Just three months ago, in the June Quarterly Report, we were lamenting the lack of a big winner in our basket of mining services companies. That changed this afternoon with a takeover offer for Coffey Group (COF) by US company Tetra Tech (NASDAQ:TTEK). The board recommended offer price, $0.425, is a massive 130% premium to today’s closing price of $0.185.
Apart from having a meaningful impact on the Forager Australian Shares Fund’s unit price (we had 3.6% of the Fund invested in Coffey before the bid was announced), this piece of news highlights a number of important facets to our mining services strategy.
Firstly, an offer at such a huge premium suggests the value we identified is there and worth paying for. Alongside Watpac, Coffey was one of the stocks being undeservedly tarred with the mining services brush. In our view, the parts of its business unrelated to mining could easily be worth more than the takeover price, but it’s good to see someone else thinks the same thing.
Second, we bought a basket of stocks because we expected some losses and some big wins, but had no way of determining which stock would produce which outcome. This result franks that strategy. We don’t need too many big wins like this before we are guaranteed healthy results from the basket, even if we have a few disasters (Bob Hughes of Hughes Drilling – that is not an invitation).
Finally, this space is stressful and difficult, but we’re good at it. You don’t need to tell me that life would be easier paying up for a portfolio of good businesses with great management teams. But we’ve been able to add significant value identifying beaten up asset plays and turnaround opportunities over the past six years. We face almost no institutional competition in the space. Our clients are able to handle the inevitable periods of underperformance and volatility. And a few sleepless nights won’t kill me. After all, isn’t that part of what you pay us for?
Functional cookies Always active
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.