CKI - Clarke Inc.

[mcliu]

How are you guys getting the $12 value?

 

I'm only getting around a $9 NAV, so I'm probably missing something..?

 

Common Stocks: $150 million

Cash: $33 million (post latest redemption)

Debt Investments: $27.9 million (Jerico promissory $24.9 + $3 million loan)

Real Estate: $7.5 million (investor presentation)

Private Equity: $3.6 million (investor presentation)

Shipping: $12 million (investor presentation)

Total Assets: $234 million

 

Debt:

Term Loan + Facilities: $43.9 million

Convertible: $13.6 million (at current market value)

LT Debt: $13.3 million

 

NAV: $163 million

 

I didn't include the pension surplus or NOLs, but the gains on the current market portfolio should basically offset the NOLs and I'm not sure if shareholders get access to a pension surplus..

 

What other assets do they have?

[racemize]

I have public investments closer to 160 million (157-158).  I did include the pension surplus, which would make a big difference.  There's also 15 million in DTAs they had on their books in the last quarter, which I believe would be an additional asset.  The presentation also shows total debt at 38 million vs. your 43.9+13.3.

 

I was focusing on BVPS rather than NAV, which is why the pension surplus would show up in my calculation, but potentially not in yours.  What are the laws on use of surpluses of pensions?

 

Here's some articles:

http://www.ifebp.org/inforequest/0164306.pdf

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1141918

http://www.actuaries.org/IACA/Colloquia/Munich/Vol_2/James.pdf

http://www.nber.org/chapters/c6026.pdf

http://www.freshfields.com/uploadedFiles/SiteWide/Knowledge/Surpluses%20and%20overfunding%20in%20pension%20schemes.pdf

http://www.freshfields.com/uploadedFiles/SiteWide/Knowledge/33326%20proof%206%20(2).pdf

[Myth465]

How do you get confident with the company's ability to generate higher future returns? BVPS from 2007 to 2008 dropped over 50%..

 

You cant inmo.

You are buying a portfolio of stocks at 50% of BV.

I think George is a good investor who got caught up, but everyone has to make their own judgement.

 

Its easy for me to get comfortable because we are using the same strategy. I think Canadian Energy and REITs are the best sectors right now. Both trade at a significant discount to USD equivalents, both throw off cash which protects you during a pullback / pays you to wait. Would I hold at BV, probably not, but you can buy the basket of stocks he owns at 50% of what he paid for them..... He also has a big stick and can shake things up, which beats what I can do to Management.

 

Sorry not 50% of BV, but 50% in gains if it trades to NAV. Basically this isnt a multi year holding but a trade on a portfolio trading below book like Quebec said. I happen to really like the portfolio and other assets so I will stick around.

 

I believe the losses are non capital, so I dont think they can be used for capital gains (though I am not up to date on Canadian tax law). I also think if thats true then we will buy another operating business soon (perhaps Royal Host or Holloway). I also believe the pension surplus is ours. I have seen a few other value investors use a pension account for investments.

[mcliu]

I have public investments closer to 160 million (157-158).  I did include the pension surplus, which would make a big difference.  There's also 15 million in DTAs they had on their books in the last quarter, which I believe would be an additional asset.  The presentation also shows total debt at 38 million vs. your 43.9+13.3.

 

I was focusing on BVPS rather than NAV, which is why the pension surplus would show up in my calculation, but potentially not in yours.  What are the laws on use of surpluses of pensions?

 

I used their 2013 annual report to calculate their outstanding debt. They've probably paid off most of it from their proceeds since then? Does anyone know if that's the case? If so, NAV would approach the pro-forma BV that they mentioned in their slides. Also, is there a way to know how many shares have converted vs. redeemed since December 31, 2013?

 

A recent ruling in Canada's Supreme Court says that pensions should belong to workers/retirees, although this issue is complex and may change:

http://www.benefitscanada.com/pensions/governance-law/supreme-court-says-mts-pension-surplus-belongs-to-workers-retirees-48975

 

You're right about the NOLs Myth465. I thought they were referring to the $42 million in capital losses (in the 2013 statements), but it seems like those were already used when they recognized the gain on sale, so the remaining should be for operating income.

[racemize]

I have public investments closer to 160 million (157-158).  I did include the pension surplus, which would make a big difference.  There's also 15 million in DTAs they had on their books in the last quarter, which I believe would be an additional asset.  The presentation also shows total debt at 38 million vs. your 43.9+13.3.

 

I was focusing on BVPS rather than NAV, which is why the pension surplus would show up in my calculation, but potentially not in yours.  What are the laws on use of surpluses of pensions?

 

I used their 2013 annual report to calculate their outstanding debt. They've probably paid off most of it from their proceeds since then? Does anyone know if that's the case? If so, NAV would approach the pro-forma BV that they mentioned in their slides. Also, is there a way to know how many shares have converted vs. redeemed since December 31, 2013?

 

A recent ruling in Canada's Supreme Court says that pensions should belong to workers/retirees, although this issue is complex and may change:

http://www.benefitscanada.com/pensions/governance-law/supreme-court-says-mts-pension-surplus-belongs-to-workers-retirees-48975

 

You're right about the NOLs Myth465. I thought they were referring to the $42 million in capital losses (in the 2013 statements), but it seems like those were already used when they recognized the gain on sale, so the remaining should be for operating income.

 

I think they used cash to pay off some debt, given that the presentation shows a lower debt number (I went with that).  With regard to debt conversions, bear in mind that the conversions do result in lower debt, so it isn't pure dilution of BVPS.  From the press releases, it seems as though they've been able to buy back a lot of the debt without conversion, which is baffling to me.  I'm in wait-and-see mode, and suspect that with or without conversions, we will be happy.  If I'm missing something, I would very much like to be enlightened, however.

 

Also, with regard to the pension, even if the surplus belongs to the workers, can't they reduce payments to it, basically using it as an asset over time?

[Myth465]

Debt has been bought back and shares have been converted. No way to tell the split until the 22nd. I would guess that there are not many DBs left and the buyback will close out what remains but it wont be all for cash. Many from March to May have converted just no way to get an updated share count.

 

http://www.benefitscanada.com/pensions/governance-law/supreme-court-says-mts-pension-surplus-belongs-to-workers-retirees-48975

 

This is not the greatest of news, but not all bad. Means Clarke cant be taken private without a big hit to NAV, and also means we wont be contributing for quite a while.

[original mungerville]

Sorry guys, I'm new on this one.

 

So its selling at a discount to NAV - it sounds like about 50-60% of NAV.

 

What is the catalyst? - I remember Dazel mentioned a large liquidity event some time back being revealed soon. Does the catalyst have to do with this event, or is it simply that the NAV will be revealed in the coming quarter and will surprise people for some reason? I am just wondering why you think the NAV is not being picked up in the market price at this point, and why it will be soon?

 

Any help would be appreciated. Thks.

 

 

[Myth465]

Basically I think the NAV discount will close once the BV is formally announced and incorporated into a 10Q.

Right now its only available on 1 news release, and 1 presentation. You would have to be watching the stock to know.

 

It doesnt show up in the numbers.

 

Also you can see on the chart where Clarke has traded in relation to NAV / BV.

An adjustment needs to be made though. We had operating businesses and converts, both have been eliminated.

 

The fact that the converts can convert for a 10% gain, but instead allow Clarke to buyback at par shows no one is watching.

I mean Mr. Market left $1.2 million on the table on the convert buyback, and much more if you think the share price will hit $10.

 

I could be missing something, but I assume if the gap to BV doesnt close, Clarke will continue to buy back shares generating a 20%+ return on each share.

I dont see how we lose here unless the portfolio crashes collectively, but most of the holdings inmo are undervalued.

[original mungerville]

Thanks for the answer Myth, understood.

 

I read through the whole thread now. Looks like book value based on racemize's calcs of around $12-13 (this includes the recent increases in the share prices of the stock held offset by some dilution from the converts net of share buybacks) and selling for 8.40 per share so selling at about 2/3rds of book. On top of that, you like the holdings and feel they are undervalued.

 

 

[plato1976]

Still don't see obvious catalyst

, and in fact I am not that enthusiastic on their holdings

, but I still like this pick :)

 

Thanks for the answer Myth, understood.

 

I read through the whole thread now. Looks like book value based on racemize's calcs of around $12-13 (this includes the recent increases in the share prices of the stock held offset by some dilution from the converts net of share buybacks) and selling for 8.40 per share so selling at about 2/3rds of book. On top of that, you like the holdings and feel they are undervalued.

[Guest Quebec]

Many from March to May have converted just no way to get an updated share count.

 

I noticed that the counts where updated on an ongoing basis here:

 

http://www.clarkeinc.com/stockinfo.aspx?un=2

 

Within a month, the remaining converts will be gone

[Guest Quebec]

You're right about the NOLs Myth465. I thought they were referring to the $42 million in capital losses (in the 2013 statements), but it seems like those were already used when they recognized the gain on sale, so the remaining should be for operating income.

 

About this NOLs asset, since arguably the business of clarke is pretty much buying and selling shares, are these transaction gains taxed as operation income or capital gain income ? I am novice on corporate tax

[racemize]

Many from March to May have converted just no way to get an updated share count.

 

I noticed that the counts where updated on an ongoing basis here:

 

http://www.clarkeinc.com/stockinfo.aspx?un=2

 

Within a month, the remaining converts will be gone

 

From those numbers, I get that the repurchase has gone like this:

Original Debentures (booked as debt): $34,500,000.00

 

Converted Debentures: $9,382,393.09

Repurchased Debentures: $12,936,306.91

Success Rate: 57%

 

New Pro-forma, dividend adjusted, BVPS range of values: 11.06-11.35 (does not include increased values from public securities)

 

Given the prior repurchase success rate, I would assume the final BVPS (adjusted only for the sale, as they calculated it in the press release) would be ~11.22

 

[Guest Quebec]

Sherritt, Clarke's largest security position, has been on a tear, up about 50% ytd:

 

http://web.tmxmoney.com/quote.php?mobile_disable=true?mobile=false&qm_symbol=S

 

Will positively and meaningfully impact Q1 and Q2 book By Q2, the financials should be pretty simple to allow valuation/re-valuation. After that, you have to like the Sherritt potential to like CKI imho

[phil_Buffett]

book value $11, or $12, or $13. the exact figure is nice but doesnt matter at the Moment for me. for me it is important that there is a gap between share Price actual and IV. i bought undervalued Clarke with a nice value gap and someday in the future it will resolve. and we all who are invest in Clarke make a good return on Investment

[racemize]

Press Release:

 

HALIFAX , May 5, 2014 /CNW/ - Holloway Lodging Corporation (HLC.TO) ("Holloway") and Royal Host Inc. (RYL.TO) ("Royal Host") are pleased to announce that they have entered into an arrangement agreement pursuant to which Holloway has agreed to acquire all of the issued and outstanding common shares of Royal Host (the "RYL Shares"). Pursuant to the arrangement agreement, Royal Host shareholders will receive for each RYL Share they own a combination of $1.00 in cash and 0.1 of a Holloway common share (the "HLC Shares") (the "Acquisition").

 

The Acquisition is valued at approximately $23 million on an equity value basis and $157 million on an enterprise value basis (based on the closing price of the HLC Shares on May 2, 2014 ). This implies a purchase price per room of approximately $65,700 prior to allocating any of the purchase price to Royal Host's excess land holdings and other non-hotel assets and a cap rate of 8.0% after deducting an appropriate annual capital reserve allowance but before accounting for any synergies that are anticipated to be realized following the transaction.

 

The Acquisition represents a premium of 15% to the closing price of the RYL Shares on the Toronto Stock Exchange on May 2, 2014, the last trading day before this announcement, and to the weighted average trading price of the RYL Shares for the 20 trading days ending on May 2, 2014 .

[Guest 50centdollars]

Now Clarke was just halted

[Guest Quebec]

Their presentation has been updated with May figures:

 

http://www.clarkeinc.com/documents/Clarke%20Inc%20Corporate%20Presentation-May%202014.pdf

[racemize]

Their presentation has been updated with May figures:

 

http://www.clarkeinc.com/documents/Clarke%20Inc%20Corporate%20Presentation-May%202014.pdf

 

Seems strange that the book value (no longer pro-forma apparently) is exactly the same as before.  I would have expected some variation.

 

Edit: I guess it was because it was March 31.  It should be a bit different now.

[Guest Quebec]

It was about 8.50@ year end 2013 iirc and now the Q1 results must be compiled and the 11.72 is at the end of Q1, no?

[racemize]

It was about 8.50@ year end 2013 iirc and now the Q1 results must be compiled and the 11.72 is at the end of Q1, no?

 

Yes, 11.72 was quarter end--I was just expecting some change in the number based on buybacks or conversions of debentures from between the initial presentation and the close of Q1.

[racemize]

http://finance.yahoo.com/news/clarke-inc-reports-record-2014-170000505.html

 

Annoying that they don't show a balance sheet.

[Guest 50centdollars]

Clarke Inc. Reports Record 2014 First Quarter Results and Significant Increase

in Book Value per Share

 

Canada NewsWire

 

HALIFAX, May 5, 2014

 

HALIFAX, May 5, 2014 /CNW/ - Clarke Inc. ("Clarke" or the "Company") (TSX: CKI;

CKI.DB.A) today announced its results for the three months ended March 31,

2014.

 

Clarke generated net income attributable to equity holders of $73.0 million or

$4.01 per share in the first quarter compared to $3.1 million or $0.19 per share

for the same period in the prior year. This represents the highest net income

generated in a quarter in the Company's history. This was driven by:

 

* Gain on the sale of the Company's truckload, less-than-truckload and freight

logistics businesses (the "Freight Transport Business") of $66.4 million;

* Realized and unrealized gains on marketable securities of $9.0 million

compared to $3.8 million for the same period in the prior year; and

* Gain on the sale of the Company's interest in Gestion Jerico Inc. ("Jerico")

of $4.7 million.

 

Clarke's book value at the end of the first quarter was $11.72 per share

compared to $5.42 for the same period in the prior year.  The Company grew book

value per share by $3.40 in the first quarter while also returning $0.20 per

share to shareholders in the form of dividends.  In addition, the Company spent

$0.8 million during the quarter repurchasing shares, all at a discount to book

value.

 

During the quarter, the Company redeemed $12.0 million principal amount of its

2018 convertible debentures (the "Debentures") using cash on hand. Subsequent to

the end of the quarter, the Company completed a second redemption of $12.0

million principal amount of Debentures and announced that it was redeeming all

remaining Debentures on May 22, 2014.

 

George Armoyan, Clarke's President and CEO, stated: "This was an exceptional

quarter for us. We completed the sale of our Freight Transport Business and

Jerico. This has helped to unlock a lot of the value that was always present in

Clarke but which the public markets often had difficulty recognizing." Mr.

Armoyan added: "We have also laid the foundation for future growth in our book

value per share with our significant investment in Sherritt International

Corporation, which increased in value during the quarter and especially

subsequent to quarter end. As we have demonstrated in recent years, we are

committed to maximizing the value of our investments and compounding that value

over time."

 

Further information about Clarke, including Clarke's Interim Condensed

Consolidated Financial Statements and Management's Discussion & Analysis for the

three months ended March 31, 2014, is available at www.sedar.com and

www.clarkeinc.com.

 

 

[mcliu]

It says at the end of the release that the MD&A should be on the website.. Anyone find it?

[finetrader]

I have CKI trading at 9.00$ as of now. A reevaluation on the upside of stock price is underway..