Liquidations Watchlist #9

UK, Canada, South Africa, USA, Australia. REITs, Investment Funds, Holding Companies, Royalty Trust and Operating Companies.

Although markets are at all time highs, I continue to find new potential liquidations and confirmed liquidations. It just goes to show how bifurcated the market is.

In this watchlist I’ve profiled investment funds, REITs, holding companies, a royalty trust and operating companies. Among them are 3 South African listed companies. H/T to Urquhart Partners who put me onto them.

If you want to hear about liquidation situations as soon as I find them, then check out my substack notes or X account.

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Liquidations

NB Distressed Debt Investment Fund (LON:NBDD, LON:NBDG, LON:NBDX) is an investment fund with exposure to distressed and special situation credit-related investments. They have 3 classes of shares. Their investments are across 4 sectors; commercial property, hotel and casino, surface transport and containers and packaging. The fund has been in “harvest” mode for many years now. In the recent AGM results notice the company said they would discuss bringing forward liquidation proposals due to 3 of the 4 remaining assets being in negotiations for sale. I believe these will be done via secondary sales and at a discount to carrying value. Key drivers are what they get for the assets and timeframe to liquidate. This is an illiquid although interesting situation. However some more work is needed on asset values. NAV- NBDD $0.71, NBDG £0.491, NBDX $0.87. Timeframe 2 years.

Starlight U.S. Multi-Family (No. 2) Core Plus Fund (CVE:SCPT-A & CVE:SCPT-U) was set up to acquire and operate multi-family properties in the USA. They acquired 3 properties between 2021-2023. The fund has a maturity date of March 2026. On Friday 27th June they announced the sale of 1 building and a special dividend for the A and U units. This was at a multiple of the pre ann traded prices. The two remaining properties have non-recourse debt that is due. The company is working on extending this. One of the remaining properties' asset value is below the value of the debt owed. Key driver here is if they can extend the loans and then sell the properties for above debt value. My analysis suggests they will struggle to sell above debt value, so I would only play this for the distributions. It goes ex-dividend on 16th July. NAV- SCPT-A C$2.75, SCPT-U US$2.52 (distribution amounts). Timeframe 1 year.

The China Fund (NYSE:CHN) invests in companies with exposure to China. The board recently announced they will put to shareholders a liquidation vote. They will release a proxy statement shortly. The discount to NAV has narrowed significantly from 15% pre announcement. The holdings are liquid and it shouldn’t be hard to liquidate. This could present a good short term opportunity closer to liquidation date. NAV $15.35. Timeframe 6 months.

Brait plc (JSE:BAT) is an investment holding company. They own 3 assets; Virgin Active- a global premium health club operator (62% of assets), Premier- a JSE listed FMCG manufacturer (32% of assets) and New Look- a fashion retailer in the UK & Ireland (3% of assets). Brait has been winding down since 2019, with the pandemic delaying the process. Last year they did a highly dilutive capital raise at a 73% discount to NAV to pay back debt. BAT is looking to float Virgin Active on the LSE in the 2nd half of 2026. PMR is up 123% since it was floated in 2023 and the stake can be sold when needed. With New Look, they’re waiting for retail conditions to improve in the UK. They have targeted 2027 to finish the wind up. Key drivers of this are valuation and timing of the Virgin Active float. The UK market is currently not very attractive. NAV R290-320 (NAV is adjusted for PMR share price. Low end NAV is adjusted for dilution if EIH bonds are exchanged for shares and high end NAV has no dilution). Timeframe 3 years.

RMB Holdings (JSE:RMH) is a holding company. They have investments in South African retail, office, industrial and residential property assets. In 2020 they announced a monetisation strategy. Since then they have returned 1.5x their starting market cap in dividends. The wind up is due to be finished by 2027. Key drivers of this situation is the monetisation of Atterbury (88% of NAV). Atterbury is a property development company. They develop the property and then sell it. They have been able to sell at an average of 1% below book value. I’m inclined to think it takes a year or two longer to wind up but the discount to NAV looks attractive. NAV R65.80. Timeframe 3 years.

EPE Capital Partners (JSE:EPE) has investments in funds and co-investments in private equity type investments. EPE announced a wind-down in late 2023. About 50% of NAV is an investment in Optasia, which is a rapidly growing fintech company. Its valuation increased 41% from June 24 to December 24. Optasia is currently being prepared for an IPO. Key drivers of the situation is the liquidity of private markets and if they can sell assets at valuation marks. They want to exit all investments by FY29. EPE is up 22% in the last two months and the discount isn't attractive here. A positive is, NAV is growing. NAV R810. Timeframe 5 years.

BP Prudhoe Bay Royalty Trust (OTCMKTS:BPPTU) - owns a royalty interest in the Prudhoe Bay oil field in Alaska. The trustee has recently put up the for sale sign. It currently earns no income as it needs a minimum oil price of $100+ WTI. The current operator Hilcorp North Slope (HNS) had a purchase option at $0.544 per unit but did not take it up and said it will make an offer substantially below this price. BPPTU currently burns $1.3m a year and as of last quarter has $3m left in net cash ($0.144). There is potentially a trading opportunity here if oil spikes or if it falls below cash value. Otherwise it's hard to see anyone bidding on this except HNS. NAV $0.144 (before ongoing burn). Timeframe 1 year.

Potential Liquidations

Next Science (ASX:NXS) is an Australian medical company that sells products designed to fight infections caused by bacteria from the use of biofilms. On Tuesday 1st July the company announced a sale of substantially all of its assets. Estimated net proceeds of USD $30m (AUD $0.155) are to be distributed to shareholders. The stub will be the assets related to the DME business and they will “assess their options as a going concern”. Key drivers of this situation are probability of asset sale closing (high) and value of the stub. DME appears to be a distribution business setup so NXS could sell its products to a wider client base in the US. There's not much public info on DME. However, the expert report released in conjunction with the asset sale could provide more insight. NAV $0.155 (est distribution to shareholders).

KCR Residential REIT (LON:KCR) owns residential apartment and retirement portfolios in the UK. A general meeting was requisitioned by shareholders who have a 20% stake in the company. The resolutions are to remove the current board, replace them with their own and initiate a full strategic review. A 55% shareholder has said they will vote against all resolutions. This is a £4.5m market cap company trading at 58% discount to NAV. They have recently rolled onto higher interest rate debt and are not cash flow positive. Although the resolutions are likely to fail, with such a small market cap and poor cash flow I’d say odds are high they liquidate or sell assets in the next year. One to follow. NAV £0.30.

Fidelity Japan Trust (LON:FJV) invests in Japanese equities with a “growth at a reasonable price” strategy. In April the board initiated a strategic review after shareholders indicated they would not support the continuation vote. They then received proposals from other funds to merge in exchange for shares. At the May AGM the continuation vote failed. At a meeting in June, the timeframe to put proposals to shareholders was extended to 6 months. They have until November to come up with a deal or they will have to liquidate. Key drivers of this situation are shareholders' appetite to wind up or merge into another fund. The board favours a merger. Japan is still an attractive investment market, so shareholders might want to merge with a better performing fund. This is weighed up against shareholders rejecting the continuation. They could give shareholders a cash out option at NAV. NAV $2.07.

Updates on Previously Mentioned

Jarvis Securities (LON:JIM) was profiled in Watchlist #5. In their recent interim update they mentioned certain conditions have not been met but still expect the deal to complete in early July. The stock is up 40% from the post announcement sell off. This type of situation is not something I typically get involved in until I have a better idea of wind up costs or a liquidation value is announced. There's still quite a bit of uncertainty around what those numbers could look like. I’ve conservatively adjusted my NAV to £0.10-£0.20, from £0.20.

Zytronic (LON:ZYT) was profiled in Watchlist #2 & #5. They recently had their first auction on Asset Match with a small parcel trading at £0.48. The stock delisted at £0.44. The company gave a £0.44-£0.60 liquidation range. No update from the company on the liquidation process so far. I expect another year for this to liquidate.

Mongolia Growth Group (CVE:YAK) was profiled in Watchlist #4. They reiterated in their year end release that they have to buy 25% of a company or they have to liquidate. The CEO and major shareholder said that with private asset values too high, it's unlikely they will find a target. This has a hidden asset of the KEDM subscription business and some Russian assets valued at zero.

Conclusion

That's all for this edition.

Have you got any insights into the stocks I mentioned? Any oil royalty experts or multi family investors reading?

I’m always interested to hear other people's views.

Let me know- thanks for reading.

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Disclaimer: The content in this write-up is for informational purposes only and should not be construed as financial or investment advice All opinions expressed are my own. Please do your own research or consult with a professional before making any investment decisions.

Disclosure: I, or members of my family, hold shares in ASX:NXS, LON:ZYT and could potentially hold shares in any of the mentioned companies in the future.

Note: NAV is reported NAV, book value or my estimate. Timeframe is based on my estimate. Both could change.

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