Most investment trusts tend towards the steady but reliable end of the spectrum. Crystal Amber is a little different, being as close as the London market gets to an activist trust of the sort more common in the United States, with the likes of Pershing Square and Elliott Advisors.
The fund, which was founded in 2008 by Richard Bernstein, specialises in taking strong positions in smaller or medium-sized companies where he feels that action is needed or where the shares look undervalued.
Mr Bernstein describes his approach as contrarian, supportive and patient. He does not go in for aggressive tactics — only once has Crystal Amber called an extraordinary meeting — of Leaf Clean Energy — and the request was withdrawn after the chairman and chief executive resigned. He does have an ability to find takeover candidates. Mr Bernstein was involved in a long-running dispute with Michael, now Lord Grade of Yarmouth, over his chairmanship of Pinewood Studios, who he wanted to stand down. The company was taken private last year by a private equity fund. Other investments also taken over in recent years are Aer Lingus, the Irish airline, and Thorntons, the chocolate maker.
At present there are only seventeen investments and the top ten account for about 90 per cent of net asset value. Coincidentally, the biggest by value, Hurricane Energy, put out a favourable update on its reserves yesterday. Crystal Amber helped with a capital-raising that allowed this North Sea explorer to continue its drilling programme and bought the shares at about 19p. They trade at above 60p.
Other significant stakes are in Northgate, the van hire business, which Mr Bernstein views as sub-scale and ripe for a takeover after an approach from Avis was rebuffed several years ago, and Grainger, the property group. He has been pressing for change here and believes that the company’s legacy properties, which are occupied and on controlled rents, are largely unvalued by the market.
The shares, unchanged at 244½p, are trading at almost exactly the latest published net asset figure. Short-term gains may be limited, but Mr Bernstein’s ability to spot winners speaks for itself.
My advice Buy
Why The concentration of investments means that performance may be lumpy, but the fund’s long-term record is excellent
Premier Foods
It is now more than a year since Premier Food rejected a 65p-a-share offer from McCormick, the owner of Schwartz spices, and the debt and pension fund burden is still acting as a sheet anchor on the share price. Premier shares were unchanged at 43p after the news that Mondelez International, the owner of Cadbury, had renewed the contract for the company to produce Cadbury-branded cake and desserts — which should have come as something of a relief. The contract is worth £60 million a year, or just short of 8 per cent of expected revenues for the year to the end of March, analysts said.
The renewal was expected, as there is probably not another food producer in Britain that can turn out more than a million Cadbury Mini Rolls a day, the output of Premier’s factory at Moreton on the Wirral.
It is on rather better terms than before, running until 2022 with the option to extend it to 2025, and it does allow for extension into new markets such as South Africa, Japan and parts of the Middle East. There is also the scope for Premier to expand further into Cadbury’s range of brands in due course. Nissin, the Japanese noodle maker, has almost 20 per cent of the company and continues to act as a brake to any takeover activity.
The shares are back from their highs achieved even after McCormick walked away and sell on six times’ earnings. That might look cheap, but that sheet anchor remains and further progress looks limited, although existing investors might well hang on.
My advice Avoid
Why The Nissin stake blocks any further takeover moves
Costain Group
Shares in Costain have come on by a pound since this column recommended them at the start of this year. They added 8¼p to 483¾p after an annual meeting trading statement that had very little of detail except that analysts’ forecasts, of about £43 million of pre-tax profits this year, up from £37.5 million on an underlying basis reported for 2016 at the start of March, should not be missed.
Costain now gets the vast majority of its profits from work in areas such as water, energy and transport that has to be done for reasons of regulation or legislation, whatever the political landscape. This means that £1.2 billion of work was secured at the financial year’s end, most of last year’s turnover.
The company has provided £15 million for its share of losses on the Greater Manchester Waste Disposal Authority contect, where it is sub-contractor to Viridor, the waste management side of Pennon, and John Laing. As Viridor reported last week, talks are continuing, but Costain’s exposure seems limited. The shares sell on more than 14 times’ earnings, which might suggest that a degree of profit-taking is warranted.
My advice Take profits
Why Prospects for this year seem to be in the price
And finally . . .
Numis has turned negative on Greene King as the pub operator reaches the end of its financial year. Greene King announced good trading over the Christmas period, but there are looming cost pressures, the broker says, from the national living wage, the apprentice levy and rates and utilities prices. The company does not seem more exposed to these than its peers, but JD Wetherspoon said the other day that it would have to lift like-for-like sales by 3 per cent to 4 per cent to keep profits stable this year, Numis says.
