Argo Group Interims – A Preview

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% of AUM, Andreas Rialas, ARGO, Argo Group, Argo Real Estate Opportunities Fund, AUM, Cyprus bail-out, intrinsic value, Investor Relations, shareholder activism, shareholder value, The Argo Fund

I expect Argo Group (ARGO:LN) will be releasing interim results in the next week or so. I’ve no desire to be a hostage to fortune, but I think we can make some intelligent assumptions about their results – and there’s an important issue I want to highlight:

Let’s begin with Assets Under Management (AUM). First, I obviously have no idea re subscriptions/redemptions! But rightly or wrongly, my impression is that changes in Argo’s AUM have been driven primarily by performance, at least in the past couple of years. [NB: See here – at our meeting earlier this year, Andreas Rialas committed to better disclosure re changes in AUM – breaking out gross subscriptions, performance & gross redemptions is standard practice for the majority of Argo’s listed peers].

I also have no insight into the performance of the Argo Special Situations Fund (SSF) – let’s assume AUM remains unchanged. We then have the Argo Real Estate Opportunities Fund (AREO:LN) – which last reported an adjusted NAV of EUR 68.5 mio. For Argo’s other funds, I’ve come across conflicting reports of YTD returns – I prefer to be conservative, so I’m fairly confident we’ll see the following returns (as of end-June 2013), at a minimum:

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UK Asset Managers & Argo Group

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% of AUM, Andreas Rialas, ARGO, Argo Group, asset managers, Charlemagne Capital, Dolphin Capital Investors, Ex-Cash Ratios, F&C Asset Management, Impax Asset Management Group, Investor Relations, Kyriakos Rialas, Miton Group, NAV discount, The Argo Fund, Third Point, UK

In April, I took a closer look at the universe of UK-listed asset managers. A key piece of research was a (relatively) simple analysis which focused on financial stability & market valuation – this study also offered a useful peer comparison with Argo Group Ltd. (ARGO:LN) (& see this recent post).

Frankly, the numbers (plus the rest of this post) speak for themselves, but let’s have a taste of the main highlights:

Name	Ticker		Net Cash/Inv as % of Mkt Cap
F&C Asset Management	FCAM		(23)%
Liontrust Asset Management	LIO		3.9%
Henderson Group	HGG		6.2%
Aberdeen Asset Management	ADN		7.9%
Jupiter Fund Management	JUP		8.4%
Polar Capital Holdings	POLR		16%
Ashmore Group	ASHM		18%
Miton Group	MGR		26%
Schroders	SDR		34%
Man Group	EMG		55%
Impax Asset Management Group	IPX		59%
Charlemagne Capital	CCAP		64%
Median			17%
Argo Group	ARGO		175%

It’s encouraging to see the entire sector now enjoys robust financial health. Only F&C Asset Management (FCAM:LN) is in a net debt position – all other companies sport net cash & investments on their balance sheets. But it’s also clear this healthy financial position is not the key driver of market valuations – for Argo’s peer group, net cash/investments only represents a median 17% of market cap. On the other hand, Argo’s $23.6 mio of net cash/investments amounts to a whopping 175% of its market cap.

EIIB – Closing The Value Gap

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% of AUM, AUM, EIIB, European Islamic Investment Bank, frontier markets, GCC countries, Investor Relations, Islamic finance, MENA, NAV discount, Norges, Rasmala Holdings, share buyback, Sharia'a, Zak Hydari

In mid-April, I realized it was a full year since I’d last posted about European Islamic Investment Bank (EIIB:LN). No real neglect on my part (EIIB is now a Top 3 holding for me), but simply an undimmed confidence in their underlying story & intrinsic value. A fresh write-up made sense (esp. with 2012 final results due for release), as I suspected EIIB would be a brand new & interesting stock for a lot of (more recent) readers. [The stock actually rallied +15% in the week after my post].

The results speak for themselves, and received an enthusiastic reception from current & prospective shareholders. [EIIB shares are now up +27% since my last post]. These are the first set of results to properly illustrate EIIB’s new asset management strategy, its operational turn-around & progress to date, and the exciting potential of the MENA region. Again, see my prior post, but I definitely encourage you to read the full set of results – or even better, the entire annual report! Let’s divide the rest of this post into four sections:

Highlights:

– Assets under Management (AUM) increased +53% to $922 million, including a mandate win from Norway’s sovereign wealth fund

– EIIB & Rasmala staff/operating expense costs were basically halved – ahead of forecast, with some further efficiencies targeted for 2013

– Underlying business operating near-breakeven (GBP 0.6 mio pre-tax loss, exc. write-downs & discontinued ops.)

– A reduced GBP 13.3 mio in legacy assets targeted for an orderly exit

– Balance sheet risk continues to reduce, with 75%+ of assets invested in cash, deposits & fixed income, and liabilities limited to 25% of total assets

– Wholesale strategy confirmed, with new distribution agreements signed & existing relationships deepened. Re-iterated $3 billion AUM target by 2016

Also, this commitment from the CEO particularly grabbed my attention:

Argo – Escape from an Evil State!

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% of AUM, activist investors, alternative assets, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, Colony Financial, distressed assets, emerging markets, European sovereign debt crisis, Fortress Investment Group, intrinsic value, Investor Relations, Kyriakos Rialas, Livermore Investments, Mello Central, Price/Cash, Rialas brothers, share buyback, special situations, sub-advisory, The Argo Fund, Universe Group

OK, sorry to disappoint… This definitely isn’t a review of Ben Affleck’s new movie ‘Argo’! [I haven’t seen it yet, but it’s on my list – the reviews are uniformly good, and Affleck displayed a sure hand with ‘The Town’.]

No, this post is about Argo Group Ltd. (ARGO:LN), whose share price is also trapped in a rather evil state… Specifically, the price has steadily declined 35% in recent months to GBP 10.125p – when the company is profitable & has net cash/investments on hand of GBP 20.9p per share! Operational execution & performance ultimately offer the best escape route for Argo. [I’m delighted to see Argo has now launched a new liquid emerging market debt fund. This offers attractive exposure, I’m sure it will clock up a good performance, but real success will come down to the level of fund-raising that’s achieved.] But there a number of additional actions & strategies that may offer considerable assistance in making this escape. Here’s a copy of a recent letter I sent to Kyriakos Rialas, CEO of Argo:

‘November 07, 2012

FAO:    Kyriakos Rialas, CEO

Cc:       Andreas Rialas, CIO

Cc:       Michael Kloter, Chairman

Argo Group Limited

33-37 Athol Street

Douglas

Isle of Man

IM1 1LB