplace I see Worsley Investors as an intriguing proposition.
Last Friday I put out a 32p Target Price on the shares, now 25.5p, which would be a near 24% discount to current NAV at that objective figure.
Going to a premium over NAV?
Perhaps more canny market players will agree with me that this is Nixon’s new plaything and could be well worth paying a premium to be aboard before any fun starts.
However, awaiting the sale of Curno that may take a little time yet to get underway, so it is well worth taking an early reduced position in the undervalued shares, currently on a near 38% discount to my assumed nav.
Paying just 62p for a pound sounds like really great value to me.
If my theory is right and Nixon starts to take real ’activist’ positions through Worsley, its shares could be at a significant premium to its net asset value.
Get in now while they are cheap.