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Dunedin Enterprise – the end is still not nigh!

Dunedin Enterprise (DNE) has announced its results for the year ended 31 December 2022, the key financial highlights of which are as follows:

  • Share price total return of 18.5% in the year to 31 December 2022
  • Net asset value total return of 21.7% in the year to 31 December 2022
  • Realisations of £36.9m in the year
  • £41m returned via tender offer in November 2022
  • Interim dividend paid of 34.0p per share
  • Final dividend of 25.0p per share proposed for the year ended 31 December 2022
  • Total of £145.1m has been returned to shareholders since the decision to wind-up the trust in 2016

The end is not quite in sight

DNE’s NAV per share increased from 558.8p to 627.1p in the year, after allowing for dividends per share paid in the year of 48.5p, totalling £6.4m. The share price of 509p at 31 December 2022 represented a discount of 18.8% to the net asset value of 627.1p per share. The share price currently stands at 562.5p.

DNE’s total net assets decreased over the year from £73.4m to £34.5m but, unfortunately, while good progress has been made in realising the portfolio, DNE’s chairman, Duncan Budge, says that after discussions with the manager and DNE’s advisers, the board does not currently anticipate putting formal proposals to shareholders for a members’ voluntary liquidation of the company in the short term while the wind-down continues.

In November 2022 a tender offer returned £41m to shareholders and, with the dividend, a total of £47.4m was returned to shareholders during the year. Since shareholders approved the decision to implement a managed wind-down of the trust in May 2016 a total of £145.1m has been returned to shareholders.

Listing to be maintained

DNE’s board says that it considers maintaining the trust’s listed status is important during this stage of the wind-down, as many shareholders would be unable to hold the shares, or be greatly inconvenienced by holding them, if they could not be traded on the London Stock Exchange.

As the wind-down progresses, the board says that it will continue to assess whether the current arrangements remain in the interests of shareholders as a whole and will, of course, continue to keep shareholders informed as to the future of the company.

[QD comment: It is almost seven years since shareholders approved the decision to wind up the trust and some may feel that this process is dragging on. In trying to achieve the best outcome for shareholders, the board (in consultation with the manager) has to balance the need to return cash to shareholders in a timely manner, so as to limit the ongoing expenses of continuing to run the trust, against the potential impact on realisation proceeds of being a forced seller. The gyrations of markets and economies of the last few years have almost certainly elongated the realisation process. Of course, with DNE maintaining its listing, shareholders have retained the option to sell out of their position should they wish to exit sooner, but this would be at a discount to NAVWe understand why the board wants to keep the listing going for now but would question whether it continues to make sense once DNE’s assets fall into the £10m to £15m range, even if the board is still not quite ready to present liquidation proposals to shareholders. While acknowledging there would be challenges to taking DNE private, we would hope that this could be achieved at a sensible cost that would, overall, be beneficial to shareholders by reducing the ongoing costs. However, a better outcome for all would be if the board is in a position to put forward liquidation proposals at that stage. In the meantime, we note that the board numbers just three, which we think is the right size for the trust and the board deserves credit for this.]

Realisations

During the year a total of £36.9m was realised from the investment portfolio. The investment in RED, the provider of SAP contract and permanent staff, was realised generating proceeds of £24.1m and a return of 2.2x original cost.  The transaction included an earn-out arrangement which is dependent upon RED achieving profit targets in the year to 31 March 2023. The earn-out has been valued at £4.0m at 31 December 2022. The realisation of Incremental, the IT services platform, was completed in March 2022, generating proceeds of £9.1m and a return of 2.4x original cost. In January 2022 the remaining investment in CitySprint, the same day courier, was realised, generating £1.5m. In November 2022 Realza returned £2.9m following the sale of Dolz, a manufacturer of water pumps for the automotive industry.

Unrealised valuation increases of £5.3m were offset by decreases of £6.0m. Valuation uplifts were achieved at Premier Hytemp and FRA, offset by a reduction in the valuation of GPS.

Cash, commitments & liquidity

The original investment periods of all funds to which DNE has made a commitment have now ended. In the future, DNE is only required to meet drawdowns for follow-on investments, management fees and expenses during the remainder of the life of the funds. As at 31 December 2022, DNE held cash and near cash equivalents amounting to £12.4m. There are outstanding commitments to limited partnership funds of £9.6m at 31 December 2022, consisting of £8.9m to Dunedin managed funds and £0.7m to Realza.

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