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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Get Rich Or Die Tryin' – Buyin' $1 For Fiddy Cent 8 comments
    Dec 12, 2013 10:47 AM | about stocks: UBAAF

    (50 Cent)

    At the beginning of the year, we suggested buying $1 for $0.50 and getting the Bombay Stock Exchange for free via purchasing shares in Urbana Corp. (GM:UBAA). Since that time, I have had enjoyed constructive communication with their fund manager, who I trust and respect. It has been almost a year, so here is an update on this investment idea. These are the early results in terms of the market price:

    (click to enlarge)

    The NAV has gone up by about 49% from $1.89 to $2.82. The fund benefitted from the takeover of NYSE Euronext by Intercontinental Exchange (ICE). The Bombay Stock Exchange applied for an IPO withy the regulatory authorities several months ago and awaits their answer. The IPO is anticipated to forward early in the New Year. Here is the current investment portfolio:

    (click to enlarge)

    Since inception, the fund is up about 79%, over twice as much as the S&P 500 ETF (SPY) which was up about 39% over the same period:

    (click to enlarge)

    From a marketing perspective, Urbana has touted their annual compound returns of over 15%, which compares favorably to S&P 500 returns of around 5% during that period.

    Since the market price increased by 84% while the NAV has improved by 49% from the time of our last update, it currently trades at about two-thirds of NAV. Urbana's fund manager is working to close the remaining gap by aggressively repurchasing shares. In late August, he announced his intention to repurchase up to 10% of the public float, which is the maximum allowed under TSX exchange rules. Under the previous buyback, he repurchased almost six million shares at an average price of $1.18, which was quite accretive to the value of the remaining public shares.

    No key Urbana insiders have any current intentions to sell shares under the buyback plan. Urbana insiders think that their shares may be attractive and that purchase of such shares from time to time would be an appropriate use of funds. I agree.

    Disclosure: I am long UBAA.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Stocks: UBAAF
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Comments (8)
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  • steppppo
    , contributor
    Comments (209) | Send Message
     
    Chris -- question about the BSE investment. Looks like it cost Urbana about $32 million and now its market value is $15.9 million.

     

    Why the price drop and do you expect the IPO to make back that amount?

     

    I should add that this still looks like a very compelling investment.
    12 Dec 2013, 11:30 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (3892) | Send Message
     
    Author’s reply » They are good at aggressively marking down non-public investments, which is one of the behaviors that has given me comfort in management. Yes, I think that they will make back that (or some significant) amount in BSE in 2014.
    12 Dec 2013, 11:36 AM Reply Like
  • Ruerd Heeg
    , contributor
    Comments (321) | Send Message
     
    Chis, thanks for this interesting article.

     

    I have a comment regarding their BSE holding:

     

    "They are good at aggressively marking down non-public investments, which is one of the behaviors that has given me comfort in management."

     

    I don't think they mark down the BSE holding at all. I think they bought most of BSE in 2008 just before the crisis, cost $26 million. And they bought for $8 million more in 2010 or 2011. In the press I see quotes for the BSE shares of 290 rupees. Urbana's valuation seems to be based on this price.

     

    The press articles are telling us that the unofficial share price has gone up much due to greedy investors anticipating the IPO. BSE is well financed but at 290 rupees the backward PE of BSE seems to be about 29? Correct me if I am wrong. So a lot of growth seems to be priced into this stock already at pre-IPO prices.

     

    Shareholders have to tender their shares if they want to sell them as part of the BSE IPO. If not enough investors will tender that then the IPO may be cancelled. For 290 rupees per share I think the chances that that will happen are slim.

     

    Stock exchanges are great companies to own but probably (most of) Urbana's loss on the BSE holding is permanent.
    14 Jan, 08:36 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (3892) | Send Message
     
    Author’s reply » The biggest block of BSE was bought in May of 2007 at Rs400 and a INR/USD at 40.58. It is currently valued at Rs 260 and an INR/USD of 62. They took a 35% write down in Rs value of shares and 35% drop in currency. The company has talked about an IPO for years. Pricing has ranged from a 40% to 100% markup from existing prices. The Indian government has suggested that any buyers must be institutions, which would be highly problematic for an IPO. This position is a salvage operation. We will probably get out at some step up from the current valuation but it is uncertain and hard to quantify.
    14 Jan, 03:09 PM Reply Like
  • Pine Research & Trading
    , contributor
    Comments (163) | Send Message
     
    are there financials available for bombay stock exch?
    12 Dec 2013, 01:41 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (3892) | Send Message
     
    Author’s reply » http://bit.ly/1bZugDj
    12 Dec 2013, 01:46 PM Reply Like
  • Pine Research & Trading
    , contributor
    Comments (163) | Send Message
     
    thanks
    12 Dec 2013, 09:57 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (3892) | Send Message
     
    Author’s reply » Fund offers top-tier businesses at one bargain price: http://bit.ly/1m83OMw
    16 Apr, 02:47 PM Reply Like
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