Why Does Cymbria Punch Above Its Web Asset Worth?

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It’s not a standard state of affairs for a closed-end fund that owns a portfolio of publicly listed shares to commerce persistently above its web asset worth (NAV): Most buyers shrink back from shopping for a inventory that prices greater than its price. As effectively, such a inventory would appeal to the curiosity of brief sellers.

However there may be at the least one TSX inventory that has persistently traded above its NAV and that reveals no signal of returning to its correct worth. That inventory is Cymbria Corp., which additionally ranks as one of many TSX’s extra uncommon corporations. On Thursday, the shares closed at $52.75; on its web site Cymbria listed the NAV at $45.57.

Toronto-based Cymbria, which went public in 2008, is uncommon as a result of it provides its house owners an curiosity in a portfolio of public securities in addition to an curiosity in a cash supervisor, EdgePoint Wealth Administration. (A bunch of managers, all of whom labored collectively at Trimark, now often called Invesco, fashioned EdgePoint.)

In its IPO, Cymbria raised $233.9 million, of which $142 million (at $10 a share) got here from the general public and the remainder from a personal placement. On the time, Cymbria had a 22 per cent stake in EdgePoint.

“The Supervisor believes the wealth administration firm has the potential to be a cloth contributor to the long-term worth of the corporate, nevertheless, this funding will solely require a minimal quantity of capital as a proportion of the dimensions of this providing,” Cymbria stated then. Cymbria’s unique EdgePoint funding was a tad over $500,000.

Since then Cymbria hasn’t been within the public markets elevating extra capital, though frequently it pronounces a standard course issuer bid. And it doesn’t discuss a lot: messages despatched to 2 of its administration crew weren’t returned.

However EdgePoint, which now accounts for 15.48 per cent of its portfolio, has been the large winner.

As an illustration, on the finish of 2017, retail property beneath administration have been about $15 billion whereas institutional property have been about $three.2 billion. These property come from a concentrated supply of suppliers: on the retail stage, 20 per cent of advisors characterize about 83 per cent of the property; on the institutional stage, 20 per cent account for 93 per cent. “We sit up for constructing wealth for our funding companions over the long run,” stated Cymbria.

Given the expansion of EdgePoint’s enterprise, what’s the stake price? Final December, Cymbria decided it was price $185.9 million. (It has additionally acquired a complete of $33.5 million in dividends.)

Provided that Cymbria initially invested solely $509,000, the returns have been relatively spectacular. Cymbria stated it decided that valuation “with the help of an impartial valuator and the Valuation Committee.”

One 12 months earlier, (December 2016) EdgePoint was valued at $110.three million. At finish of 2013, it was valued at $35.6 million. However through the years, Cymbria, in line with its annual data kind, has used a variety of valuation approaches. Whereas it’s now primarily a reduced money movement mannequin, “as circumstances dictate, different valuation approaches to find out the honest worth of EdgePoint could also be utilized.”

For the interval 2012 to 2014, the methodology was a mixture based mostly on metrics (a share of property beneath administration, or a a number of of EBITDA) in addition to a DCF mannequin.

So what offers? It will appear buyers are ready to pay up based mostly on the power and high quality of EdgePoint, which, might for instance, understand full worth by going public. In tough phrases, Cymbria’s 15.48 per cent stake accounts for about $7 of Cymbria’s NAV and Cymbria trades round $7 above NAV. Accordingly, EdgePoint must double to convey NAV and buying and selling value in line.

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