BSD Crown BSD.LN
January 21, 2015 - 9:37am EST by
aubrey
2015 2016
Price: 0.17 EPS 0 0
Shares Out. (in M): 110 P/E 0 0
Market Cap (in $M): 28 P/FCF 0 0
Net Debt (in $M): -50 EBIT 0 0
TEV ($): -22 TEV/EBIT 0 0

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  • Sum Of The Parts (SOTP)
  • Holding Company
  • Large Net Cash Position
  • Discount to NAV
 

Description

BSD is a holding company listed in London. Its assets are USD50m of cash and a 62% stake in a business listed in Tel Aviv called Willi Investments. Willi Investments in turn owns a 59% stake in a listed NASDAQ stock called G Willi Food. G Willi Food itself has been written up on VIC and is cheap.

Based on the market cap of G Willi Food, this stake is worth USD33m to BSD. Adding up the value of the BSD cash, a small amount of cash in the intermediary company comes to USD83m. So BSD is trading at a 64% discount to the sum of its parts.

Key risks:

1. Capital allocation: BSD is 44% owned by a Ukrainian/Israeli investor called Alex Granovsky. There is no current plan to dividend out the cash (though see below for a potential catalyst). The current strategy is to invest in Israeli businesses both through G Willi Food (which has its own cash pile) and through BSD. There is not really enough of a track record on Granovsky to really know how good this capital allocation is likely to be.

2. Corporate governance: no sign that the controlling shareholder is screwing minority shareholders and there are plenty of shareholder protections in place in the UK listing and Israeli law to stop it happening but this is certainly a risk.

Catalyst: Granovsky is struggling financially mainly as most of his assets are in the Ukraine which is currently in civil war/being invaded by Russia (depending on your political perspective). One of his holding companies (called BGI Investments, also listed) has a bond payment due on March 2015 and BGI does not have the cash to pay it. Granovsky needs to come up with USD7m to pay that bond. He also owes a private equity group called Fortissimo and another investor USD11m for the shares in BSD (then called Emblaze) that he bought from them a year ago. Unless he raises the cash to repay the bond and what he owes BGI will default and the bondholders will likely liquidate BSD as BGI's only asset. Even if he manages to raise bank financing or sell a stake in the company to another investor that is likely to be positive for minority investors as a new investor may well want the BSD cash dividended up to the holdco.

 

Conclusion: not without risk but incredibly cheap and a discernible catalyst in the next couple of months

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Catalyst: Granovsky is struggling financially mainly as most of his assets are in the Ukraine which is currently in civil war/being invaded by Russia (depending on your political perspective). One of his holding companies (called BGI Investments, also listed) has a bond payment due on March 2015 and BGI does not have the cash to pay it. Granovsky needs to come up with USD7m to pay that bond. He also owes a private equity group called Fortissimo and another investor USD11m for the shares in BSD (then called Emblaze) that he bought from them a year ago. Unless he raises the cash to repay the bond and what he owes BGI will default and the bondholders will likely liquidate BSD as BGI's only asset. Even if he manages to raise bank financing or sell a stake in the company to another investor that is likely to be positive for minority investors as a new investor may well want the BSD cash dividended up to the holdco.

 

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    Description

    BSD is a holding company listed in London. Its assets are USD50m of cash and a 62% stake in a business listed in Tel Aviv called Willi Investments. Willi Investments in turn owns a 59% stake in a listed NASDAQ stock called G Willi Food. G Willi Food itself has been written up on VIC and is cheap.

    Based on the market cap of G Willi Food, this stake is worth USD33m to BSD. Adding up the value of the BSD cash, a small amount of cash in the intermediary company comes to USD83m. So BSD is trading at a 64% discount to the sum of its parts.

    Key risks:

    1. Capital allocation: BSD is 44% owned by a Ukrainian/Israeli investor called Alex Granovsky. There is no current plan to dividend out the cash (though see below for a potential catalyst). The current strategy is to invest in Israeli businesses both through G Willi Food (which has its own cash pile) and through BSD. There is not really enough of a track record on Granovsky to really know how good this capital allocation is likely to be.

    2. Corporate governance: no sign that the controlling shareholder is screwing minority shareholders and there are plenty of shareholder protections in place in the UK listing and Israeli law to stop it happening but this is certainly a risk.

    Catalyst: Granovsky is struggling financially mainly as most of his assets are in the Ukraine which is currently in civil war/being invaded by Russia (depending on your political perspective). One of his holding companies (called BGI Investments, also listed) has a bond payment due on March 2015 and BGI does not have the cash to pay it. Granovsky needs to come up with USD7m to pay that bond. He also owes a private equity group called Fortissimo and another investor USD11m for the shares in BSD (then called Emblaze) that he bought from them a year ago. Unless he raises the cash to repay the bond and what he owes BGI will default and the bondholders will likely liquidate BSD as BGI's only asset. Even if he manages to raise bank financing or sell a stake in the company to another investor that is likely to be positive for minority investors as a new investor may well want the BSD cash dividended up to the holdco.

     

    Conclusion: not without risk but incredibly cheap and a discernible catalyst in the next couple of months

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Catalyst: Granovsky is struggling financially mainly as most of his assets are in the Ukraine which is currently in civil war/being invaded by Russia (depending on your political perspective). One of his holding companies (called BGI Investments, also listed) has a bond payment due on March 2015 and BGI does not have the cash to pay it. Granovsky needs to come up with USD7m to pay that bond. He also owes a private equity group called Fortissimo and another investor USD11m for the shares in BSD (then called Emblaze) that he bought from them a year ago. Unless he raises the cash to repay the bond and what he owes BGI will default and the bondholders will likely liquidate BSD as BGI's only asset. Even if he manages to raise bank financing or sell a stake in the company to another investor that is likely to be positive for minority investors as a new investor may well want the BSD cash dividended up to the holdco.

     

    Messages


    SubjectPrice decline
    Entry01/21/2015 09:46 AM
    Membermartin92

    Why did the stock price collapse from 60 to 17 over the past year?


    SubjectCorporate Overhead
    Entry01/22/2015 03:42 PM
    MemberMSG257

    Do you have a sense of what normalized overhead expenses are expected to be at the BSD hold co?

     

    It looks like the holdco generated 8.7M in losses in the last 9 months.  Some of this is R&D from the legacy business, some of this maybe one off litigation, and some portion seems to be overhead related.

     

    We generally capitalize holdco overhead/expenses and reduce our view of value based the capitalized expense.


    SubjectApologies for not answering...
    Entry03/18/2015 08:37 AM
    Memberaubrey

    Hi to all people who asked questions. For some reason I didn't get a notification. Here goes:

    1. I don't know why stock price fell, more sellers than buyers I guess. Negative factors certainly the unknown nature of the new controlling shareholder. Probably overpaid a bit for Willi. Orphan status of a London listed stock with Israeli shareholders.

    2. Corporate overheads have been messy recently. Difficult to get from the statements but mgmt estimate $1m p.a. for BSD from here. Still some risk of modest legal costs re the patent but otherwise doesn't look too bad. Probably some risk of BGI sucking out some cost for 'acquisition analysis' or something like that though.

    3. Shareholders: this is key. And there have been several developments. I won't bore you with all of them because it has been a veritable flood of announcements. The bottom line is that it looks like BGI (whe holdco) has been served with a temporary injunction to prevent it selling or otherwise doing deals to raise finance for Granovsky. This has been initiated by Alfa Bank, Granovsky apparently owes them USD$15m. Due to this it looks unlikely that BGI will meet its bond payment on March 31st. Ideally, for us, the BGI bondholders will declare a default 7 days later and seek to recover their money. They will be seeking to get their principal back but there will be other creditors out there (notably Alfa and possibly Fortissimo depending on whether their deal with Granovsky is reversed or not) looking to maximise the value of the BGI equity. This is great for us as it means a likely liquidation of BSD, cash plus a sale of WILF.

    Clearly, we dont' know exactly how this is going to pan out but it does look reasonably positive for BSD shareholders.


    SubjectI should perhaps...
    Entry03/18/2015 08:41 AM
    Memberaubrey

    ..point out that the liquidation value of BSD (cash plus market value of WILC) is probably $75m, or 46p per share vs the current price of 23p per share. This calculation is slightly complex because we have to account for the put option for the selling WILC shareholders but it is pretty close. Plenty of upside if the liquidation pans out as expected.

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