A quick update on Retail Holdings (which I previously discussed back in January), despite general weakness in emerging markets and their underperformance this year, Retail Holding announced last week they are "considering" a potential IPO of Singer Asia (their primary asset) on Singapore's stock exchange.
The IPO is probably in its early stages, but it continues to highlight management's intent to close the valuation gap between Retail's NAV and the market price, which has only barely moved since the announcement. Below is my updated valuation spreadsheet. I added Singer Industries and Regnis as I mistakenly left them off before, Singer Finance is part of Singer Sri Lanka as far as I can gather from the annual report, either way they're small rounding errors.
The investment thesis on Retail is pretty straightforward. Retail Holdings trades for a steep discount to its NAV and yet their stated strategy "is to maximize and monetize the value of its assets, with the medium-term objective of liquidating the Company and distributing the resulting funds and any remaining assets to its shareholders." Unlike other liquidations, Retail's assets are very much operating businesses that should grow and increase in value over time (playing off the long term trend of the growth of the middle class in emerging markets). Stephen Goodman, Chairman and CEO, owns roughly 25% of the shares and is in his late 60s, making him highly motivated to monetize Retail Holdings assets. I continue to hold and look for opportunities to pick up more shares, not easy given the illiquidity.
Disclosure: I own shares of RHDGF
Good update. What are your thoughts on taxes due when IPO'd? Do you think Singer Asia would be the entity that is taxed, which is located in the Cayman Islands? Or do you think the individual subsidiaries would be taxed in their respective countries and at that tax?ReplyDelete
I would think the Cayman Islands? But good question, I'll look into it a little more.ReplyDelete
I've looked into it a bit, and haven't found an answer.ReplyDelete
Clint - I can't find anything either, but I would assume (hope?) that this IPO would be structured in the most tax efficient manner.Delete
Interesting play. I noticed you do not put a premium on the value of the operating companies. If we were to assume a 30-35% premium on 2013-2014 performance the value realized by shareholders in a future IPO would be much greater than what you show above.ReplyDelete
Could you explain why there would be a premium?Delete
I'm on board with emerging markets generally being out of favor right now and I like the long term trend of investing in consumer staples companies in emerging markets. So they very well may rise in value, but I think that's secondary. And truthfully, I haven't spent much time analyzing the underlying operating companies, given the "medium-term" goal of liquidating, I'm willing to accept the market values as a close enough approximation of their intrinsic value.
I am a long term holder of the stock. Started buying many years ago and have had the opportunity to travel to the markets where they operate so I know the company well. Your values do not take into account 2nd half of 2013 or even 1st q of 2014 when the IPO might be an event. I was pointing to the appreciation this stock will have moving forward. The strategy to become not only a retailer of household goods but also a finance company will accelerate growth.ReplyDelete
I'm a loose believer in the efficient market, so I would think some of that future growth is priced into the shares of the operating companies. But as a shareholder, I hope you're right. Thanks for reading and commenting.Delete
Bloomberg is reporting a $200 million deal to take place as early as September:ReplyDelete
Wondering if anyone can estimate what the price of RHDGF will be if Singer Asia does raise $200 million?ReplyDelete
I have been following this stock for a while and feel it is very undervalued. Presently there is a headwind due to weakness in local currency vs the US $. However, this is an emerging market consumer durable play in a geographic area that has very few high quality stock. Singer is a familiar brand with +90% unaided awareness and is a trusted brand with over 100 years of operating locally. In addition the growing middle class where the company operates in surging. The concentrated ownership of the stock in few hands and the confirmed objective of monetizing Singer and returning funds to the shareholders in the short term points to a favorable outcome for shareholders. In terms of valuation, this company is growing its bottom line in double digits for the last few quarters. In addition I do not see Singer Finance in your list above which is a freely traded subsidiary. Note: this company has been operating in this part of the world for +100 years and they own a fair amount of RE. Not sure if the books reflect current market value.ReplyDelete
I agree with your overall sentiment and believe this is an undervalued company with a hard (but unfortunately) moving target of IPOing Sewko Holdings. As for Singer Finance, I believe that is a subsidiary of Singer PLC (Sri Lanka) so it's valuation should be included already. Below is the link to my most recent comments on Retail Holdings and it includes a picture of the corporate structure from the Sewko Prospectus.Delete
Thank you for reading and commenting.
Thoughts or comments regarding Singer's 2013 Financials will be appreciated. Looks like they had a tough year in Sri Lanka and it could hurt valuation. Not sure why they kept investing in new stores at a time when the economies of the countries where they operate where experiencing very negative growth rates.ReplyDelete
Hi - Yes, it does look like it was a tough year, quite a bit of turmoil in the markets where they operate (especially in Bangladesh, I didn't know about the strikes). I also have some questions swirling around in my head regarding their finance arm and how smart that really is in these markets, but no fully completed thoughts.Delete
I'm still holding my position, but I'm also a little bit skeptical that management can sell Sewko for the full value of the underlying operating companies this year, let alone the control premium they seem to be seeking. But I still like the strategy, underlying assets, and management alignment, just not quite as optimistic as I original was when I entered my position.
I agree. Some of us have been waiting for some time for management to extract value and it seems every year there is another reason why it can not be done. Granted the markets where they operate are the most emerging from the category of emerging markets. I doubt one entity is going to buy all the separate operations. I am more incline to believe that issuing shares in each company to shareholders might be the most sensible option. Monetizing the Singer notes at a 15-20% discount will also work. The underlying businesses all have very good growth potential on their own. Would like to see the company getting it done by 2015.ReplyDelete
Good to see the Thai business sold as this was the most retail competitive market where they operate but feel the 14 Bhat per share was low. They need to monetize the business by selling the individual companies locally or floating them. No one is going to buy the whole business, there is no synergy.ReplyDelete
Thanks for comment, I did a portfolio purge earlier this year of a few lower conviction ideas that include Retail Holdings, no longer hold it. But I agree with you, seems like the IPO of Singer Asia/Sewko is off the table, institutions had a peak at it and passed, if they can't get a deal done in this environment it's time for a new strategy.Delete