Last Thursday I spoke to Simon Tucker, Chief Executive of Software Radio Technology (LON:SRT). Simon had just finished speaking to his shareholders online and he had a point to make: “I cannot understand why you would not want to speak to your shareholders directly”, he told me. “You should tell them exactly what is going on.”
He is dead right. With this new era of online communication, there is no reason why a company should not speak directly to its shareholders. It’s about showing them respect. The regular Software Radio webcast is a great opportunity for Simon to engage his shareholders. And I wish more companies had the same attitude.
Recently I have spotted two more instances where companies have shown this kind of respect to their shareholders. And it’s an example of exactly the kind of behaviour that you should be looking for when you invest…
“Forget our bonuses, just take the money”
The first of these came from DouglasBay Capital (LON:DBAY). In 2008, in the teeth of the post-Lehman financial storm DouglasBay Capital bought the well established logistics group Transport Development (TDG), arguing that through better management it could improve its returns.
- Great news for antimony producers as China stockpiles the metal
- In the annual results statement, Tri-Star Resources (TSTR) says that “there has been considerable speculation that China has commenced a programme of strategic stockpile accumulation (of antimony)”.
- The price of antimony, of which the vast majority of production comes from China, has risen from $9,250 per tonne to $16,600 per tonne since July.
- Tri-Star holds mining licenses for antimony in the Gediz district of Turkey.
Whether by better management, or thanks to an upswing in the economic cycle, DouglasBay was able to sell TDG on to the French giant Norbert Dentressangle at the turn of the year, netting a 60% return on its equity investment. This is impressive stuff, but what really caught my eye was what happened next.
After the deal had been approved by the EU, Dentressangle paid about £200m into DouglasBay’s bank account. At this stage most company bosses, after a celebratory dinner and some generous bonuses, would think of ways of spending the cash. A grand strategy would be stitched together, shareholders would be assured that the pursuit of ‘shareholder value’ would be uppermost, the money would be spent on the acquisition of a new business, and shareholders would have to take the whole thing on trust.
DouglasBay Capital has had a better idea. It has handed most of the £200m back to shareholders, giving them the profit of the TDG deal, and has gone back to square one. It will now look to repeat the TDG trick, but when it finds a suitable target it will not automatically have the cash to proceed. Instead it will have to ask its shareholders if they are willing to put up their cash again and back a new deal.
Admittedly DouglasBay Capital is an unusual case in that 97% of the shares are controlled by the activist investor Laxey Partners. But the principle of distributing cash to shareholders rather than hoarding it is a good one. A slightly different story is Gresham House (GHI) – a company I have a small share holding in myself…
The turkeys that voted for Christmas
In a statement slipped out just before Easter, Gresham said that “after careful deliberation, your Board will be recommending….the orderly realisation of the Group’s assets over a period of approximately two years with a view to returning capital to shareholders thereafter”.
Turkeys don’t vote for Christmas and company directors do not typically vote for their own P45s. But that is what is happening here.
Gresham House invests in property and ‘early stage’ businesses. Its record is pretty shocking. At the end of 2000 the net asset value per share was 527.8p. Ten years later this had fallen to 476.9p.
Now the Board of Gresham House has finally thrown in the towel, citing a wish to close the large discount of the share price to the net asset value of the company, and the outlook for commercial property. “The present downturn in the commercial property market, coupled with the restricted availability of bank funding, will create a very flat market over the next few years”, according to Chairman Tony Ebel.
Shareholders in Gresham House can, in theory, look forward to a cash distribution of at least 476.9p sometime in 2013, but first Gresham must liquidate its portfolio. The essential numbers are that it owns property valued at £28.6m, and a securities portfolio valued at £12.4m, a major part of which is the Kemnal Manor cemetery outside Bromley. As other London cemeteries run out of space this could handle hundreds of lucrative burials a year, and Gresham expects an uplift in its value when the first phase opens at the end of this year.
After net bank debt of £14.9m and a number of other minor items Gresham’s net assets total £25.4m and the task of its managers over the next two years will be to realise this amount or more so that it can be paid back to long suffering shareholders.
Too many companies are allowed to stagger on with little hope of progress. Perhaps a few places in the Kemnal Manor cemetery could be set aside for other public companies with little left to offer.
• This article was first published in Tom Bulford’s twice-weekly small-cap investment email
The Penny Sleuth.