Post by
mrmoribund on Sep 05, 2024 11:23am
Urbana renews NCIB
Well that's very nice but it doesn't mean anything if Tom Caldwell is determined never to use it. And, last I heard, he is determined never to use it.
His idea, if I understand correctly, is that he will raise Urbana's profile (ideally also make the massive discount to NAV shrink) by growing the company.
Will growing the company by itself (independent of performance) make the discount shrink? When I look at the best comparables I can find, I don't see any evidence of it. It looks to me entirely possible that Urbana could grind out a double in its total assets over, say, five years and then find the shares still trade at a 50+% discount to NAV per share.
That said, the NAV performance has been pretty darn good--for the simple reason that Tom and his followers have been pretty darn good stock pickers. Beats me why the market won't give Urbana shares some credit for this. But there it sits at a 50+% discount to NAV.
Now if the good stock picking were guaranteed then I suppose THAT could be a justification for not using the NCIB. Like if every stock they chose turned out to be another CSE or Blue Ocean.
But that would be fantasy thinking. There was the Bombay Stock Exchange and there will be things that perform similarly in the future. Happens to everybody.
With the NCIB buying shares at a 50+% discount to NAV the gain in NAV (per share) is huge and instantaneous. You've got to have substantial hubris to assume you can do better than that by picking winners every (or most of the) time.
Regardless, even if you were able to find Blue Oceans again and again, you could STILL make a strong case for using the NCIB.
Why? Just think of the NCIB and the Citigroup holding side-by-side. Using the NCIB to buy shares at 50+% off, you're getting something approaching an immediate 100% return on your money. Urbana could sell Citigroup to use the proceeds entirely to fund NCIB purchases.
Would this make sense? It would have to, UNLESS you're really confident that Citigroup is going to, say, triple over the next year.
But is that likely? I don't think so.
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One other thing. When Urbana deliberately chooses NOT to use the NCIB it sends a terrible message to the market. People look at this and will likely think one of two things. Either:
(1) there's something wrong with the Urbana business or the portfolio--it says the portfolio is worth $10+ per share but, for some hidden reason, it just isn't;
or
(2) Tom Caldwell is what one might call an empire builder--he simply wants to be the boss of a BIG company and he doesn't care about the performance of the actual shares, i.e., he doesn't really care about the shareholders. He wouldn't be the first.
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Not long ago, Urbana was showing support for its shareholders, especially for the non-voting shareholders, by vigourously using the NCIB + supported by modest, cost-effective (I think) advertising. It looked to me like a great path to stay on.
For whatever reason, Urbana lost patience with this and appears to have stopped both.
The result? It looks like it has led directly to the discount to NAV per share expanding.
None of this is intended to take away from my praise for the good stock picking.
But, I would say, just as Urbana should jump at the chance to buy, say, shares of Blue Ocean for less than they're worth, so it should also jump at the chance to buy shares of URB.A for far less than THEY are worth when the opportunity presents itself--which it does everyday.