I like the LSX board and management team, but they really need to deliver now to remain relevant to the broader market. It's nice that they're resolving the conflicts of an external management team by internalising, but they also need to demonstrate good value to shareholders via appreciation in the share price and a closing of the discount. My biggest concern is that the vehicle is too small and illiquid to ever reliably trade close to NTA or realise meaningful operational savings by spreading costs across a bigger capital base, and whilst this NTA discount persists, they can't raise more capital to become more relevant (as any issuance would dilute existing shareholders to the benefit of new shareholders).
They could look at issuing some bonus options to existing shareholders to avoid dilution I guess...even though that tends to kill liquidity during the option life...but that has been tried by others and doesn't always work. The best way to narrow the discount is to simply provide excellent outperformance and/or get out there and market the Lion story more effectively.
Hedley's a decent public speaker, but both he and Robin need to get out there and market their socks off...and get the market talking about LSX.
The non bank lenders/providers of capital to business in the general economy are killing it in this market...Lion Selection should be doing the same in the mining space...even the clown show over at Tribeca, who have delivered abysmal returns despite very high fees, are better known to the market than the Lion Selection team, despite Tribeca being around for a fraction of the time.
Lion needs to get bigger...the way I see it, they have the following options, and all require good performance as the basic building block:
1. Better marketing/media presence to narrow discount, so they can raise more capital and become more relevant and more liquid. Start courting a few more journos, do more on social media...hire a casual PR consultant to pitch articles and get LSX some media placement in the AFR, West Australian etc or whatever...they don't cost that much...30-50k per annum would get a good one.
2. Find an underperforming LIC which trades at a similar discount to take over or merge with...Tribeca's TGF could be a good one to target as their fees are outrageous and their performance has been garbage for a very long time, though I'm sure there are others...a switch to internal management could deliver a big fees win for the shareholders of other LICs. Might be a way to use the cash on balance sheet presently if other fundamental investment opportunities are taking too long to materialise.
3. Issue bonus options to existing shareholders, then perform well enough that these all get converted to meaningfully expand the size of the vehicle.
4. Convert the LSX vehicle to an unlisted fund so it trades at NTA. Obviously this sacrifices liquidity and is the least preferred option, and it doesn't realise any meaningful economies of scale, or grow the pie (many investors would choose to exit). Shrinking to greatness is sometiems an option, but LSX is already tiny, and we need to be of size to retain investment talent.
One final point...some parts of the market may be applying a corporate governance discount because Robin is Hedley's Dad and people might unfairly deride it as "a family company". I think both gents are very capable, and they've been fair an open with shareholders in their dealings, but my advice to them is this;
- you can't change the fact that you're father and son...so lean into it...the market will ignore this if they are suitably impressed
- so get out there and market yourselves and LSX relentlessly...you're both very capable, and if the market sees that, then the discount to NTA will narrow (and this is the pathway to solving many problems)
- I recall 20 years ago Lion used to do regular roadshows to the various states where Robin, Chris Melloy and others would talk about the various holdings and what they were seeing in the market...whether it's online or in person doesn't really matter (conscious Robin may not enjoy travelling so much as he's now older)...but you need to get your faces out there and communicate with the market and with shareholders.
Tell the stories, people will listen. The story of providing capital intelligently to good exploration teams is a good one whose time is about to be upon us...it just needs to be told better and more frequently to as wide an audience as possible.
I'd love to buy more LSX, but I'd need to know that something is changing with regard to the marketing and growth plans of the business.
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