Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

City of London PR - Public Relations Company or Investment Company?

Someone recently asked me to take a quick look at City of London PR (not to confused with the other City of London Investment Group-which is an emerging market investment manager). The name suggests that this is a Public Relations business but names can be deceiving.

I quickly discovered that City of London PR is in fact an investment company rather than an operating one with the Public Relations subsidiary a relatively immaterial element of the current business.

Browsing through the results for the year ended 31st March 2007 reveals that the PR subsidiary made a pre-tax profit of £106,132 on sales of £326,193 and is only anticipating ‘some’ improvement in the year ahead.

It appears that management would like to turn City of London PR into a specialist fund management business, having already been in discussions with a team of fund managers.

Realised profits for the year on disposal of a portfolio of investments were £673,000.

At the year end the group balance sheet shows financial assets of £5.1m, cash of £2.5m and a net asset value of £7.5m (net current liabilities were £100,000). The investments comprise a number of higher yielding securities but more importantly a large number of small mining stocks some of which appear to be unquoted.

With the share price currently standing at 80p (it was 96p went I started writing this) the current market capitalisation of £7.658m is a small premium to the net asset value at 31st March. As the group is currently structured as an investment company I would have assumed that the share price should in theory be moving in line with that of the investment portfolio. If anything, given the mix of the investments indicated in the annual report (smaller less liquid shares with a few higher yielding issues) I would have expected the shares to be trading at a discount (rather than premium) to the net asset value.

A quick (very) review of the largest investment holdings listed at 31st March 2007 reveals that the share prices of many of these have fallen post March 2007. For example the largest holding at 31st March 2007 was in shares of Prime People (value £528,000) and the share price of this appears to have fallen c6% since the year end. Other large holdings included shares in Tertiary Minerals which have fallen 17%, HBOS Irr Prefs which have fallen c6% and BAESystems Con Prefs which are down 21%. Shares in Tullow Oil, a £255,000 position at 31st March, are up 43% which helps. However, it’s obviously impossible to tell which holdings they have sold so this little review may not mean very much.

If £2.5m remained in cash this will clearly be further drag on investment performance in the short term.

They are due to receive a final royalty payment of from Iron Mountain in respect of the purchase of one of their investments which will help, however, I assume this will only be c$500,000, in line with previous payments.

The group’s operating costs for managing the currently portfolio of £7.5m in size are obviously very high. In simple terms they could sub-contract the management of the investment portfolio to another specialist fund management firm and it would only cost them (at worst) £150,000 per annum (c2% of assets under management).

They clearly need to do something about things hence the search for an investment management business, although I am a little mystified why they aren’t trying to grow the public relations bit as they have experience in this area and it's not a bad old sector to be in at the moment. I think they’ll have a tough job establishing a hedge fund management business as any decent hedge fund managers surely won't be interested in this type of structure.


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