Why is Cymbria exceeding its net asset value?



The investment department offers its owners an interest in a portfolio of government securities and in a fund manager, EdgePoint Wealth Management

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It is not a normal situation for a closed-end fund that has a portfolio of publicly traded stocks to regularly trade above its net asset value (NAV): most investors are reluctant to buy a stock that costs more than his value. In addition, such a title would attract the interest of short sellers.


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But there is at least one TSX stock that has consistently traded above its net asset value and shows no sign of returning to its proper value. That stock is Cymbria Corp., which also ranks among the Toronto Stock Exchange’s Most Unusual Companies. On Thursday, shares closed at $ 52.75; on its website Cymbria listed the net asset value at $ 45.57.

Toronto-based Cymbria, which went public in 2008, is unusual because it offers its owners a stake in a portfolio of government securities as well as a stake in a fund manager, EdgePoint Wealth Management. (A group of managers, who all worked together at Trimark, now known as Invesco, formed EdgePoint.)

On its IPO, Cymbria raised $ 233.9 million, of which $ 142 million (at $ 10 per share) was from the public and the remainder from a private placement. At the time, Cymbria had a 22% stake in EdgePoint.


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“The manager believes that the wealth management company has the potential to make a significant contribution to the long-term value of the business. However, this investment will only require a minimal amount of capital commensurate with the size of this offering, ”Cymbria said then. Cymbria’s initial investment in EdgePoint was just over $ 500,000.

Since then, Cymbria has not been in the public markets to raise additional capital, although it regularly announces a takeover bid in the normal course of business. And he doesn’t talk much: messages sent to two of his management team weren’t returned.

But EdgePoint, which now represents 15.48% of its portfolio, was the big winner.

For example, at the end of 2017, retail assets under management were around $ 15 billion, while institutional assets were around $ 3.2 billion. These assets come from a concentrated source of providers: at the retail level, 20 percent of advisers account for about 83 percent of assets; at the institutional level, 20 percent represents 93 percent. “We look forward to creating wealth for our long-term investment partners,” said Cymbria.


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Considering the growth of EdgePoint’s business, what is the stake? Last December, Cymbria determined it was worth $ 185.9 million. (He also received a total of $ 33.5 million in dividends.)

Considering that Cymbria initially only invested $ 509,000, the returns have been quite spectacular. Cymbria said it determined this assessment “with the assistance of an independent assessor and the assessment committee.”

A year earlier, (December 2016) EdgePoint was valued at $ 110.3 million. At the end of 2013, it was valued at $ 35.6 million. But over the years, Cymbria, according to its annual information form, has used a number of valuation approaches. While this is now primarily a discounted cash flow model, “depending on the circumstances, other valuation approaches to determine the fair value of EdgePoint may be used.”

For the period 2012 to 2014, the methodology was a combination based on metrics (a percentage of assets under management, or a multiple of EBITDA) as well as a DCF model.

So what gives? It would appear that investors are willing to pay depending on the strength and quality of EdgePoint, which, for example, could take full advantage of its IPO. Basically, Cymbria’s 15.48 percent stake represents about $ 7 of Cymbria’s NAV and Cymbria is trading around $ 7 above NAV. As a result, EdgePoint would need to double to align the NAV and the trading price.

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