CV Capital – 15 March 18 update

To my fellow shareholders,

For the first half of March, I managed to buy more shares in a stock which we’ve already owned. The main reason I added to our position is that I believe we have a good opportunity to reduce the cost base of our holding.

Let me explain. We own shares in a company called Watpac (construction company). These shares were from my personal holdings which I transferred into CV Capital. Recently, the largest shareholder of Watpac (Besix) made an offer to acquire 50% of the shares that it did not own. The offer price represents a 36% premium to the average traded share price over the last 12 months. This transaction will need to be approved by a special resolution.

In such transactions, typically the other key shareholders would have already been sounded out prior to the announcement. So I’m quietly confident the transaction will go through. Even if it falls through, the current offer is low enough for Besix to either come back with a better offer or takeover 100% of the company at some stage in the future.

The cost base of our shares was 66.5 cents prior to the acquisition announcement. After the announcement, I bought more shares which increased our cost base to 69.5 cents. If the acquisition goes through then we’ll make a profit of 23 cents on half of our total holding which Besix will acquire. This will reduce the cost base of our remaining shares to 47 cents, a 29% reduction from our original purchase price. Watpac has cash (which I define as cash + receivables – payables – debt) of 40 cents and net tangible assets of 83 cents, making it a very attractive investment at a cost base of 47 cents.

Of course, if I didn’t add to our position our cost base would be even lower. However, after the sale to Besix we would be left with a very small holding in our portfolio and I like Watpac as it is a cheap way to get exposure to the upcoming infrastructure boom.

I’ll report on CV Capital’s performance at the end of the month.