Pinned straw:
BTI need to address the massive holding they have in Siteminder ASAP. It's nearly half of post tax NTA as of writing.
For a management team that I otherwise hold in high regard, I can't understand the decision to keep this investment at its current weighting in the portfolio.
As I've elaborated on before, it can only be down to one of the following:
1) They don't want the tax bill to be crystalized and a decrease in management fees?
2) The naive belief that they should only sell above analyst recommendations
3) they can;t sell for another undisclosed reason?
Can't be paying these guys 1.75% and 20% to sit half the portfolio in a large, listed investment. No wonder it trades at such a big discount?
I don't care if they sell and the Siteminder SP goes to $10, my val for BTI goes up by 10-15% as soon as they sell this position down.
It is becoming a bit of a joke really, Self Interest strikes again! Funny that.
Ironically the market is absolutely terrified of private equity funds atm, so whilst I too would value it higher if they lost SDR and got back to what they are paid to do, I don't think the market would neccessariuly care and the the discount may remain the same.
Thanks @PeregrineCapital for sharing as this has made me do a little more looking over the fee structure of the LIC that I own.
I was starting doing some research into Bailador this week, so I feel like I am an outsider with no skin in the game. I put my mind to trying to think about why they would be looking to hold this position and came up with:
- Last year their whole change in value growth was attributed to their ownership in SDR (other holdings cancelled themselves out).
- If they hypothetically trimmed 50% of their stake in SDR, they might have something like $13m after tax to put into the next idea, or hold around $70 something million in cash (I'm sure holding more cash would make shareholders more irate).
- They might be waiting for another deal to materialise before
- Paul Wilson might have some good insight about growth and trajectory being a non-executive director in the company
My view of trying to back them up then turned when I looked at the SDR annual report.
If Bailador was to trim their stake to $25-30m to align with other investments, they would hold around 6m shares in SDR and have around 2% ownership stake in the business. Without their substantial owner status, it might be harder for Paul Wilson to justify his position as a non-executive director of SDR, which pays him a tidy $137k per annum. Given the growth prospects and analyst views they may not trim so much, but either way it would bring them under the 5% threshold.
Paul has been in the role since 2012 as a material investor in the company, so his value and input might be hard to displace from this role. However the cynic in me thinks that without substantial ownership status, SDR might look to bring in an outside big gun who could potentially open doors in the industry and bring different expertise to the table.
If that were to materialise, there safety net of guaranteed income for Paul might be over, there seems to be a big financial self interest at play. I'm sure some of this income risk to Paul is offset somewhat by his new role on the board of UpDoc, however he could be be waiting for another acquisition to get him onto another board before they start trimming SDR?
At the end of this deep dive into annual reports, I'm starting to agree with @GazD and will be looking to shift my focus to SiteMinder directly instead of BTI for now.
To think a bit differently,
If the Investor didn't hold either BTI or SDR? What would he/she buy SDR or BTI? Are management fees worth paying to get $117m of private investments in $40m? Do you trust BTI's management investment skills?
This is a good discussion and all of the above are fair points. love reading these perspectives.
