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?
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.