Investment Trust Insider on Adamas Finance Asia – James Carthew: the growth capital trust that’s cheaper than Patient Capital
The well-documented slump in Woodford Patient Capital (WPCT) has left it trading on a 35% discount to net asset value (NAV). There have been plenty of articles questioning the NAV which I won’t expand on but, even if that NAV is right, WPCT isn’t the cheapest stock in the Association of Investment Companies’ new Growth Capital sector. That ‘honour’ goes to Adamas Finance Asia (ADAM).
ADAM has just published results for the year ended 31 December 2018. It publishes NAVs quarterly and at the time of writing the 31 March one wasn’t available, so that is the latest information we have to work with. At that date, the NAV was $1.13. The share price today is 50 cents, so that leaves it trading on a discount of 55.8%.
If the company was tiny, you’d be forgiven for saying, so what? However, even at this depressed level, ADAM has a market value of $43.9 million (£34.5 million) – there’s an awful lot of latent value in the stock, if the NAV is right.
ADAM listed on the Alternative Investment Market (AIM) in 2009 as China Private Equity. By 2011 it was tying up with Adamas Asset Management and placing more emphasis on providing debt finance in China. It carried out a reverse takeover that expanded the fund by injecting investments in exchange for shares.
However, this left it with one dominant shareholder owning around 85% of the company. That shareholder still owns 70%, restricting liquidity, and that is one reason for the discount. ADAM decided that it didn’t want to hang onto its new investments. The plan was to turn these into cash for redeployment elsewhere.
Transitioning the portfolio towards one providing debt finance rather than private equity has been a long and painful process, involving considerable write-downs of investments. Consequently, the track record isn’t great, which is another reason for the discount. In May 2017, ADAM made a further change by appointing a new investment manager, Harmony Capital, and broadening the remit to a pan-Asian one.
The portfolio at the end of December 2018 is a fairly concentrated one, and that lack of diversification may be a third contributory factor behind the discount. By far the largest position is in Hong Kong Mining Holdings.. read more here