JEDT, I definitely think capital management initiatives definitely need to be looked at in this situation.
The two main ways to do this would be to conduct a share buyback or a special dividend. Whilst they both involve returning capital to shareholders, there will be different impacts to the share price & NTA.
Share buyback
A share buyback is essentially the ‘opposite’ of a capital raise, rather than diluting the share-base it will concentrate it. This means, given the same % discount to NTA remains, we’ll see an increase in the share price & NTA per share (see simple scenario modelled below). Note that in this situation, Embark would be closer to hitting their performance hurdles as the NAVS / SP average will go up.
Please note: my model doesn’t take into account a major factor which I was unable to model on iPhone notes. If, for example, MMJ was to do an on-market buy-back, it would be unrealistic to assume that they could buy the whole $10.2m back at the current share price, because, you’d assume that the market price increases as they buy shares back, hence reducing the total amount of shares. This also isn’t the only way to conduct a Share-Buyback (e.g. equal access buybacks, selective buybacks etc).
View attachment 1538353
Dividend
Now let’s apply the same basic analysis to what a dividend would mean. Essentially the Book value would still drop by $10.2m the same way as it does in the Share Buyback scenario, however, the no. of shares on issue would remain flat. This would imply that both the SP and NTA would drop, as the money is returned to holders. See below another simple analysis.
View attachment 1538374
These are just some of the considerations I’ve thought up. I’m not entirely sure what scenario I prefer, however, a share buy-back possibly could be a way to reduce the NTA gap? It’s an interesting one and I’m keen to hear people’s thoughts. Also the idea of a wind up could also be positive, however, I’m unsure how easy it would be to wind-down a 55.6m of HVT shares.
Anyway - as you can see by the images above, my phone is about to die, so I’ll probably chime in tomorrow morning with my NTA update.
Cheers,
CappMan
