RHDGF - Retail Holdings

[writser]

When I ignore the notes I get a slightly higher number. Sewko holds $5.9m in cash and has some very small private subs (see page 5 of the AR). I believe you excluded both from your estimate.

[writser]

NAV is currently around the $36 level according to my calculations. RHDGF price is lagging. With the discount at 45% I bought a couple of extra shares.

[writser]

Retail Holdings sold their stake in Singer Thailand on the open market (link) and they received $4.44 per share in cash.

 

Commenting on the sale, Stephen H. Goodman, the Company's Chairman, President and CEO, noted, "I am pleased that the Company was able to sell its entire 40% stake in Singer Thailand to Thai investors on terms that are attractive to Retail Holdings' shareholders.  While fully consistent with the Company's strategy to ultimately monetize the value of its assets, there is no immediate disposition plan for all of the Company's remaining assets.  The sale reflects the unique circumstances of Singer Thailand: the Company only had a 40% stake compared to the very much larger, majority stakes in the Company's other operations, and Singer Thailand employs a very different, direct selling business model, as compared to the retail and wholesale business models employed elsewhere.

 

"No decision has yet been made as to the use of proceeds, which may include a distribution to shareholders (in addition to the $1.00 per Share previously suggested), share repurchases, and/or purchases of portions or all of some of the minority stakes in the Company's continuing subsidiaries."

 

I like it. Management shows they are opportunistic and not desperately following the 'IPO everything' path. Hopefully they decide to return capital (either through distributions or buybacks) as I don't really see the point of buying out the minority stakes in their listed subsidiaries (unless they can do so at firesale prices). Maybe somebody else can enlighten me on why that would be a preferable scenario.

[abitofvalue]

Retail Holdings sold their stake in Singer Thailand on the open market (link) and they received $4.44 per share in cash.

 

Commenting on the sale, Stephen H. Goodman, the Company's Chairman, President and CEO, noted, "I am pleased that the Company was able to sell its entire 40% stake in Singer Thailand to Thai investors on terms that are attractive to Retail Holdings' shareholders.  While fully consistent with the Company's strategy to ultimately monetize the value of its assets, there is no immediate disposition plan for all of the Company's remaining assets.  The sale reflects the unique circumstances of Singer Thailand: the Company only had a 40% stake compared to the very much larger, majority stakes in the Company's other operations, and Singer Thailand employs a very different, direct selling business model, as compared to the retail and wholesale business models employed elsewhere.

 

"No decision has yet been made as to the use of proceeds, which may include a distribution to shareholders (in addition to the $1.00 per Share previously suggested), share repurchases, and/or purchases of portions or all of some of the minority stakes in the Company's continuing subsidiaries."

 

I like it. Management shows they are opportunistic and not desperately following the 'IPO everything' path. Hopefully they decide to return capital (either through distributions or buybacks) as I don't really see the point of buying out the minority stakes in their listed subsidiaries (unless they can do so at firesale prices). Maybe somebody else can enlighten me on why that would be a preferable scenario.

 

Agreed.  Not sure why you would want to increase your stake in subsidiaries that you are looking ot sell anyway.  Buyback is interesting but again think a distribution is probably the best move for shareholders here.

[Hielko]

Buying a 100% stake would presumably be more attractive for many parties, and they might not want to deal with the requirements of running a public company.

[writser]

A small update on this name.

 

Late in december Retail Holdings announced that it intended to make a large distribution to shareholders (link). I managed to pick up a few additional shares in januari below $16. A couple of days ago the company announced a $5 / share return of capital. Shares surprisingly spiked on this news, even though the company stated its intentions a month ago. The market in this name is not always very efficient.

 

Today the company announced that it liquidated its Singer Pakistan stake (link). At a loss, but it was a negligible part of  the company anyway and it wasn't making money. Glad they got rid of it.

 

You can buy RHDGF now for $18, get $5 back in a few months so effectively you are paying $13. For that you get ~$25 in assets. The company has a history of returning capital to shareholders, is the controlling shareholder of its subsidiaries and has made good progress the past few months with regards to liquidating the company. I like what is happening here; this is now my largest position.

 

For a more detailed writeup see this article written by a fellow forum member: link.

[writser]

Another small update. A couple of days ago Retail Holdings released their annual report. They've done quite a bit the past 12 months:

 

- sold their stake in Singer Thailand.

- sold a 2.2% stake of Singer Bangladesh.

- sold all their small Sri Lanka subs.

- sold Singer Pakistan.

- sold a 6.4% stake in Singer Sri Lanka.

- wrote off their SVP notes (not all news was good).

 

Revenue at the remaining subs increased 15% year-on-year (20% at constant exchange rates). Excluding the SVP write-off, earnings before taxes were up 20%. Sewko now has ~$73m in cash which means that even after the $5 per share distribution next month they have over $2 per share left to distribute. They already announced they want to do another distribution in 2016.

 

So for $19.70 per share you buy

 

- $7.40 in cash, of which $6 will probably be distributed this year.

- $21 in controlling stakes in growing, reasonably priced emerging market companies.

- a free option at recovering up to $5 from the SVP notes.

 

Total package value: ~$30. The company has a history of paying out a juicy dividend, is debt-free at the holding level and has shown during the past few months that they are serious about liquidating.  Stock is now up ~22% for the year and 10% since my last post. I sold a little bit but it still looks atttractive and is one of my largest positions.

[writser]

Chris DeMuth wrote this up as 'top pick of 2017': http://seekingalpha.com/article/4033347-can-profit-massive-discount-top-pick-2017 . Good read. I trimmed my position a little bit in the subsequent 25% uptick but it remains attractive and is one of my larger positions.

[brendanb22]

http://finance.yahoo.com/news/retail-holdings-n-v-issues-213000753.html

 

strategy update

[Hielko]

I think the strategy update didn't contain any news, but good to see that the 2 to 4 year time-frame is reconfirmed.

 

But what was new and very positive: they bought back 542,782 shares in 2016! I estimate that this increases NAV/share by 5.4%: https://alphavulture.com/2017/01/05/retail-holdings-update/ :)

[writser]

2016 results: http://www.retailholdings.com/pressReleases/pressReleasesFile_151.pdf .

 

I am optimistic about the prospects for 2017, in terms of both financial performance - - the individual operations are all off to a very good start - - and likely further progress in our strategic divestment program. Public market sales of additional shares are either already underway or planned in Bangladesh, India and Sri Lanka; the initial results from this effort should be disclosed in the next several weeks. Additional asset sales are planned for later in the year.

 

The Company intends to pay an initial distribution of $2.00 per Share in the spring, with a further distribution anticipated later in 2017, to be determined, in large part, by the amount of proceeds from this year’s divestments.

 

Looking good. I bought a little extra on the open. Another forum member wrote a small blogpost about it: https://alphavulture.com/2017/03/29/retail-holdings-making-progress-with-liquidating/

[writser]

Todays update: http://www.prnewswire.com/news-releases/retail-holdings-announces-placement-of-additional-shares-of-public-operating-subsidiaries-300437170.html . They sold ~$19m worth of stock. Looks like the liquidation is going along smoothly. Discount to NAV still around 25%.

[_JJ_]

Singer Sri Lanka up 19% on take-over rumours.

 

http://www.economynext.com/Singer_(Sri_Lanka)_stock_soars_on_take_over_speculation-3-8697-3.html

 

My guess the most likely acquirer would be Softlogic. They have been aggressive acquirers in different sectors in Sri Lanka. According to this article Softlogic had a 13% market share in durable consumer goods in 2016:

 

https://seekingalpha.com/article/4085917-retail-holdings-shares-strong-buy-patient-long-term-investors-trading-36-percent-discount (Exhibit 3)

 

Also, Singer has a finance arm that could be integrated in Softlogic's financial subsidiary.

 

Singer Sri Lanka was at 36% market share in durable consumer goods and Abans at 34%. An acquisition by Abans probably wouldn't be allowed by the competition commission.

[writser]

It's now official: link. Retail holdings is selling 60% of their Singer Sri Lanka stake for LKR 47 / share for ~$69m in net proceeds. Not sure why they are not selling their whole position but the buyer has to make a mandatory takeover bid anyway so if they want to close out their position they should be able to do so. Thanks to your post I was able to buy some extra RHDGF yesterday. Still one of my largest positions, now significantly derisked with pro-forma ~$10 / share in cash that will be distributed tax-free (for me at least) and ~$19 / share in subsidiary shares, mostly Singer Bangladesh. Barring some details (CEO compensation package, possible difficulties with selling Bangladesh shares) the stub should still be worth way more than the $10.50 implied by the market.

[Foreign Tuffett]

The Dhaka Stock Exchange has Retail Holdings selling 30,000,000 shares of Singer Bangladesh

 

I can't get a direct link to work, but if you go to link below and search by yesterday's date it's easy to find.

 

http://www.dsebd.org/news_archive.php

 

[Foreign Tuffett]

The Dhaka Stock Exchange has Retail Holdings selling 30,000,000 shares of Singer Bangladesh

 

I can't get a direct link to work, but if you go to link below and search by yesterday's date it's easy to find.

 

http://www.dsebd.org/news_archive.php

 

A screenshot is attached

[writser]

The decimal format they use is f*cked up (is that the Bangladeshi standard?). I think they sold 3m shares. It's an interesting situation. An ever bigger part of the stub now consists of non-remittance shares in Singer Bangladesh. I'm curious how they want to liquidate them. The good thing is that the market is currently valuing these shares at zero ..

[Foreign Tuffett]

The decimal format they use is f*cked up (is that the Bangladeshi standard?). I think they sold 3m shares.

 

Looks like you're right. I looked back through the old news reports and many of the commas in the mathematical figures are in the wrong places. Honestly, my eyes just glazed over that the # was all screwed up when I initially saw the news item.

 

The wonders of frontier market investing.....

[_JJ_]

It's not a mistake, it's the Indian numbering system (https://en.wikipedia.org/wiki/Indian_numbering_system)

 

Writser is right, it's 3m

[bobozou]

Writser - how are you getting $19/share in sub shares?

 

10/2 press release indicates $79M (roughly $17/share) of post-distribution value at subs.  What am I missing?

[writser]

Since I posted that they sold 3m Singer Bangladesh shares (and there were more share sales I was unaware of) so we can't just compare portfolio value over time. I think it is more useful to look at total NAV instead.

 

At the time I estimated the total package was worth ~$29, more or less in line with the $27.62 mentioned in the press release as subsidiary shares traded down during the past two weeks. Exchange rates could also be a factor but I'm too lazy to backtrack that :). Given that we don't know at what prices they make open market sales (and what they do with forex) it's hard to keep track of NAV exactly anyway. We can use the numbers in the press release as a new starting point.

 

The dividend is nice but was more or less to be expected. Curious to see how (if) the stock will react today.

[lathinker]

Interesting and quite extensive piece by Indelible Capital on Seeking Alpha.

 

https://seekingalpha.com/article/4112087-retail-holdings-shares-remain-strong-buy-27-percent-discount-value-returning-47-percent

 

I was so far not aware of any potential value of the Sublicensing Agreement, in particular as I never saw it mentioned in the companiy's reporting. Also, the thoughts on the agreement appear fairly speculative to me so that I would not price in the potential upside. On the other hand, the reasoning is not completely absurd, so after all, there might be a bit of optioonality left in RFDGF, even after the sale of the SVP Notes.

 

[Hielko]

I don't believe in the sub licensing upside. In the Singer Sri Lanka sale specifically states that following the sale Singer Sri Lanka will have a licence "from SVP Worldwide, the owner of the Singer trademark, to use "Singer" in the company name and the "Singer" brand on its stores, products and services." In addition the latest press release announcing the $9 dividend also specifically states that ReHo has no meaningful assets besides those disclosed by the company on the NAV overview.

[Foreign Tuffett]

To echo the previous comments, I also find the disclosure around the Singer trademark and SVP to be both limited and opaque. The following doesn't make sense to me:

 

1) In 2004 Retail Holdings sold the Singer trademark to SVP Worldwide. As part of this sale it retained "certain continuing rights in the trademark and for the distribution of sewing machines in connection with its Retail businesses."

 

2) In 2015 SVP defaulted on the  unsecured, subordinated promissory notes that it owed to Retail

and Retail proceeded to write the notes down to $0

 

3) Despite the default, Retail has continued to pay royalties to SVP, including $2.6 million in 1H 2017

 

4) Retail just announced that it sold the notes (notional value of over $32 million) back to SVP for $1 in order to "help facilitate the financial restructuring of SVP Worldwide, the owner and licensor of the Singer trademark, and to accelerate the resolution of issues related to the license and the Company’s divestiture program." What?   

 

The above is simplified, but I think it captures the mystery at the heart of the situation. Namely, why has Retail and/or its subsidiaries continued to pay royalties to SVP despite SVP's default? Similarly, why did Retail sell the notes back to SVP for $1? Why give up something in exchange for effectively nothing ($1)?

 

 

[Hielko]

Yeah, I also would like a bit more clarity on that.

 

What I suspect:

 

1. The royalty payments contract doesn't allow them to net them with the notes liability (I think this is normal)

2. Their notes were low in the capital structure, so perhaps recovery unlikely (no idea of the financials of SVP)

3. The licence agreement had perhaps some clauses that made transferring the majority ownership of the subsidiaries from Sewko to a 3rd party problematic (or simply didn't have any clauses for that possibility)

 

So assuming those guesses are correct it would make sense for them to basically forgive debt in order for them to get SVP to change the licence agreements to make it possible to sell the subsidiaries without problems.