Trying to decide whether Hansa is the play here. The double discount looks crazy and the two ITs have such similar fund investments that surely a merger or some kind of restructure is forthcoming.
Hi Craig, If you read my "complicated story of Hansa" article it gives you some insights. The restructure would make sense other than Hansa is a controlled entity (>50%) and OCN isn't (<50%).
This is what Jefferies analyst had to say, for what it's worth...
"Jefferies has made a change to its rating for Ocean Wilsons Holdings Ltd (LON: OCN), downgrading the stock from Buy to Hold and adjusting the price target to £17.25 from the previous £19.00.
The firm's analyst cited a significant narrowing in the company's Net Asset Value (NAV) discount, which has decreased by 31 percentage points to 24% over the last twelve months (LTM), closer to the historical average of 34%. This shift followed the announcement of a strategic review in June 2023.
Ocean Wilsons' NAV discount narrowing is partly attributed to its ownership of Wilson Sons, which accounts for 63% of the company's NAV, with the remainder being cash and liquid investments.
The reassessment of the stock's rating reflects the agreed price for the PORT3 stake, which has prompted the new price target of 1,725 pence. This target represents a 15% discount to NAV, aligning with the average discount observed among UK investment companies."
It's interesting. Assuming zero buy backs (despite 73.55% of shareholders being separate to the Trust and assuming Hansa 26.45% would push for reinvestment to drive fees (which may or may not be the case), assuming worst case scenario on Brazilian Corporation Tax (which isn't certain), zero returns beyond covering costs from the Fund Portfolio (despite years of positive returns), and even assuming zero dividends from Wilson Sons (despite years of dividends) from this point on I still arrive to £17.69. That 44p difference could be arrived at by a decline in the Fund Portfolio. Assuming the 15% discount to NAV (which I think is reasonable) that indicates a 7.5% drop in the Fund portfolio also. A portfolio which has hedging and protection strategies among its holdings.
Or another way to arrive at their 1,725p target assumes 100% reinvestment of proceeds into Funds which won't grow nor shrink, nor Wilson Sons provide dividends, then applying a 16.5% discount gets you to 1,725p
Presuming Jefferies don't explain their price target that the heck of a lot of negative assumptions and changes to current trajectory in my opinion.....
Meanwhile I've used worked mathematics to arrive at a 2,000p target and extrapolated that with a degree of pessimism but also considering the likely wishes of OCN shareholders.
460m £ / 35.4m = 13£. Say they give a £5.2 divi and reinvest the rest as they say in the portfolio. A portfolio which traded historically at 36% discount. 7.8+7 = 14.8 , * .65 = £9.60 ; 9.6 + 5.2 = £14.8, ie today's share price. Upside is if minorities can force a wind up?
2/ A mix of special dividend, buy backs and reinvestment. You appear to have missed the buy back in your supposition.
There are some existing follow on investment commitments of ~£50m, so it could be there is some money set aside for that. But £40m of the £50m is >5 years distant so the number could easily be less.
The 36% discount you quote is actually far lower than the true historic discount. It was 47% in February 2024 and 63% in September 2023 (on a look through basis). Perhaps it was 36% very recently, but the historical average was well above 40% or well above 50% depending on what time period you are considering.
For that reason it's difficult to think the shareholder consultations will lead to 2/3rd of the proceeds being reinvested. Who will ask for this, do you imagine?
It's also the case that Wilson Sons whilst listed in Brazil wasn't a tradeable asset in the same way that all of its other funds/assets are tradeable. To assume the same level of discount for more liquid assets seems an odd assumption to make also.
Assuming buy backs and/or a tender offer is the preferred route, as I believe is likely and assuming £5.20 dividend, £0.30 (or £10m follow on investment), that leaves £8.50 for a tender.
Assuming a 5% discount to NAV a £300m tender result in an elevated NAV of £17.60 so a £22.80 per share return. Less any discount to NAV of course, 36% or otherwise.
Not forgetting a 5%-6% dividend yield plus capital returns too.
Trying to decide whether Hansa is the play here. The double discount looks crazy and the two ITs have such similar fund investments that surely a merger or some kind of restructure is forthcoming.
Hi Craig, If you read my "complicated story of Hansa" article it gives you some insights. The restructure would make sense other than Hansa is a controlled entity (>50%) and OCN isn't (<50%).
This is what Jefferies analyst had to say, for what it's worth...
"Jefferies has made a change to its rating for Ocean Wilsons Holdings Ltd (LON: OCN), downgrading the stock from Buy to Hold and adjusting the price target to £17.25 from the previous £19.00.
The firm's analyst cited a significant narrowing in the company's Net Asset Value (NAV) discount, which has decreased by 31 percentage points to 24% over the last twelve months (LTM), closer to the historical average of 34%. This shift followed the announcement of a strategic review in June 2023.
Ocean Wilsons' NAV discount narrowing is partly attributed to its ownership of Wilson Sons, which accounts for 63% of the company's NAV, with the remainder being cash and liquid investments.
The reassessment of the stock's rating reflects the agreed price for the PORT3 stake, which has prompted the new price target of 1,725 pence. This target represents a 15% discount to NAV, aligning with the average discount observed among UK investment companies."
Hi Mark,
Thank you for sharing that.
It's interesting. Assuming zero buy backs (despite 73.55% of shareholders being separate to the Trust and assuming Hansa 26.45% would push for reinvestment to drive fees (which may or may not be the case), assuming worst case scenario on Brazilian Corporation Tax (which isn't certain), zero returns beyond covering costs from the Fund Portfolio (despite years of positive returns), and even assuming zero dividends from Wilson Sons (despite years of dividends) from this point on I still arrive to £17.69. That 44p difference could be arrived at by a decline in the Fund Portfolio. Assuming the 15% discount to NAV (which I think is reasonable) that indicates a 7.5% drop in the Fund portfolio also. A portfolio which has hedging and protection strategies among its holdings.
Or another way to arrive at their 1,725p target assumes 100% reinvestment of proceeds into Funds which won't grow nor shrink, nor Wilson Sons provide dividends, then applying a 16.5% discount gets you to 1,725p
Presuming Jefferies don't explain their price target that the heck of a lot of negative assumptions and changes to current trajectory in my opinion.....
Meanwhile I've used worked mathematics to arrive at a 2,000p target and extrapolated that with a degree of pessimism but also considering the likely wishes of OCN shareholders.
OB
...I imagine, material exchange rate volatility could hamper potential upside from here to H2/25
Reals are at 8:1 today vs 4:1 in 2017. Last time they fell to BRL8=£1 in 2020 they bounced back to BRL6=£1
I agree FX volatility is a risk but the futures market appears to believe 2H25 to be 8:1 also.
460m £ / 35.4m = 13£. Say they give a £5.2 divi and reinvest the rest as they say in the portfolio. A portfolio which traded historically at 36% discount. 7.8+7 = 14.8 , * .65 = £9.60 ; 9.6 + 5.2 = £14.8, ie today's share price. Upside is if minorities can force a wind up?
Sam,
The RNS speaks to two key next steps:
1/ Consultation with shareholders
2/ A mix of special dividend, buy backs and reinvestment. You appear to have missed the buy back in your supposition.
There are some existing follow on investment commitments of ~£50m, so it could be there is some money set aside for that. But £40m of the £50m is >5 years distant so the number could easily be less.
The 36% discount you quote is actually far lower than the true historic discount. It was 47% in February 2024 and 63% in September 2023 (on a look through basis). Perhaps it was 36% very recently, but the historical average was well above 40% or well above 50% depending on what time period you are considering.
For that reason it's difficult to think the shareholder consultations will lead to 2/3rd of the proceeds being reinvested. Who will ask for this, do you imagine?
It's also the case that Wilson Sons whilst listed in Brazil wasn't a tradeable asset in the same way that all of its other funds/assets are tradeable. To assume the same level of discount for more liquid assets seems an odd assumption to make also.
Assuming buy backs and/or a tender offer is the preferred route, as I believe is likely and assuming £5.20 dividend, £0.30 (or £10m follow on investment), that leaves £8.50 for a tender.
Assuming a 5% discount to NAV a £300m tender result in an elevated NAV of £17.60 so a £22.80 per share return. Less any discount to NAV of course, 36% or otherwise.
Not forgetting a 5%-6% dividend yield plus capital returns too.
So, no, I don't agree £14.8 is a fair price.
OB