Tuesday, October 1, 2013

Urbana Goes On A Roll

For what seemed like an eternity, shares of Urbana (URB) went absolutely nowhere. After I discussed the company in July of 2011 as a potential value investment, shares continued to drift lower for a good year and a half. As the discount grew wider, investor patience grew thin. But in the last ten months or so, the shares have been on an absolute tear; the stock is up 50% from July 2011 and up more than 100% from its 2012 low.

There was both a lot to like and a lot to dislike about this company. This dichotomy was hard to reconcile. On the one hand, the company traded at a discount to liquid assets such as shares in public companies (mostly exchanges, and then later financials). Management recognized this discount and was buying back 10% of the company's float each year.

On the other hand, the company is controlled by the manager, who primarily makes money from fees tied to assets under management, and these fees are rather high. This terrible incentive structure is probably the reason why management wasn't buying more shares; shrinking assets result in lower fees! At the same time, the investment mandate was creeping - the manager was buying all sorts of stuff outside of the focus, from numbered companies to complicated banks.

I can't really blame anyone for not touching this one. But I just couldn't resist, especially as the discount got wider and wider. Finally, however, even though a decent discount remains, I've now sold all my shares. While I can get comfortable with this set up when the discount is really wide (e.g. 50%), I just can't when the discount is so narrow. Momentum may carry this one higher still, but I don't want to be holding the bag if/when it doesn't.

Disclosure: No position

No comments: