I hesitate to say this but I’ve been revisiting my fairly disastrous idea of investing in the specialist private equity fund, EPE Special Opportunities – suggested in Money Week amongst others. At the time it seemed like a good idea, especially for contrarians -there was apparently a big discrepancy between the share price and the underlying assets. I did mention at the time that the fund’s share price was largely a play on the share price of its largest holding, Luceco – a LED and power products business that imports all sorts of energy efficient stuff from China. Well, within just a few weeks the nightmare happened. Just before Christmas, Luceco announced a profits warning, with likely pre-tax profits for the second half £3m lower than expected. The share price of Luceco then promptly crashed, dragging the fund down to recent lows. And there, both have largely stayed in the weeks since.
As I said the first time around when discussing EPE I cannot vouch for anything to do with Luceco, except to observe that its reputation in the City is now well and truly trashed. Any hope that it had ever had of using its paper to grow the market cap is finished. The cynic could observe that yet again public market investors have been led down the garden path by a private equity seller – and only after the business has been listed as the truly dire state of the finances have been revealed. I’m not actually sure it’s quite that bad, and I am willing to think that this is just short-term turbulence which caught the firm’s managers by complete surprise – but nevertheless, it really doesn’t look very good does it? But there still seems to be a business there, albeit smaller than we first thought. Which prompts the next observation – how much longer is it for the public markets? Surely other private equity buyers must now be circling it, which rather assumes that EPE itself hasn’t quietly been sounding out buyers? Either that or the business faces a long, hard slog to rebuild market credibility. It seems to me that there’s a fairly decent chance that Luceco might not be around on the public markets in its current shape within a few years which might save EPE investors from more agony.
At the 170p a share, the fund, EPE, is now worth around £48m. With the Luceco share price at 79.6p, its worth £128m with EPE’s 24% stake worth around £31m. In addition, the fund has around £33m in cash – before any buybacks – and there are a few other interesting assets on the balance sheet including a couple of PE investments, Whittards of Chelsea and a £2m plus investment in a direct lending fund. Using the back of the fag packet system, one suspects the fund’s NAV is probably around £65m which implies a NAV of around 235p (back in December then fund said its NAV would be 315p IF Luceco’s share price was at 145p – which it isn’t). My guess is that the other EPE shareholders – the fund’s managers have a big stake – will now be pushing for some kind of resolution with Luceco, which would either involve selling the stake or taking it private again. Maybe we’re moving closer to the point at which that value is realised? It’s just a pity that all this share price volatility has crushed investor’s optimism.