A managed wind-down [no paywall]
With a clear path to ~60% upside to NAV
I will keep this one short and sweet as its mainly suitable for PA, but mainly because we’re working on a few very interesting write-ups that we’ll be sharing over the next weeks; large and high-quality companies, some with very juicy-priced options.
Also, a reminder that we are now publishing our TMM, our overview of actionable event-driven trades and special sits, in a separate publication:
JZ Capital Partners
JZ Capital Partners (JZCP) is a small, UK listed closed-end private equity fund, with a focus on US and European micro-cap companies and US real estate.
The company performed terribly over the years, which resulted in a persistent large discount of its market cap compared to the fund’s NAV.
Look at that long-term performance. That’s a track record you want to get rid of.
Indeed, in order to stop the hurt, JZ decided in August 2020 to go into a managed liquidation. No new investments would be made – with the exception of necessary investments ‘to maximize the value of the existing portfolio’ – debt would be repaid, and capital returned to shareholders.
This is exactly what the company did. Since its new ‘investment policy’ in 2020, JZ achieved realizations of over $500m and repaid roughly $270m of debt.
Interestingly, not only has the NAV been roughly stable over the past few years since the company changed its mandate, it has also been able to realize investments at roughly NAV, sometimes surprising a bit to the upside, and return the first $40m of capital to shareholders (after repaying all debt) in July 2024. This was ~12.7% of shares at a $4.08 p/s, or roughly a 58% premium (through a mandatory tender offer at NAV).
This is basically how this investment should look like over the next few years (unless we suddenly close the gap to NAV).
The company provides NAV estimates on a monthly basis, so we can keep a close eye on developments. JZ currently reports a $277m NAV, consisting of $170m in private investments and a comfortable cash position of $108m, for $4.10 p/s in NAV. This compares to the current share price of $2.61.
Part of the cash has been earmarked for further investments into certain portfolio assets that ‘will require significant further investment and time to maximize their value’. Roughly $48m remains to be invested. I refer to the interim report for a more detailed overview of the portfolio.
But the next capital return has already been announced, with JZ aiming to return $30m over Q1 25.
Other future returns will be dependent on further realizations. JZ noted in November that while some degree of further realizations may be anticipated in the relatively near term, it expects that substantially all of the investment portfolio should be realized over the next three years.
In the meantime, the US and European micro-cap portfolios appear relatively stable, showing small gains over the first six months of 2024. JZ continues to work towards further realizations in both portfolios. Regarding the real estate portfolio, the company has two remaining properties with equity value: Esperante, an office building in West Palm Beach, and 247 Bedford Avenue, a retail building with Apple as the primary tenant, in Brooklyn.
In short. We’ve got ~60% upside (before costs), assuming the liquidation will be at NAV, though the company has showed that disposals could surprise to the upside, with another $30m coming at NAV over the next few months.
It’s not the highest of upside investments out there, but I believe that the downside is pretty derisked, with the company showing to be able to maintain the NAV, and realize it, at healthy levels.
Some people are just good at selling, but buying.
If you value this post, please like and hit the “share” button below. Thank you.