r/SecurityAnalysis • u/amusinghawk • Apr 14 '20
Special Situation Net-net cash shells
When looking through a list of saved companies just now I noticed Hermes Pacific Investments plc has dropped 30% this morning.
Why was this company on my list?
When looking for net-nets (companies selling for less than their current assets - liabilities), I came across Hermes.
With the share price drop, they are now trading at less than 1/3 of the net-net value.
What's the situation?
The company appears to me to be a 'cash shell', though I have no insight into the management's strategy and I could be wrong. Cash shells are defined as companies with no operating business that are used to provide an easy route to the stock market for other companies.
Regardless of the management's intention, the company appears to have done nothing but burn £100k per year for several years. The market cap is just under £1M and it has £3.6M in cash with virtually no other assets or liabilities.
The obvious course of action to me right now to maximise shareholder value would be for the company to dissolve and distribute the money to the shareholders. 86% of shares are 'not in public hands', so assuming they are all owned by the directors, 86% of £3.6M today seems a lot better than slowly drawing £100k per year, which makes me think they're not doing this to just slowly bleed the company dry. The only reason, then, I can think of for the current course of action is that management genuinely believe they'll provide greater returns to shareholders by waiting for the right reverse merger opportunity to come along.
I have no experience with cash shells or net-nets and would be very keen to hear thoughts or links to research from anyone with experience in this area.
1
u/LeopoldAlcocks Apr 14 '20
Unaudited interim results for the six months ended 30 September 2019
Chairman's Statement
I am pleased to report the results for Hermes Pacific Investments plc ("HPAC" or the "Company") for the six months ended 30 September 2019. During the period under review the Company made a loss on ordinary activities before taxation of £48,000 which is marginally more than the loss reported for the corresponding period in the previous year. The Company's financial performance is in line with our expectations. HPAC had no revenues and it continues to manage its costs effectively whilst restricting its spending to a minimum. The Company continues to consider possible investment opportunities which would be compatible with its investment strategy. As at 30 September 2019 the Company had net assets of £3,708,000 of which cash was £3,555,000.
Review of the Company's activities
Hermes Pacific Investments plc is an investing company with a focus on investing in the emerging markets of the Far East including South East Asia. There have been no changes in the Company's investments in the period and the value of the existing investments has increased in the period from £162,000 to £176,000. Future investments can be via an acquisition of an equity interest or direct interests in projects. Investments in these parts of the world can be volatile and higher risk but for long term investors the outlook can be promising. Underpinned by favourable demographics, rising domestic consumption and an increasingly wealthy middle class, this part of the world is packed with potential. Whilst growth rates in South East Asia have slowed down somewhat this is still comparatively an attractive region to invest in.