Thalassa Holdings – April 2018

Thalassa Holdings – LON:THAL
Share Price – £0.85
Market cap – £16.5m


Awhile back, I wrote about Thalassa Holdings when it trading at a significant discount to tangible book value. Unfortunately, I passed upon the opportunity to buy shares, only to see it go from £0.43 to £0.85 today. With their annual report due any day now, I thought I would take another look to see if I was still missing a trick. For extra background on Thalassa, I would recommend that you go back and review my previous post.


When I wrote about Thalassa over a year and a half ago, their only revenue generating asset was the wholly owned WGP subsidiary, a business that provided deep sea seismic exploration services to the oil and gas industry. It also owned a non-revenue generating start-up developing autonomous robots to operate in the seismic exploration area, and also held an insignificant stake in Papua Mining PLC, a London-listed exploration miner nano-cap.

Since then, it’s been all change at Thalassa.

  • The WGP subsidiary was sold for $30m. $20m if which has been received with a further $10m subject to the business generating certain contracts (and not yet received).
  • A 20% stake in the autonomous robot start-up was sold to the same company for $2m with what looks like a two year option to acquire another 20% for an additional $2m. This sale was supposed to concluded by March 31st 2018, but we have heard no confirmation since.
  • A 25.2% stake (as of time of writing) has been acquired in the London-listed company, The Local Shopping REIT (LON:LSR).
  • The disposal of the entire stake of Papua Mining (LON:PML).

Essentially, in order to value the business, I am back to square one. Luckily, there are not a lot of moving parts here.

Sum of the Parts

  • Cash – £14.5m (as of the December 31st 2017 number and converted to GBP at today’s rate)
  • The Local Shopping REIT 25.2% stake – £6.5m
  • ARL (Autonomous Robots) 80% stake – £5.7m
  • Other – £0.5m

Total NAV – £27.2m

Using the end of year 2017 share count, the company currently trades at a discount to tangible NAV of 38%.

But it actually is even better than that again. Since the 31st of December 2017, the company has been buying back stock at below NAV.

  • 90,000 shares bought for £0.92
  • 75,000 shares bought for £0.8175
  • 92,865 shares bought for £0.847
  • 25,000 shares bought for £0.85
  • 30,000 shares bought for £0.85
  • 25,000 shares bought for £0.85

The cash balance can be deducted by £290k based on these purchases, which gives us a more update NAV of £26.91m. The share count not in treasury has subsequently been reduced to 19,474,775. That gives us a current NAV per share of £1.38. Note, that Thalassa have been active buying back stock even as of the day I write this. Further purchases of share below NAV will naturally generate value to shareholders, assuming the NAV can be relied upon.

Free Option

It could actually be better than that again.

As I stated above, when the WGP subsidiary was sold, Thalassa received $20m at the closing of the deal. What is not accounted for in the NAV number, is the extra $10m that the company could receive if certain customer contracts are entered into within the next five years. I don’t know how likely it is that the company can earn the full $10m, or even part of it. This might be something worth following up with management on.

Secondly, the $2m that is due to be received for the 20% stake in ARL does not appear to be counted as a receivable, or in the cash pile either. Between that $2m, and the possible extra $10m that the company could earn, you have a potential boost to NAV of $12m (or £8.6m). If we were to take the £8.6m as a given, potentially the NAV could be as high as high as £1.82. If the company was to recoup only half that amount, the NAV would still be £1.60, which is almost double where the current share price trades today.

There is also another small option in the value of The Local Shopping REIT shares that the company owns. LSR is a company that I have studied recently (but not covered here) which I feel is interesting. It is a REIT that is currently trading at below NAV and is in liquidation. The current share price is £0.316 while NAV is £0.42. From my analysis, and based upon the current rate of disposals and discounts applied, I thought that a £0.36-£0.38 was not an unreasonable range of a return that could be realised from this investment.  That would bump Thalassa’s NAV up by an extra £1m-£1.5m.



  • The ARL deal could be in jeopardy. Also given the nature this is a start-up, it is  entirely possible that this could suffer a catastrophic failure and be worthless.
  • Administrative expenses should be a concern for a company with a relatively small asset base and no revenues. What is the run-rate here now that WGP has been sold?


I like that this company is already at a discount to NAV, but yet the possibility for further growth to NAV. I also like the repurchasing of shares at below NAV. Duncan Soukup knows these assets best, and his track record has been very good, so I would be quite encouraged that he is active in buying back shares. However, I feel there is still a bit of uncertainty here regarding ARL and the run-rate of administrative expenses going forward. For now, I will be holding back on a decision with this company until I can read the most recent annual report, which should be due shortly.

Zamano PLC – February 2018

Zamano PLC – IR:ZMNO
Share Price – €0.04
Market cap – €4.3M

First of all, apologies for the down-time on my site for the last few months. My hosting provider decided to pull the plug awhile back, I have been engaged in damage recovery ever since. Most of the site is back up, but unfortunately images and tables have disappeared. I will endeavour to try and restore the missing pieces of former blog posts, if possible.

Needless to say, not much has happened in my portfolio since. Other than substantially increasing my position in LON:LXB (which has been pinned on my Twitter time line as my top pick for 2018 –, I have not hardly been actively trading the market at all. In the last few weeks however, I have been paying close attention to IR:ZMNO,

Introduction & Conclusion

There really is not much to be said here. Despite its small size, Zamano PLC is a company I have followed fairly closely since it first listed back in 2007. Whatever you can say about Zamano’s former business plan (Google the company, the results are not good), all that is now water under the bridge as the company announced it would dispose of that business, see here. A more recent company update confirms that the company does indeed operate as a cash shell. So, as of the most recent update, the company now operates as a listed cash shell, with trailing twelve month expenses of €130k. This is on the back of a €5.3m cash position that is confirmed as of the most recent regulatory update.

At this point, you’re probably looking at this and thinking, who cares? €5.3m of cash on a €4.3m market cap isn’t anything to write home about. The discount seems more than reasonable, given the risk that are involved here. I would argue, that maybe a sliver of value can be extracted from the small-playing, shrewd-thinking prospective shareholders in the here and now.

If you read the fine print of the most recent update (as of 5.5 months ago), you will find the following.

The Disposal constitutes a disposal resulting in a fundamental change in business of zamano pursuant to Rule 15 of the AIM Rules and the ESM Rules and requires the approval of the Company’s shareholders (“Shareholders”). Contingent on the approval of the Disposal by Shareholders, the Company will become an AIM Rule 15 cash shell pursuant to the AIM Rules and an investing company pursuant to the ESM Rules. Accordingly, the Company will have a period of six and twelve months under the AIM Rules and the ESM Rules, respectively, to complete a reverse takeover before trading in its shares will be automatically suspended by the relevant exchange.

This essentially says that under AIM listing requirements, the company has 6 months to either consummate an investment with their current cash pile, or face de-listing. My thoughts are that if 5.5 months have passed without such an announcement, then it’s likely that the company will have no mandate to go down the unlisted route, therefore, they will have no choice but to return the remaining capital to shareholders. If you peruse the major shareholders list, I think it’s more than clear that institutions control the vast, vast majority of shares – making a return of capital the most likely scenario.

Because of the modest size of my portfolio, I have been able to take a small position in this share. I believe that something close to the aforementioned €5.3M cash balance should be distributed to shareholders in the next few weeks or so.

FTSE Market Valuation – August 2017


It seems the high market valuations we’re seeing at this present time is the du jour thing to be commenting on these days. I am sure many are sick to the teeth of such speculation, if you are one of these people, feel free to stop reading. Honestly, I wouldn’t blame you. 

Valuing the FTSE Today

In terms of valuation, one of the most common metrics that’s used is the overall stock market value (in the case of the UK, the FTSE All-Share) to GDP. The below graph is a little out of date, but the latest figures (end of June 2017) I have is that the current ratio is at 124%. Indeed, the market is up quite a bit from the data snapshot I used, so it’s easily possible that we’re starting to approach highs not seen since the Dot-Com crash. On this basis, the market is very expensive.

The next graph shows the FTSE CAPE ratio’s for various sectors. When you strip out materials and energy, the ratio’s tend to bunch between high teens and low twenties. This would suggest to me that these utilities, industrial, and financial sectors are expensive, but certainly not in a bubble.

The interesting graph that I have split out by itself is the much in vogue consumer staples sector. I don’t have the raw data, but the current CAPE looks like it’s at about 26, I would regard this as very expensive, but I would stop short at calling it a bubble. When looking at companies in this sector, the ratio certainly bears out with what I am seeing when I am looking for value in (i.e. there isn’t much!). Unsurprisingly, I don’t have a single consumer staples business in my portfolio.

One of the things you’ll probably have noticed, is that I haven’t commented on the valuation of the energy/materials sector. This is quite deliberate, as frankly I am appalled at the behaviour of some of the large/mega cap companies that are operating in this sphere. Selling off assets in a bear market and taking on debt while bleeding free cash flow, just to maintain (and even increase) the dividend strikes me as reckless. The oil and metals market may certainly turn at some point, but the question I would have to ask is, what if it doesn’t turn quickly enough? It won’t happen this year, or probably the next. But as long as commodity prices remain low, the risk increases that we see a liquidity crunch develop. If that happens, it would be catastrophic for the Royal Dutch Shell and Rio Tinto’s of this world, as any subsequent dividend cut would collapse share prices as income focused investors stampede out of these shares. Don’t get me wrong, this is not a prediction. However, I do think it’s a risk that has been all too easily dismissed by investors.


The market is dear, going into the detail though, certain sectors are more expensive than others. As I am a horrific market timer, the best strategy for me is to invest little and often; to find companies in neglected/undervalued sectors and look for a reversion to mean.

United Carpets Group – July 2017

United Carpets Group – LON:UCG
Share Price – £0.0945
Market cap – £7.7m


This franchiser of carpet and bed retailing outlets first came into existence back in 1997 when founded by husband and wife team, Paul Eyre and Deborah Grayson. However it wasn’t until 2005 that the company sought a listing on AIM, which according to the IPO document, suggested that the funds raised were to be used in an ambitious expansion campaign. The company then embarked on that growth plan at just about the worst possible moment, going from operating 51 stores in 2005 to a peak of 85 stores in March 2011. Unsurprisingly and in the grip of the 2007 financial crash, the company fell into difficulty. Presumably having lots of new and unproven stores where trading collapsed, combined with leasing arrangements that were signed into during boom times would put the company on a very precarious footing. Indeed trading was so difficult, the company was actually forced into pre-packaged administration for awhile, even being de-listed from AIM for a period of time. Quite remarkably though the company emerged a smaller, more leaner operation, with a lot of the onerous leases and commitments discarded. Since the pre-pack, the company has cut the number of stores further, going from 67 to 57 as of the most recent annual report. Usually a shrinking retail footprint would be of concern to me, but in this case, increased profits and LFL sales suggest management have been quite astute in closing non-performing stores.

With all that said, it’s very hard to get away from the fact that this company only recently well into administration. Usually, this is the sort of thing to pass on a company. In most cases, companies that are forced into administration, do so because they are inherently poor businesses. In this situation, I think there are extenuating circumstances.

  1. Both founders remain at the company from 2005 to this day, with Paul Eyre having never sold a single share, and partner Deborah Grayson’s actually increasing her stake slightly through the years. Indeed, the actions of this management team during the 2011 crisis, where their super-human efforts kept the company in public ownership certainly suggests to me proper alignment of their interests with minority shareholders (who could easily have been shafted).
  2. The fully diluted share count has remained almost entirely static over the entire period the company has traded on the public market. What’s key for me is that no new share capital needed to be issued during the 2011 crisis. Owner operators who believe in the businesses they run are usually loathe to issue shares, and this appears to be the case with United Carpets.
  3. The aftermath of the 2007 financial crash appears to have put paid to the expansion plans. Certainly, the market appears to have taken a dim view of this, but is the lack of growth really such an awful thing? In a difficult retail environment, an owner operator might be content with retrenching and running a smaller, but more profitable operation. It appears to me that management have learned the lesson of their brush with near-death in 2011 and are not eager to repeat the mistake.


Now that I am reasonably comfortable with the business, what do I value it at?

United Carpets Group historical income statement

United Carpets Group historical balance sheet

In terms of a tradition EV/EBITDA ratio, we have the following.

  • Enterprise value: £5.9m (after deducting £820k from the current cash total of £2.6m for the special 1p dividend)
  • EBITDA: £1.75m
  • EV/EBITDA: 3.4x

On a traditional P/E ratio, we have the following

  • Price: 9.45p
  • Earnings: 1.57p
  • P/E: 6x

Looking at the share price, the market perception is that this is a company going nowhere. While income is only up slightly over the past four years (13% cumulative), shareholders equity has gone up 300% in the last six years. It gets better than that. In the last three years, over £2.4m of dividends have been paid out as well (I am including the recently announced, but as of yet unpaid 0.28p final dividend). If future dividend payouts are anything like we’ve seen in the past, then based on the current market cap I have bought at, I should see 1/3rd of my investment returned in dividends alone in three years. While that remains to be seen, it’s clear this company is a huge cash generator and has been unfairly ignored by the market.


This is a tiny company where most of the shares are tightly held by the majority holders. Worse yet, on paper it looks like it’s going nowhere and operates in a sector that’s universally hated in the market. When you scratch beneath the surface on this one, you can’t help but be impressed. Firstly, you need to consider that the company operates in a depressed retail sector, where competition is brutal. If it can generate the returns it does in such a hellish environment, then there is potential for a substantial re-rating of this share in a more favourable consumer environment. I have no idea when that day will come, but until them, I am happy to enjoy my dividend and hefty 17% earnings yield.

I hold shares in the aforementioned share.

LXB Retail Properties – July 2017

LXB Retail Properties – LON:LXB
Share Price – £0.315
Market cap – £53m


This is the second special situation share I have been involved with. For posterity, I would like to direct readers to my first, which ended in me taking a small loss due to not having the stomach to wait out a takeover of a failing electronics company. While I believe the investment thesis for this company is much stronger than my failed Sepura investment, I do want to explicitly mention that I have gotten this sort of thing wrong in the past.

With the pre-amble out of the way, the company in question is LXB Retail, a British property company (mostly UK commercial) that is currently liquidating (voted on by shareholders and well under way); which I believe contains significant upside that may be realised within a very short time frame. Management have already returned the majority of NAV, and we’re now in the final innings with regard to the final distributions. I believe management are trustworthy and will do the right thing (Chairman Phil Wrigley is well-known and an experienced executive) and all actions by the company thus far have indicated as such.


If we can accept that management will do the right thing, naturally readers will be asking, where is the value? Indeed, if you look at the most recent interim, it suggests minimal value over stated NAV (33.7p) will be realised as the current share price trades at just a shave under that at 31.25p.

I believe that stated NAV is an incorrect approximation for what shareholders should realise. If one reads through all the shareholder communications, it’s quite clear that significant value above NAV remains unrealised. In the Chairman’s letters to shareholders, he has consistently and quite explicitly stated this, specifically pointing to the company’s still under development Rushden Lakes project as an example of an asset being carried at less than true value.

Rushden Lakes

The Rushden Lakes project is the major remaining commercial development that is still ongoing for the company. Phase 1 is in the final stages of completion (retail and restaurants) while planning permission for Phases 2 and 3 (cinema, leisure developments and restaurants) has been approved (although currently under review by the Secretary of State, but not expected to be blocked). The company describes this project in further detail on its website. While the company no long owns the development (On May 2016, LXB sold this development to The Crown Estate) they are still responsible for managing the development and letting of the project. Naturally, the £65m sale price agreed for the development isn’t be the final consideration, as each stage attains full planning permission, and a certain amount of the property is pre-let, additional cash payments are triggered. With phases 2 and 3 now almost entirely at the thresholds required to be fully pre-let and unconditionally planning approved, the final cash payments should soon be triggered.

April 2015

The initial and potential future proceeds (net of funding costs and excluding any potential further receipts for the second and third phases at Rushden Lakes) which will result from these transactions are expected to be approximately £150m of which £68.7m will be received by mid-May 2015. The transactions are also anticipated to deliver an additional NAV uplift of approximately £37m over and above the values reflected in the September 2014 balance sheet. This accretion to NAV is expected to be realised in the Group’s results over the next two financial years.

June 2016

I should also comment on ultimate value. It is impossible to provide a forecast of what the end NAV in the portfolio will be as it is dependent on the outcome of a number of incomplete projects, some of which are subject to some material uncertainties which are still to be resolved, and now within a much reduced timescale. Notwithstanding those challenges, we remain confident that the end value for Shareholders will exceed the 64.18p per share referred to above by a comfortable margin. (18p dividend has been paid out since then, also 12.5p lost due to delays and cost overruns)

March 2017

Your Board and the Investment Manager are committed to completing the proposals as quickly as possible. As and when lettings are completed and/or sales made we will review the possibility of returning further cash before any final proposals are put to Shareholders, and we look forward to the confirmation of the planning for Phases 2 and 3 at Rushden Lakes which will have a material impact bearing in mind the current NAV.

June 2017

“In my Chairman’s statement dated 21 November 2016 I said that;
“The amount of ultimate value realisation is heavily dependent on the grant of planning and a legal agreement with The Crown Estate at Rushden Lakes and a successful sale of Stafford Riverside, but your Board remains confident that the final figure will be in excess of the NAV reported today” The NAV at that date was 38.7p per share, as adjusted for a further return of capital. Today’s announcement brings a successful conclusion to the sale of Rushden Lakes Phase 2 a little nearer and whilst the caveats set out in my statement of 21 November 2016 remain, the Board has no reason to believe that in excess of the NAV of 38.7 p per share is an unrealistic aim.”


In the April 2015 note, a total possible NAV uplift for all three phases of the Rushden project was pegged at £37m. £19.5m of that uplift was booked for the closing of Phase 1, which would suggest that a possible £17.5m remains on the closing of Phase 2 and 3, or about 10.4p per share. The 10.4p of remaining uplift combined with 33.7p of current NAV, suggests a final return of 41.1p, which would tie in with the most recent management statement of a return “in excess of 38.7p per share”. Assuming that Phases 2 and 3 of the Rushden project are finally approved at the end of August (management guidelines), at that point the 10.4p can be booked, giving me a return of up to 30%.

Of course, the worst case scenario is that the Secretary of State overrules the planning decision for Phases 2 and 3 of Rushden. In that case, no uplift in NAV is realised, but at since the company already trade at a discount, a possible loss on the downside should be minimal. Another risk is further delays and cost overruns, I hope this is unlikely, given that the additional works that Phases 2 and 3 of Rushden that were required have now been all put in place.

Portfolio Update – 2017 Mid-Year

I have been considering quarterly updates, but given the lack of activity in my portfolio over the last six months (and a lack of time on my part), I have decided to provide a bi-yearly update instead.

2017 mid-end performance: 4.7%

With regard to activity over the past 6 months, I sold nothing, but did use some new money to initiate three new positions. Two of those positions I discussed on the blog (Admiral Group and M Winkworth), and the other was an exercise in bottom-fishing that I haven’t had the time to write up yet (Tasty Plc).

  • Barclays, my largest position, delivered results for 2016 end-year as I would have hoped for, maybe even exceeding my expectations slightly. However, given the rapid turnaround that has taken place, I was still a little disappointed in other respects. In particular, the surprise “exceptional” write-down of the Barclays Africa operation indicated business as usual for bank that has had a string of these “exceptional” write-down’s for the best part of a decade. I still think that Barclays own a collection of high quality businesses, but with most of the restructuring now complete, there should be no excuses in 2017 to not see vastly better results.
  • Admiral Group is a position I initiated at the start of the year and knowing my luck, the share price tumbled a few weeks after I bought it when the government announced measures that would require the company to increase the cost of claims paid out. Thanks to excellent year-end results (notwithstanding government measures) and dividends paid out, my position on this is already in the black. I feel comfortable with my position in this company.
  • M Winkworth is a new position I opened up over the past 6 months. I have to say, this is a company that has given me some concern, despite it generating a 15% return on my cost basis. Up and coming competitors in the estate agent business have been taking significant market share from established bricks and mortar operations like M Winkworth. I do not know how houses will be bought and sold in the future, but if results here continue to slide, then I am minded to just cut this position entirely.
  • Vienna Insurance Group has just been a pleasure to own. I bought this at significantly below tangible book value when it reported problems (critically, not with underwriting). While low interest rates have impaired returns on their investment portfolio, underwriting has remained strong with the business continuing to report a combined ratio well under 100%. This business still has exposure to Eastern European markets which I am wary of, but overall my expectations have been exceeded and the company has given guidance of superior profits to come in 2017.
  • Wells Fargo was a share I was lucky enough to buy at close to a multi-year low after the fallout of the “fake accounts” crisis that it was dealing with at the time. 2016 year-end results were a little weaker than I hoped for, also a gradual decline in ROE and rising costs have given me minor cause for concern. This is a company I will be keeping an eye on in case it displays any further weakness.
  • Tasty is still a very new share in the portfolio, hopefully I will get time to write it up in further detail.

Up to date information on my portfolio can be found here.

An Open Letter to Barclays Management

Dear Mr. Staley, & Mr. McFarlane,

Firstly, I would like to congratulate the bank on the recent results reported for year-end 2016, and Q1 2017. The transformation we’ve seen at Barclays in such a short time-frame from when Mr. Staley took the CEO position in October 2015 has been most satisfactory. While significant challenges remain ahead, we are now on a clear path towards high quality and sustainable earnings. For that I feel that you must be commended for your efforts. However, I am not writing this letter solely to congratulate the team on this, I am writing as an individual shareholder with a specific view on capital allocation going forward.

I noted with particular interest that the Terms of Separation with Barclays Africa had been signed on the 31st of May 2017. I feel that this marks a watershed moment for Mr. Staley and  the current management team. Not only does it signal the de-consolidation of Barclays Africa from the Barclays balance sheet, but it also raises the CET1 capital ratio well in excess of the target set down in 2016. If my understanding of the present situation is correct, then the de-consolidation of the African business now puts Barclays within the 13.2%-13.3% range of CET1 capital ratio, well in excess of the 12.3%-12.8% range specified as required by Mr. Staley in March 2016. I believe the opportunity now exists to shrewdly use this extra capital to generate an outstanding return for shareholders.

“Any management of a bank that is trading below its book value can’t sleep at night,”

Mr. Staley made the above statement on March of 2016, and while it is true that the differential between the share price and book value has closed somewhat since this comment was made, it remains and is still significant. As I write this letter, the Barclays share price stands at £2.11 (June 2nd 2017 close), a discount of just under 28% to tangible book value of £2.92. I certainly recognise management’s priority isn’t with the short-term fluctuations of the share price. However, I do think in certain circumstances, questions must be asked when such a clear discount persists over an extended period of time, as is the case with Barclays. Clearly the market is signalling only one outcome here; namely that Barclays is a mediocre business, and thus deserving of such a discount. If you are to believe as I do that this is not the case, that Barclays will have a future that is more glorious than its recent past, then now is the time to consider how we can maximise our investment today in order to deliver a superior return tomorrow. I feel that with some excess capital now available, a compelling opportunity now presents itself.

When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.

Warren Buffett wrote the above in his 1984 letter to Berkshire Hathaway shareholders and I believe what he wrote couldn’t be more true for Barclays at this moment of time. With our bank now trading at a significant discount to tangible book, a stock repurchase plan now looks incredibly accretive to investors on a per-share basis.

As of the last Q1 2017 report, Barclays reported the following numbers.

  • RWA £361bn
  • CET1 ratio 12.5%
  • Share count 17.03bn

If we were to propose a stock buy-back of 850m shares and acquired them at the current £2.11 stock price, I estimate the numbers end up as below.

  • RWA £340bn
  • CET1 ratio 12.8%
  • Share count 16.2bn

As you can see CET1 ratio stays at the upper-end of management’s guidelines. However, book value and earnings per share increases in an accretive manner to shareholders, thanks to the fact we are purchasing well below book value. As the bank grows into the future, returns should compound as the growing numerator of earnings will be upon a shrunken denominator that is the share count.

Last year you took the brave step in cutting the dividend last year because you knew it was the cheapest way of raising capital and generating long-term shareholder returns. Going forward, as we start to create surplus capital on the balance sheet, I would urge you to consider the benefits of a stock buy-back, particularly while it trades below tangible book value.

Kind regards,