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Adding colour to the annual report
31 Aug 16
We characterise Cambium as grinding on through in a difficult environment. Conversations with the company leave us comforted that the valuations are realistic but note that the timing of asset sales remains uncertain. The board’s strategy of pursuing multiple approaches (timber, land or both) is designed to maximise their opportunity to execute.
Good news, no bad news
21 Dec 15
When the good news on a fund is that there isn’t any additional bad news – it is, on reflection, slightly depressing. Overall the tone is reasonable, potential buyers are sniffing around but they are looking for a bargain and the board is trying to generate some leverage with which to crowbar out better (and executable) offers for the assets. The current situation feels like a Mexican standoff. The fund’s current share price 6-7p (c60-70% discount to NAV) is signalling uncertainty over timing and executable value – a view that we believe is reasonable given the current state of Brazil.
Still not pretty
07 Oct 15
Trading at a 48% discount to currency adjusted eNAV, TREE looks cheap. Specific macro issues in Brazil and China have undermined demand for timber products and thus investor/corporate interest in timberland, creating a buyers’ market. In light of this, the team are actively planning to realise value (and generate cash flow) by harvesting the timber as it matures/becomes marketable (plan B), while being ready to respond opportunistically to bids. Cambium is halfway through its 2-4 year disposal programme (approved in 2013). We believe that investors should expect the programme to take the entire period to be completed and note that during the bulk of this time the company will be cash flow negative (see paragraph below). While there are reasons to be optimistic, the outcome of this liquidation programme is far from certain.
14 Aug 15
The fund and its management are constrained and the assets remaining are exposed to the Chinese and Brazilian economies, neither of which are either in great shape nor particularly desired by investors at the moment. The combined impact isn’t great for the fund’s negotiating position. Reflecting the continued weakness in the Real since the reporting period end we are estimating the fund’s currency adjusted historic NAV at 20.5p (down 2.5p), placing Cambium on a 39% discount. Overall our belief is that the valuation is prudent in the context and as of 30 April. However, the realisable values are contingent on the environment, sentiment and particularly the short term outlook/pricing and demand for commodities globally and in Brazil (74% of NAV).
More bad news
02 Feb 15
Someone has it in for Cambium. After the fire in the USA, we now have wind in Hawaii and Brazil continues to be difficult. As part of its results and net of its buyback (c20% of capital at 25p) the fund reported that the period end NAV (31 October, 33p) has declined a further 10% to c30p (£24.6m total net assets, TNA) as of 30 January 2015. To put it in context, the buyback should have enhanced the NAV by 5.7% to 35p.
NAV write-down and shareholder briefing
26 Nov 14
Cambiums strategic position isn’t favourable nor is the market for its assets, facts that are recognised in its NAV write down. Current trading at a 35% discount to the new headline NAV, the market is exhibiting a high degree of scepticism about both the pace of the realisation process and shareholder’s net net realised value. On the basis that there is further slippage, on constant FX rates, and trying to be conservative we are pencilling in 28p to be realised over the next 24 months. This translates into c30% upside and a 24% IRR from current market prices. Our pencilled in number of 28p, is a function of a crude hair cut to the most recent NAV rather than the product of a sophisticated analysis and reflects a learned lesson that you should never be optimistic in the case of Cambium. In terms of returning capital to investors, we have pencilled in 4p on 31 March 2015, 10p on 30 September 2015 and a further 14p on 30 June 2016 – our hope would be that these timings are bettered. Given the pain they suffered, we view Cambium’s shareholders as determined rather than optimistic and anticipate that they will wait for completed deals to be announced before reacting.
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