Kelso Group Holdings PLC on Thursday said it voted against a resolution as a shareholder of TheWorks.co.uk PLC at the latter’s annual general meeting on Wednesday, which related to a proposal of TheWorks paying a final dividend.
This was because Kelso said it believed TheWorks would be better off using its cash to buy back shares for cancellation.
Kelso is a London-headquartered investor backing small and mid-cap UK companies and holds 2.9 million shares or a 4.6% stake in TheWorks, the Birmingham, England-based retailer of arts & crafts, stationery, toys and books.
On Wednesday, TheWorks said 65% of shareholders at its AGM voted against declaring a final dividend of 1.6 pence, meaning the payout it had originally timetable to be paid would no longer be paid. Instead, it said it would now consult shareholders regarding alternative capital distributions, including consideration of share buyback.
Kelso on Thursday said it voted against the resolution, having voted in favour of all the other resolutions.
It pointed to a ‘low valuation’ of TheWorks of around 1.4 times enterprise value against earnings before interest, tax, depreciation and amortisation. Shares in TheWorks were up 1.0% to 39.50 pence each in London on Thursday late morning.
‘We believe, given the low valuation of TheWorks...that the company’s cash is better used by buying back its shares for cancellation,’ said Kelso, saying it was keen to engage with TheWorks management on this matter.
‘We strongly believe that the intrinsic value of TheWorks is significantly higher than the current value. We also believe that its position in the UK high street with a dozen own brands at the value end of arts and craft products, stationery, games and books all in the creative and learning arena is a good defensive part of the market.’
Shares in Kelso were down 4.8% to 2.00p each in London on Thursday late morning.
On Thursday last week, Kelso said its net asset value per share on June 30 doubled to 2.2p from 1.1p a year earlier, while pretax profit in the six months that ended June 30 multiplied to £1.3 million from £56,960 in the same period a year earlier. Revenue increased to £1.8 million from nothing.
On Monday last week, Kelso bought a substantial shareholding in TheWorks, acquiring 2.0 million shares of the 2.9 million it currently holds for 31.3p per share or around £626,000.
This marked its second investment in the company, while it also signalled its intention to vote against the final dividend resolution at TheWorks’s AGM.
Kelso’s portfolio currently consists of its TheWorks shareholding and its initial investment in Manchester-based e-commerce company THG PLC, in which it holds around 8.0 million shares. Shares in THG ticked up 0.1% to 65.91p each in London on Thursday late morning.
On Thursday last week, Kelso said it is building its third investment and aims to start investing in a further company shortly, while noting value opportunities as ‘remain[ing] plentiful’.
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