INTRODUCTION
CMIP is a thinly traded, long forgotten, micro cap investment company currently trading at a 241% discount to Net asset value (NAV). It is one of a bundle of cheap looking small investment companies which I follow. What makes it different from the rest is the sheer size of the NAV discount. However, the discount has been in place for some time and currently there is no indication of management providing a catalyst or any potential activist involvement.
CMIP started life as Blakes clothing, the stores were sold and the company was re-branded with the objective to invest in the hot dot com sector. In 1999, Claranet founder and dot.com poster boy Charles Nasser joined the board saying:
'I am delighted to be joining the board. I believe that the Company's management have a unique set of skills to generate substantial shareholder value through development and acquisition opportunities in the internet sector. I look forward to these challenges with great confidence.'
Management raised circa 40mn, but wisely reached the conclusion that the sector was overheating. In 2002 the company was renamed CMIP and has since made two acquisitions both highlighted below:
CMIP is a thinly traded, long forgotten, micro cap investment company currently trading at a 241% discount to Net asset value (NAV). It is one of a bundle of cheap looking small investment companies which I follow. What makes it different from the rest is the sheer size of the NAV discount. However, the discount has been in place for some time and currently there is no indication of management providing a catalyst or any potential activist involvement.
CMIP started life as Blakes clothing, the stores were sold and the company was re-branded with the objective to invest in the hot dot com sector. In 1999, Claranet founder and dot.com poster boy Charles Nasser joined the board saying:
'I am delighted to be joining the board. I believe that the Company's management have a unique set of skills to generate substantial shareholder value through development and acquisition opportunities in the internet sector. I look forward to these challenges with great confidence.'
Management raised circa 40mn, but wisely reached the conclusion that the sector was overheating. In 2002 the company was renamed CMIP and has since made two acquisitions both highlighted below:
There are currently just over 7mn shares in issue with the board owning nearly 9% of the company. The chart shows the collapse in the share price between 2008 through to 2013. A 29th January 2014 RNS stated that Friends Life bought a 24.99% and previous to this on 25th September 2013 RNS stated that Liam Investment Holdings purchased a 28.33% holding. However, the shareholder circular dated 31st January 2014 only states the Director holdings.
CMIP currently has limited opportunities to grow income and will soon be using this cash to fund expenses. However, the boards strategy resembles that of the last few years, FY14 states that:
"CMI continues to actively monitor its investments in Yola and ASH through regular meetings with the management teams of ASH and MagtiCom, receipt of monthly financial reports, and attendance at Board meetings. The Board takes the view that the market capitalisation of CMI should move broadly in line with the value of the underlying investments in ASH and Yola. The market price of CMI shares is a significant discount to NAV at the balance sheet date. The Board believes that part of the reason is both the illiquidity of the shares and the current illiquidity of the investments that it holds. However, your Board believes that if its investment in Algeco Scotsman were to become more liquid then there would be a significant re-rating of your company."
CMIP currently has limited opportunities to grow income and will soon be using this cash to fund expenses. However, the boards strategy resembles that of the last few years, FY14 states that:
"CMI continues to actively monitor its investments in Yola and ASH through regular meetings with the management teams of ASH and MagtiCom, receipt of monthly financial reports, and attendance at Board meetings. The Board takes the view that the market capitalisation of CMI should move broadly in line with the value of the underlying investments in ASH and Yola. The market price of CMI shares is a significant discount to NAV at the balance sheet date. The Board believes that part of the reason is both the illiquidity of the shares and the current illiquidity of the investments that it holds. However, your Board believes that if its investment in Algeco Scotsman were to become more liquid then there would be a significant re-rating of your company."
VALUE
Valuing the company is simple as the 7% investment in MagtiCom has a carrying value of nil. The Algeco Scotsman (ASH) holding is valued at 19.905mn, a reduction of 3.860mn from last years fair value of 23.765mn. The decline in fair value of ASH was ofset by a deluge of cash in May 2013 when ASH announced a 400mn 5 year PIK loan placement. The proceeds were used to return funds to shareholders via capital reduction of shares. CMIP received 6.351mn in FY14, which lead to a positive EPS (0.41) and over 7mn of cash on the balance sheet.
The strategy raises more questions than answers namely:
Disclosure: No position in CMIP
Valuing the company is simple as the 7% investment in MagtiCom has a carrying value of nil. The Algeco Scotsman (ASH) holding is valued at 19.905mn, a reduction of 3.860mn from last years fair value of 23.765mn. The decline in fair value of ASH was ofset by a deluge of cash in May 2013 when ASH announced a 400mn 5 year PIK loan placement. The proceeds were used to return funds to shareholders via capital reduction of shares. CMIP received 6.351mn in FY14, which lead to a positive EPS (0.41) and over 7mn of cash on the balance sheet.
The strategy raises more questions than answers namely:
- Has the board considered the sale or liquidation of CMIP as the most efficient form of realising existing shareholder value?
- Do you have any further information as to why the ASH investment is illiquid and would they consider selling?
- Has the board considered giving shareholders a special dividend/return of capital or a share buyback with the monies returned by ASH in FY14?
- The board need to clarify the major shareholders list? A previous circular dated 31.01.2014 only disclosed Director shareholdings and gives no details of the Liam Investments and Friends Life Holdings who have since taken positions.
Disclosure: No position in CMIP