Argo Group…Time for a Sale and/or a Wind-Down?

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Andreas Rialas, ARGO, Argo Group, Church House Investment Management, David Fisher, Guy Thomas, Jeroen Bos, Kenneth Watterson, Kyriakos Rialas, Michael Kloter, shareholder activism, shareholder value, tender offer

Here’s a copy of a recent letter to Andreas Rialas of Argo Group (ARGO:LN) – the letter speaks for itself…

‘August 29, 2014

FAO: Andreas Rialas, CIO

Cc: Michael Kloter, Chairman
      Kyriakos Rialas, CEO
      David Fisher, Director
      Kenneth Watterson, Director

Argo Group Limited
33-37 Athol Street
Douglas
Isle of Man
IM1 1LB

Dear Andreas,

Further to our prior conversations, I would like to confirm I now speak for 15.6% (in aggregate) of Argo Group’s outstanding shares. Excluding insiders, this represents 25.0% of Argo’s external shareholder base. Supporters now include well-respected funds and investors such as Church House Investment Management, XXX Capital Management, Guy Thomas, and over two dozen other Argo shareholders.

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European Islamic Investment Bank – Tender Offer/AGM Reminder

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asset management, EIIB, European Islamic Investment Bank, share buy back, shareholder activism, shareholder value, tender offer, Zak Hydari

I hope readers were just as pleased (as I was) to note the recent tender offer announcement by European Islamic Investment Bank (EIIB:LN). Even if you’re not an EIIB shareholder, it’s an excellent reminder activism isn’t simply a bloodsport practiced by US hedge funds. All investors, large & small, have rights & responsibilities as the owners of the companies they invest in – and sometimes they need to insist their voice is heard by management…

I proposed such a tender offer to EIIB management in my Jan-2014 letter (with the support of Guy Thomas, Ali Al Shihabi & a number of other shareholders). Of course, this letter was a follow-up to my previous 2013 letter. Some might argue I’ve been far too sedate/polite in my activism – that’s understandable – I could definitely have taken a far more aggressive activist stance, but in this instance my approach reflected my underlying (positive) perspective on the business. As I’ve detailed before, I believe EIIB offers investors a compelling triple play on frontier markets, Islamic finance, and Middle Eastern oil wealth & resources. Unfortunately, in its previous incarnation, that potential was wasted…

However, the arrival of HBG & the appointment of Zak Hydari as CEO stabilized the business, led to the acquisition of Rasmala & re-focused operating strategy on becoming a leading GCC asset manager. Which has, to date, been a great success – not that you’d notice from the share price – Assets under Management (AUM) have doubled in just 2 years (to USD 1,176 million at year-end 2013, from USD 600 million in Jan-2012). This is clearly a high margin business, with attractive economies of scale, but that’s not yet apparent due to the restructuring of Rasmala/EIIB & the rapid expansion in AUM. Unfortunately, as things stand, it’s unlikely this operating progress/potential can deliver a decent return on equity for shareholders in the foreseeable future – because any likely return will end up swamped in a sea of equity! [EIIB currently has GBP 123 million of equity, mostly in cash & liquid securities].

A Letter to the CEO (& Board) of European Islamic Investment Bank

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Ali Al Shihabi, AUM, EIIB, European Islamic Investment Bank, Guy Thomas, HBG Holdings, HBG Management Partners, Rasmala Holdings Limited, shareholder activism, tender offer, Zak Hydari, Zulfi Caar Hydari

Here’s a copy of a letter I’ve forwarded to EIIB’s CEO & board:

‘January 26, 2014

FAO:       Zulfi Caar Hydari, CEO

CC:         H.E. Abdallah Yahya Al-Mouallimi, Chairman

                 Mohammed Abdul Aziz Ibrahim Al Sarhan, Sr. Ind. Director

                 John Robertson Wright, Non-Exec. Director

                 Michael Willingham-Toxvaerd, Non-Exec. Director

                 Martin Gilbert Barrow, CBE, Non-Exec. Director

European Islamic Investment Bank plc (EIIB:LN)

Milton Gate

60 Chiswell Street

London EC1Y 4SA

United Kingdom

Dear Zak,

I’m writing this letter with the full support & active input of Guy Thomas (CIO, Hazell Carr Edwards FURB) and Ali Al Shihabi (founder & former Chairman of Rasmala Holdings Limited (‘Rasmala’)). You’ve obviously spoken & emailed with each of us, jointly or separately, on numerous occasions. We currently own an aggregate stake of between 4% and 5% in EIIB. In the last annual report, you stated ‘in 2013 we will begin to focus attention on translating our success into improved share price performance’. We’re disappointed by the subsequent lack of progress, and disturbed by a number of recent developments. To summarize:

Argo Group – Awaiting Results

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% of AUM, alternative assets, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, asset managers, distressed assets, distressed investing, emerging markets, European sovereign debt crisis, Expected Value, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group’s (ARGO:LN) Final Results should be released shortly (I’ll try confirm the exact date). In my most recent Argo posts, I published two letters I’ve sent to Kyriakos & Andreas Rialas (CEO & CIO, respectively). I encourage you to review both letters before continuing:

Here’s the first letter (from Nov-2012)

Argo’s share price rallied +6.2% in the following week.

And the second letter (from Dec-2012)

This was sent on behalf of myself, Guy Thomas & some other (smaller) shareholders, representing an aggregate 5% shareholding in Argo. The letter focused on a single specific shareholder distribution proposal. ARGO subsequently rallied +6.5% (in the following week). [In fact, the share price is now up an impressive +36% since my November letter. Despite the rally, I believe Argo remains just as compelling an investment proposition – I currently have a 5.4% portfolio stake].

My recommendations & proposal require little (further) explanation, and I expect shareholders will enthusiastically support all efforts to realize & enhance Argo’s intrinsic value. But I will revisit them in the context of an upcoming results preview – plenty of current & prospective shareholders have emailed me about Argo, so I hope you’ll find this useful. Let’s first consider Argo’s existing funds:

Argo Group – A Shareholder Proposal

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% of AUM, Andreas Rialas, ARGO, Argo Group, asset managers, catalyst, distressed assets, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group Ltd. (ARGO:LN) has been a consistent Top 7 holding for me since launching the blog last year. It currently represents 4.9% of my portfolio.

It was among the first handful of stocks I wrote up late last year (here & here). I also included it in my Baker’s Dozen for 2012. I followed up with another detailed write-up in May-12. [btw An asset manager series later that month may add useful context: Parts I, II, III, culminating in a Fortress Investment Group (FIG:US) write-up]. I then briefly revisited Argo in Oct-12 as part of my catalyst series.

I was pleased to note recently my Argo write-ups have actually proved the most popular with readers. Which certainly isn’t reflected in the performance of the share price: ARGO is actually down 20% YTD! Considering the UK market’s progress this year, and based on reader/investor feedback, it’s reasonable to suggest some/all of this price decline might have been avoided…

This compelled me to write to Argo’s management a month ago with a number of recommendations to enhance shareholder value, improve investor relations & disclosure, and to increase Assets under Management. I’m pleased to see the letter would appear to have reminded new/existing investors of Argo’s far higher intrinsic value, and its potential – the share price has subsequently rallied +15%. It also garnered some v useful shareholder feedback & support, which prompted me to send this follow-up letter to Argo last week:

Chasing Some Dividend Tail (III)..?

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Autozone, Bernie Madoff, Big Ang, Character Group, dividend coverage, dividend yield, enhanced EPS/NAV, gold, income/dividend bubble, investment companies, JAKKS Pacific, Liquidations, Livermore Investments, M&A, share buyback, tender offer, trading sardines, wind-down

Continued from here. OK, so dividends kinda suck…but what’s the alternative? Well, let’s tackle that from the corporate perspective first:

– Obviously, share buybacks (and/or tenders & capital returns) are generally a far more tax-efficient means of distribution to shareholders. They enhance earnings, or significantly increase NAV/book value. [Just look at the amazing run on Autozone (AZO:US) – yes, they’ve had great execution, but much of its performance is down to aggressive/sustained stock buybacks]. It also permits management to be far smarter & more opportunistic in their distributions, and their response to share price volatility.

– Just as important, it frees management of the potentially absurd strait-jacket of maintaining an inappropriate dividend – which, in extremis, leads to management idiotically borrowing just to fund a (tax-inefficient) dividend. On occasion, this is exactly the point where management tips over from ‘gently deceiving‘ shareholders into downright criminal/accounting fraud…

EIIB – So, You Want to Run a Marathon..?!

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Damille, DiamondCorp, discount control mechanism, doughnut boy, EIIB, HBG Holdings, Laxey, marathon, NAV discount, Qannas Investments, quid pro quo, QVT, Rasmala, share buyback, sukuk, tender offer, Total Expense Ratio, track & field, Weiss

C’mon, you’re kidding..? No, seriously, you’re taking the mickey?! In March, the European Islamic Investment Bank (EIIB:LN) (which I last wrote about here) share price looked ready to challenge the GBP 3.9-4.25p resistance zone. This has capped EIIB for almost 3 years now. But here we are, 1 month later, and the price hit GBP 2.8p just in time for Easter – off 24%! No change in volume, or holdings…what’s going on?! And it’s not clear the board have noticed… But I’m sure they’re well aware of EIIB’s intrinsic value, and are focused on the marathon task of their new operating strategy…

All very well but, as any health professional will tell you, before embarking on (and to be successful in) a marathon, you should first do a health check and then scale up with plenty of walking, exercise, jogging, running and even some fartlek. So health check first, then track & field, and then marathon..! But the current share price (and NAV discount) certainly don’t present a healthy diagnosis of the budding athlete…