Artful Investing

On Thursday I managed to sell my entire shareholding in Chaucer at 73.6p, more than a penny higher than my target sell price - I got lucky and was able to sell into a temporary spike, the shares have since slipped back to 70p or so to sell.

Now I have the job of finding another home for my cash. Strangely, the US hurricane season has been remarkably quiet, which perhaps explains recent strength in Chaucer's shareprice. A previous investment, SVB Holdings, has renamed itself Novae Group and the shares continue to languish below net tangible asset value while still insuring profitably. The risk, as always, comes from the discontinued liability reinsurance units. The recent interims provide a good deal of encouragement on this front however:

£20.2 million of the exceptional provision remains available to absorb any future deterioration from the Discontinued Units. Historically, incurred claims have slowed significantly in the sixth year from inception and accordingly reserves have shown much greater stability with increasing maturity. At June 2006 the 2000 Year of Account is 6.5 years old and the 1997 Year of Account is 9.5 years old. Although uncertainty remains, the scale of the £20.2 million remaining provision at this stage gives us some comfort on the ultimate development of the Discontinued Units.

The problem is, the market does not believe the £20.2m provision will be enough. I calculate, that without this issue the shares would be over 50% higher today, and trade around 40p, rather than today's 26/27p. The question is, will the £20.2m be enough? I sold shares in this company earlier this year in the expectation they would have to increase their reserve. I still believe this to be the case. - for all I know. I keenly await the next update from the company on the quarterly utilisation of the exceptional reserve. This news is due around the end of October.

The Artful Dodger

Shares in Chaucer, my oldest shareholding, advanced to 70.25p to sell today after reporting interim results. With net tangible assets at 46.7p and six-month earnings at 5.4p, the shares are approaching fair value. Without seeing the forecasts for the full-year however, my preliminary estimate is that the shares are worth 72.5p, using the diluted earnings per share number. I've held Chaucer shares for over three years now, after first purchasing at 42.88p in 2003, an annualised return of 18%. That's a little disappointing, but we will have to add in a dividend of around 4% every year. Further, the board today announced the interim dividend will be 1.10p and the final dividend of 2.26p. That's a dividend yield of 7.8% on my original investment, a superb income. If another opportunity presents itself I'll be selling and taking advantage, but I've not seen anything yet.

nCipher interims on Thursday.

The Artful Dodger

My Rightmove short was a success. As long expected the government caved in on it's HIPs proposals and made key elements of the legislation voluntary. This completely undermined Rightmove's business plans. The shares suffered a large decline and I made a considerable amount of money on my short. My short was closed at 280p, after being opened around 350p. A success but not quite on the scale I had hoped for. This was due to the remaining part of Rightmove's business, online property advertising, continuing to show tremendous growth.

NCipher will report interim results next Thursday. After SOCO, they are now my largest shareholding.

The Artful Dodger