Thursday, August 30, 2018

Yellowbrickroad and Tribeca Natural Resources

Yellow Brick Road (YBR.AX) is an Australian mortgage broker and financial planning company. Mercantile Investment Company (MVT.AX), who took over IPE has made an offer to take over the company at 9 cents per share. However, the company has rejected the offer and the market is trading higher than 9 cents under the assumption that Mercantile will have to increase the offer. The company has net tangible assets of 13.4 cents per share, though much of that is future expected trail commissions. Regulators are clamping down on trail commissions and these might go away in the future, but I doubt that existing deals would be cancelled. The company just announced it made a small loss this year after a small profit last year. So, net tangible assets would seem to be the minimum reasonable price for the business.

I have started to make a small investment in the company. As it is risky to buy above the announced takeover price, this won't be a big position. The CEO and his brother own 19% of the company as does Nine Network. So, these big shareholders would have to get a price they are willing to accept for the takeover to actually proceed. MVT owns about 20% too, so smaller shareholders have 40% of the company.

Commsec announced the IPO of a listed investment company (closed end fund) managed by Tribeca. This will be a listed hedge fund. The managers have an extremely strong track record, though returns have fallen from the very high returns they made in 2015. I suspect that as money under management increased, returns fell. Still, they show the potential to perform very well going forward and I think this LIC should trade above net asset value. So, I plan to participate in the IPO. I also plan to redeem my units in the Colonial First State Janus Henderson Global Resources Fund, which has not performed that well in recent years.

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