Crystal Amber (CRS): Crystal clear opportunity? Time to get active!

[RogerG]

Crystal Amber is a closed fund (investment trust) based in Guernsey and AIM listed (CRSL.L) led by Richard Bernstein.

I have listed to Richard speaking and have a lot of time for him. I think there is a place for activist investors, shaking up comatose management and reminding them that their shareholders own the company. I’m a little more circumspect about short sellers though I think Wirecard proved that hey can also be a force for good in outing fraud too, so we should listen to them.

So why Crystal Amber and why now? I was listening to an excellent PI World interview with Richard Crow, know as Cockney Rebel, and he mentioned seeing value in De La Rue (DLAR:L), the bank note printer. I recalled that CRSL is a significant holder of DLAR, with a 15.5% percent share of DLAR making it the largest single holding in CRSL. This prompted me to take a look at CRSL and I was struck by its latest NAV of 117.9p per share vs a share price of 76p at close on Friday. That’s a yawning gap and one which has been widening since 2018, when the shares were trading at around NAV.

This led me down the path of thinking, what would Richard Bernstein do? Clearly this is an under performing company, its shares down from north of £2 early last year and not reflecting the inherent value of the business (NAV).

I reckon Richard would build a meaningful stake, and engage with management asking how there were going to close that valuation gap. Absent a good answer, the sensible course would be for the shareholders to insist the fund be liquidated to out the value.

Whilst I find the idea of the activist being subject to a dose of their own medicine rather amusing, I suspect Richard may not see the funny side. There would also be a few challenges, the float outside of major shareholders and instis is small maybe 25%. I suspect the management would be fairly nifty and fending off an attack too!

It does make me think that there is deep value there both in the trust holding decent chunks of some companies that may well fare reasonably in the coming months and years (DLAR, REDD, etc.) plus the opportunity to close the NAV gap adds a near 50% upside potential on top.

All it would need is an activist to turn its gaze in CRSL’s direction… Ahh…

I’d welcome others’ perspectives.

Roger

[MaynardPaton]

Hi Roger

Thanks for the post.

I have not followed Crystal too closely, but do like its activist approach. Always good to see comatose management shaken up

That said, activist investing is hard work. Large stakes are required before management takes any notice, then years may go by before the required changes are made. Then another few years have to go by before the changes bear fruit (if they ever do).

In the meantime, buying into good businesses with good management may have brought easier and more reliable gains.

I am also not sure whether the activist approach involves a ‘repeatable’ process, whereby companies with similar attributes are selected. That could make activist returns much more variable, too.

A quick double check of the last results shows why the discount to NAV exists:

Stakes in Hurricane, Equals and GI Dynamics in particular did not fare well last year.

This SharePad charts puts the NAV and share price into perspective:

The discount to NAV will probably only narrow if NAV improves, which will only happen if De La Rue etc recover.

That SharePad chart suggests Crystal has done well in the past advancing NAV but I think we need to work out how the gains were achieved. They may have all been due to one big winner, which might not be replicable in the future.

Crystal is buying back its shares to narrow the discount, so I suppose that is something. However, purchases were made during 2018 and 2019 as well, and arguably these transactions have not exactly rewarded shareholders to date.

I am not sure about liquidation being a solution. Offloading some of the stakes may be achieved only at levels below the quoted bid price, and I do wonder whether that factor partly reflects the discount to NAV. Also, 7% of NAV is in an unquoted company.

I think if you were confident about the prospects of DLAR and other selected Crystal holdings etc, then perhaps buying a spread those in lieu of Crystal might be a better bet!

Maynard

[RogerG]

Hi Maynard,

Thanks for the reply. I agree CRS hasn’t covered itself in glory with DLAR, HUR etc. There has been an uptick in NAV following the last results, the 31 Aug NAV had recovered to 117.9 which is the number I mentioned above, of which 7.7p is the unquoted bit:

The question is are you really getting 117.9 p of assets for 76p (today’s price).

I shall watch with interest.

Regards
Roger