Ihave had good news and bad from eastern Europe. Warehouse developer Raven Russia has had a rocky ride, but now looks to be coming good. I first invested in the Alternative Investment Market (Aim) company in April 2008 at 80p, which was well below the 2008 net asset value (NAV) of 129p. With Russia’s plans for a massive boost in road- building, and money pouring in from $140 oil prices, the shortage of warehouses was critical. Rents yielded twice the cost of capital. Best of all, there was a 9.5 per cent dividend yield.
However, once the downturn began, Russia and property fell out of fashion. Capital markets closed up to the company, the share price plunged and the dividend was cancelled. The cash-strapped company then undertook a clever – but rather odd – takeover, detailed in this column on February 28, of Raven Mount . This brought a lot of cash aboard, at the price of equity dilution, and unified an experienced management team.
In spite of my misgivings at the time, it has turned out well. Miffed at the rather generous terms offered to Raven Mount holders, I voted with my feet and bought shares in the target at 38p, which was well below the theoretical exchange value of 52p. After consummation, these shares were then split into warrants and preference shares in Raven Russia.
On September 7, the company issued better than expected results, with plenty of new business in the bag and a resumed dividend. Although the shares had plunged as low as 11.3p earlier in the year, this weakness was always overstated. The NAV, a good guide to underlying values, has fallen only to 72p from 89p a year ago. Not surprisingly, the shares soared on the results, adding 26 per cent to 35p.
However, for some reason, the warrants – which allow holders to subscribe for shares at 25p before 2017 – didn’t initially move at all. I took the opportunity to load up, gritting my teeth about the 12p-18p bid offer spread. Oddly, even though the warrants were much later marked up by 10 per cent, my trade remained the only one in that security all day. So much for rational markets!
My opportunistic stab at Raven Mount has returned 49 per cent since February, including the first preference payment. For the ordinary shares I already held in Raven Russia, currently at 42p, breakeven is still 9p away, but things are at least improving.
Not everything in eastern Europe has gone so well, though. Landkom, the AIM-quoted Ukrainian farm company in which I bought shares in January 2008 at 80p, had done reasonably well at growing crops. However, the credit crunch killed its expansion plans and crop prices softened.
As a result, the shares dropped relentlessly to 16p – an excessive move that I blamed on Ukraine’s aura of gloom, rather than specific fundamentals. In the end, I was proved wrong, and the market right. On August 27, the chief executive, who was planning to go soon anyway, resigned with immediate effect after the discovery of a $2m legal liability over land purchases. I read the regulatory news at 8.15am, blithely headlined “Board Change”, and issued simultaneously with a harvest update which, for these purposes, one could call “chaff”.
At first, the share price only fell a halfpenny. I guessed that few people had so far unearthed the liabilities towards the bottom of the statement. Once they did, the price was sure to fall further. So, rather than spend time analysing this, I sold at high speed. I’ve made a big loss on a minor holding, and kicked myself for not selling sooner. But had I held on, it would have been worse. I got 15.5p and, by the end of the day, the share price was 14p. Now the shares are worth just 10.5p.
Still, it’s better to be alert at the end of the day than not at all.
Nick Louth is an active private investor, writing about his own investments. He may have a financial interest in any of companies, securities and trading strategies mentioned.
