17 June 2021:  SNC announces intention to pay increased dividends

The Directors of Sandon Capital Investments Limited (ASX:SNC) are pleased to announce their intention to pay a 2.75 cents per share fully franked final dividend in respect of the financial year ending 30 June 2021. This will represent a meaningful increase of 10% on the previous final dividend.

Furthermore, the Board anticipates paying an interim dividend for FY22 of a similar amount, provided the Company has sufficient profit reserves, franking credits and it is within prudent business practice to do so. On this basis, the new annual dividend rate is anticipated to be 5.5 cents per share.

SNC currently has a profits reserve equivalent to 28.1 cents per share and has franking credits of 9.4 cents per share, representing the potential for payment of more than 26 cents per share in future fully franked dividends at the 26% corporate tax rate. This equates to nearly 5 years of fully franked dividends, assuming an annualised dividend of 5.5 cents per share.

The new dividend rate will offer an attractive yield of ~5.9% at a 13% discount to NTA*

Based on the increased intended dividend rate, SNC shares are currently trading at a highly attractive annualised yield of 5.9% (or 8.0% if grossed up to include the value of franking credits at SNC’s corporate tax rate of 26%).*  This compares to the forecast yield of the All Ordinaries Accumulation Index of approximately 3.6%. ** ***

Using the most recent NTA, SNC shares are currently trading at a 13% discount to pre-tax NTA.*

Notes:

1. (*) Calculated assuming an annualised dividend of 5.5 (2.75 + 2.75) cents per share, the pre-tax NTA as at 31 May 2021 and the closing market price on 16 June 2021 of $0.93 per SNC share.
2. (**) Bloomberg estimated yield for FY22
3. (***) None of these figures should be considered as forecasts and past performance is not a reliable indicator of future performance

--- click on the link above for the full announcement ---

You can access their most recent Monthly Report (for May 2021) here.

[I have held SNC shares on and off, currently off - not holding.]

12-June-2020:  Sandon Capital Activist Fund (SCAF) May 2020 Monthly Report

The Fund's return was +12.1 % in May 2020, bringing total returns since inception, after all, fees and expenses, to the equivalent of +9.6% per annum.

Since inception, the Fund has outperformed its benchmark (cash) as well as the share market, as measured by the Small Ordinaries Accumulation Index and the S&P/ASX 200 Accumulation Index.

Cash levels ended the month at approximately 1%, though we expect to receive cash proceeds imminently from the voluntary winding up of OneMarket Ltd which will boost cash levels by >10%.  

The portfolio continued to recover some of its recent mark-to-market losses, although there is still much work to do to recover this drawdown.  Gains in the portfolio this month were more concentrated than last month.  The main contributors to the positive performance were Coventry Group Ltd (CYG) (+2.9%), Alliance Resources Ltd (AGS) (+2.7%) and Fleetwood Corporation Ltd (FWD) (+2.3%).

--- click on link above for more of this report ---

12-June-2020:  SNC (the LIC) Net Tangible Assets (NTA) Report as at 31 May 2020

Portfolio commentary

The Portfolio was up +4.5% for the month, on a gross basis, before all fees and expenses, compared to an increase of 5.0% for the All Ords Accumulation Index.

The portfolio continued to recover some of its recent mark-to-market losses, although there is still much work to do to recover this drawdown.  Gains in the portfolio this month were more concentrated than last month.  The main contributors to the positive performance were Coventry Group Ltd (CYG) (+1.3%), City Chic Collective Ltd (+1.1%), Alliance Resources Ltd (AGS) (+0.9%) and Fleetwood Corporation Ltd (FWD) (+0.9%). The main detractor was Smiths City Group Ltd (SCY) (~-1.6%), which we discuss below.

CYG’s share price continued to recover during May.   The only announcement from the company was that it was renewing its onmarket share buy-back.  CYG provided a trading update in June 2019 prior to the end of the fiscal year and we would expect a similar update this year given the turbulent environment in the Australian & New Zealand economies arising from the COVID-19 pandemic.  Since the onset of the pandemic, CYG has noted that sales performance in Australia has been in line with pre-COVID-19 expectations, although the same cannot be said for New Zealand as a result of the mandated suspension of operations in the company.  Now that the New Zealand economy has been re-opened, we expect a reasonably quick return of sales and profits.  The company’s predominant exposure to the industrial economy (commercial construction, infrastructure and mining) should mean that sales have held up reasonably well during the worst of the pandemic in Australia. 

AGS rose strongly after announcing an entitlement offer to help fund further exploration, resource definition and feasibility study work at its Weednanna gold deposit in the Gawler Craton in South Australia.  The entitlement offer, priced at 8 cents per share, followed earlier announcements of drilling results at Weednanna and soil sampling at its Nepean nickel-gold project near Coolgardie in Western Australia.  The share price promptly rose from 8.4 cents to close the month at 18 cents per share.  Needless to say, we exercised all entitlements to shares at the 8 cent subscription price.

The FWD share price continued to rise, though there were no operational or performance updates.  Late in the month, FWD announced the appointment of a new COO of the Building Solutions divisions.  It also announced the appointment of a new director, Martin Monro.  Mr Monro’s most recent executive role was as CEO of construction company Watpac Ltd (WTP).  WTP had been the focus of a campaign by Sandon Capital due to its poor operating performance and acceptance of a lowball takeover offer from BESIX Group.  Our campaign focusing on WTP can be found on our website under the “Campaigns” tab.

Our investment in Smiths City Group Limited (SCY) was written down to nil during the month after we halted our efforts to lead a recapitalisation. This is our only COVID-19 related fatality.  SCY has been facing difficulties for some years.  Despite a renewed Board, the long-standing issues of under-investment in technology, poor product selection, poor capital allocation, an ill-timed acquisition and a highly competitive marketplace combined with factors outside the company’s control brought the company to its knees.  These external factors most recently included COVID-19 shutdowns and a bank lender that simply wanted more equity to stand ahead of it.  We worked with the SCY Board and its advisers on a recapitalisation proposal, but we concluded that the capital sought would be insufficient to sate the bank’s desires, nor would it provide a sufficient margin of safety to successfully execute a turnaround plan.  Though brimming with potential, none of it came to fruition and SCY has proven a very unsatisfactory investment.

COVID-19 restrictions in Australia continue to ease and businesses are resuming activities. There remain some interstate travel restrictions, which will impinge on Australia-wide economic activity, especially tourism.  As restrictions are lifted, close attention is being paid to whether any “second wave” of infections emerges. 

We continue to accumulate shares in a number of new companies which we look forward to discussing at some point in the future

--- click on the 2nd link above for the full SNC May Report ---

Disclosure:  I hold SNC shares, and it has been one of my better income stocks this year.

Just a reply to the "#Am I missing something" straw just posted by @TradedUp:

I do hold SNC and they have certainly underperformed over the past year (my holding period) although I do have some stocks that have performed worse.  It's an "Activist" Fund, and their campaigns are a little hit-and-miss.  Sometimes they get the results they are looking for, and they don't even get the credit.  One example of that is the recent announcement by Iluka (ILU) to spin out (demerge) their MAC Iron Ore Royalty into a seperate business (which they're planning to call RoyaltyCo at this stage, although that may change).  SNC have been pushing for that for some time and I don't think they got any credit for that result.  Of course, they weren't the only ones suggesting it.  That's often the case with the sort of companies that Sandon often invest in.  There will often be other shareholders on the register pushing for similar outcomes to what Sandon are.  Sometimes the share prices of those companies gets worse before they get better.  Sometimes they don't get better.  It's hit and miss.  However, when they have a hit (a win) there can be material upside to the share price of that particular position.  It's unfortunate that the wins have been too few and too far inbetween more recently - and that they had one with Iluka whose share price rose on the back of that, and then got cornonered back down again.  

I do note three positives. 

The first is that Sandon Capital is one of the boutique fund managers chosen by the Geoff Wilson-founded Future Generation Australia Investment LIC (FGX, a fund of funds) to manage some of their money, and Sandon's Gabriel Radzyminski  is a non-executive director of FGX and is respected by Geoff Wilson and other leading fund managers.

Secondly, they pay a very decent and consistent fully franked dividend of 3.5c every 6 months (7c/annum) which is a yield of over 13% (plus franking) based on Friday's closing SP of 53 cps.  I also note that Gabriel has flagged that while this currently declared div will be paid, the next one, due in October, is not guaranteed and will be reviewed after June 30th this year.

Thirdly, their reasonably recent takeover of the Mercantile Investment Company LIC (MVT, finalised in October) effectively doubled the size of SNC (and their FUM) at the time and increased their liquidity, although that liquidity has suffered this month (March 2020) due to COVID-19 affecting the share prices of all of their listed investments as well as their own.  When things get back to more normal settings in six or twelve months time, I think we'll see the benefits of a bigger and stronger SNC.

All that said, you've clearly held them longer than I have @TradedUp and I will defer to your own greater experience than I have had with SNC.  I think the same thing could however have been said of Forager's Australian Shares Fund LIT (ASX: FOR) over the past 18 months to 2 years.  Their NAV halved during the first three weeks of March from $1.04 to 62 cents on March 23rd, and that was on the back of a very ordinary 18 months before that.  However, I would argue that now would not be the time to be selling either FOR or SNC.  Both tend to invest in beaten down stocks or in companies that are often shunned by most other investors, both have an activist bent (SNC more than FOR, but FOR don't mind a little engagement with the management of their holdings either).  And both funds own a number of companies that have been smashed hard during the past month and should bounce back a long way when the recovery comes.  Some of the companies that they hold might fail (go broke) as some have significant debt, however that's where you have to trust the risk management procedures that those fund managers employ to mitigate such things when they happen (including position sizing and knowing those companies and their specific circumstances better than you or I do).  I consider many of the positions that SNC and particularly FOR hold to be too risky even for me to hold directly (and I have a pretty high risk tolerance) but I'm happy to hold them indirectly by holding both SNC and FOR at these levels, because I think there's a lot of upside from here, for the patient.  And in SNC's case, there's a better than even chance of some income via dividends as well along the way.  That's why I hold them anyway.

25-Mar-2020:  5:09pm:  Shareholder update

This is a very comprehensive and interesting update that is well worth reading, even for people who aren't invested in the SNC LIC.  They are going to pay the interim dividend as planned, but the full year dividend will be under review and they'll update us on that when they report in August (if not before).  Gabriel discusses companies' individual debt levels as an important factor to consider in terms of the outlook for each of their portfolio holdings (I couldn't agree more - very important, particularly with smaller companies).  And also industry/sector exposures.  Well worth a read.

28-Feb-2020:  More detail on the pleasing H1 SNC result announced this morning:

Sandon Capital Investments FY2020 H1:

NPAT up 7-fold, declares fully franked interim dividend of 3.5 cents per share

• Net profit after tax (NPAT) of $7.4m, up 727% on pcp
• The Board has declared a fully franked interim dividend of 3.5 cents per share
• SNC Shares offer an attractive fully franked dividend yield of 8.8% (12.1% incl. franking)(*1)
• Gross returns were 13.3%(*2) for the 6 months to 31 December 2019, compared to 3.6% for the All Ordinaries Accumulation Index 

*1 Based on a closing price of $0.80 on 26 February 2020

*2 Gross return performance is before management and performance fees, corporate expenses and tax paid

Sandon Capital Investments Limited (ASX:SNC) is pleased to report a 1HFY20 net profit of $7.4m, a 727% increase on the prior corresponding period (pcp).  Following these strong results, the Board has declared a fully franked interim dividend of 3.5 cents per share.  Upon payment of this dividend, SNC will have paid 36.5 cents per share of fully franked dividends since listing in December 2013. 

The investment portfolio delivered gross returns of 13.3%(*2) for the 6 months ended 31 December 2019, significantly ahead of the 3.6% delivered by the All Ordinaries Accumulation Index (“the Index”) over the same period.  Net returns including dividends, after all fees and expenses, were 9.9% for the period (11.4% including the value of franking credits at the 27.5% corporate tax rate), also ahead of the Index.   

The Company has continued to re-build its Profits Reserve following the completion of the takeover of Mercantile Investment Company Limited (MVT) during the period.  As at 31 December 2019, the profits reserve is equivalent to 4.7 cents per share and the franking account stands at approximately 11.5 cents per share.

--- click on link below for more ---

SNC declares fully franked interim dividend of 3.5cps

28-Feb-2020:  Appendix 4D - Half Year Results - 31 December 2019

SNC declares fully franked interim dividend of 3.5cps

Sandon Capital (SNC), an activist investor fund (LIC), have maintained their 3.5 cps (fully franked) every 6 months (7cps annually), meaning they are paying a fully franked yield of 8.9% p.a. based on yesterday's closing SP of 78.5 cps (or about 12.5% p.a. grossed up to include the full value of the franking credits).  I topped up my SNC position on Tuesday (Feb 25) at 81 cps.  Their pre-tax NTA as at Jan 31 was 95.49 cps, so they're trading at a significant discount to NTA as well as paying a market beating dividend yield.   

They also have a significant position in ILU (Iluka) and they were pushing for the demerger (or divestment) of ILU's MAC royalty, which is now happening (ILU have announced they now intend to spin the MAC royalty out into a separate listed company to be called RoyaltyCo at this stage - see here).  I expect that the ILU SP will reflect this positive news once the fear around Covid-19 settles down and further details of the demerger are announced over time.

05-Jul-19:  SNC SP (share price) = 83 cents.  Last reported before-tax (ex-div) NTA was 95 cents (on May 31st).  Last 5 dividends have all been 3.5c each - fully franked - with guidance for a similar 3.5c final div to be paid in October or November this year.  That puts them on a dividend yield of 8.4%, plus franking credits on top.  The grossed up yield (including franking credits) is getting up towards 12%.  Sandon is an activist fund manager, who have had good success releasing value from their investments in prior years.  Gabriel Radzyminski runs the fund, and is the LIC's board Chairman. 

Sandon is one of the investment managers used by FGX, the Future Generation Investment Company, and Gabriel is also a director of FGX, along with FGX's founder, Geoff Wilson, and David Paradice (founder and MD of Paradice Investment Management, who are also used by FGX) and 5 other directors.  Just as the investment managers all provide their services to FGX for free, so do the directors, so they receive no fees or payment of any sort from FGX.  In lieu of fees, FGX donates 1% of their FUM every year to children's charities, particularly those focussed on children "at risk" or disadvantaged children. Their sister fund, FGG (Future Generation Global) is the same, except it uses global fund managers (predominantly Australian-based fundies, but all of them investing in securities and other assets that are domiciled outside of Australia) and they donate their 1% to mental health charities and not-for-profit organisations, particularly those focussed on kids' mental health.  Both FGX and FGG receive listing fee exemptions from the ASX, and are the only two listed companies to receive that favourable treatment from the ASX.  FGX and FGG are both widely supported by the fund management and investment community.  Commsec even rebate 100% of their brokerage fees on purchases of FGX and FGG shares.  But I digress.

Back to SNC - Good manager who has industry respect and a good track record, a different focus to most fundies so exposure to a different class or group of investments, paying a market beating dividend, and under-valued (trading at a double-digit discount to their NTA).  Little wonder I hold SNC shares. 

They've also recently announced (on June 3rd) that they are seeking to take over Mercantile Investment Company Limited (ASX: MVT) (Mercantile).  They are still working through that, but the largest shareholder, Siblow, which is controlled by Sir Ron Brierley, has indicated their intention to support SNC's bid for MVT.  Sir Ron has also accepted a board position at Sandon (SNC).  SNC already owned around 19% of MVT at last notice.  Geoff Wilson's private company, "GW Holdings", also own 12.6% of MVT. The SNC offer for MVT is an "all scrip" offer, so there is no cash component; it is 0.2043 Sandon Shares for every Mercantile Share, and if Sandon completes the acquisition of all of the Mercantile Shares under the offer, it will issue approximately 46,523,036 Sandon Shares (subject to rounding) which, when combined with the 10,823,974 Sandon Shares issued to Siblow (as previously agreed), will represent approximately 54% of the expanded capital of Sandon.

In other words, this deal will double the size of SNC if it goes ahead, which increases their market presence and relevance.  

SNC flys under the radar of most investors, and the majority of retail investors have probably not heard of them so I thought I'd give a brief overview of the company, and the investment thesis.  Growing, good track record (investment performance), excellent fully franked dividend yield, well-run, and undervalued by the market.

Disclosure:  I hold SNC & FGX shares.

14-Oct-2019:  FY19 Shareholder Presentation - October 2019

In other news, SNC have now completed their acquisition of MVT (MVT will now be delisted from the ASX).  SNC are now a bigger LIC, which improves their relevance in the market.  They recently announced another 3.5c dividend (as expected) and they go ex-div for that one on October 21.  Based on their current SP, their dividend yield is excellent, and their divs are all fully franked as well, with those franking credits being an extra bonus for most of us (those that can use them).  They are also still trading at a significant discount to their BT NTA - currently that discount is in the order of 10% to 12%. 

Well run, great income stock, activist manager who is attempting to unlock value from a number of their holdings (via various active/activist measures), and trading at a 10%+ discount to intrinsic value (their IV being their NTA value).  There's a lot to like.  I hold SNC.  It is currently one of my largest positions.