Some lessons are expensive. I bought URB.to because it was trading at a discount to NAV and buying back shares. It seemed pretty good. I mean URB used to trade at a premium to NAV. Most recently NAV has dropped but the share price has dropped faster. So there is an even bigger gap. One would think that I should buy more, and maybe I should.
So it begs the question…”why?” Why would there be such a large gap between NAVPS and share price? I think there is no real confidence in management to execute or there is no real confidence in the sector as a whole. It may be true, things change and exchange market could look quite different from today.
I am selling because I blindly bought URB without dissecting why it was so cheap. I feel that the lack of liquidity has something to do with it. I also have no real opinion of the future of the businesses in the fund. So I feel that there are companies out there with clearer visibility. There has been around a 20% discount to NAV since summer 2008. I am selling cheap to buy cheaper.
More to come…
Disclosure: Author has sold URB.A
This is a simple idea. You have a company trading at a pretty big discount to NAV. Also, you have non-voting shares trading at a larger than normal discount to the voting shares. The CEO (who owns a pretty big chunk of this company) has stated that he is aware of the discount and will continue to buy back shares.
One would think that even the mention of the CEO noticing the discount would close the window. I think liquidity is playing a part here as neither shares (voting and non) are liquid enough for big money to get involved. Also, the NAV hasn’t rebounded like the overall equity markets. I think there is some worry about the CEO’s recent poor performance. I’m not smart enough to know if he has actually done a bad job. I am just buying at a discount to assets with an CEO who has skin in the game.
Here is a chart that shows the history of URB. This goes back to when Urbana started announcing their NAV in late 2006.
I apologize for the messy chart. You can see that in 2006 and 2007 the shares traded at a premium to NAV. As the shares were at a premium, more were issued. The shares eventually moved into a discount. The discount to NAV is now as high as is was in late 2008 and early 2009. The CEO has focused on buying back shares.
Currently the non-voting shares trade at a 15.7% discount to the voting shares. They did reach as high as 30% in late 2008. The long run average is around 5%.
Obviously there are risks. The value of the holdings of Urbana could drop and take away the discount. There are major competitive pressures on the stock exchanges. But this isn’t an earnings story, this is an asset story. There are several write-ups already available. The numbers are from Friday March 25th, so they might be a little different now.
I am taking a position in the non-voting shares.
Disclosure: Long URB.A