I’ve been seeing a few “strategic review” press releases lately, this one on July 11 by Laurentian Bank (TSX: LB):
MONTRÉAL , July 11, 2023 /CNW/ – Laurentian Bank (TSX: LB) (the “Bank”), announced today that its Board of Directors and Management Team are conducting a review of strategic options to maximize shareholder and stakeholder value.
The stock rose from $33 and traded as high as $48 in the morning (it opened at $45, spiked to $48 in 2 minutes of trading before crashing to earth again).
One of the difficulties of keeping a wide watchlist of companies that you’ve researched over the past decade, coupled with defensive posturing (i.e. holding cash that is now yielding an extra 25bps from yesterday) is that statistically speaking a couple times a year you get these situations where companies announce something that cause the stock price to really rise. LB got on my radar in early 2021 as a pure value play – it is a mediocre institution, appears to have little in the way of competitive advantage beyond a lengthy existence, and trading at a steep discount to book value. Indeed, if/when they do finally sell out, they will likely get something below book value.
I was eyeballing Laurentian in early 2021 when it was in the lower 30’s (adjusted for dividends this would be the upper 20’s today). Given that the world was still losing their minds over Covid at the time, there were plenty of other opportunities that I engaged in but kept LB on my “boring as bricks and likely low downside” list.
Psychologically, it is difficult to see the product of research work like this when you can instead keep cash balances invested. However, it is akin to looking at the six digits of the latest lottery and thinking to yourself “had I picked 43 instead of 44, I would have won the million dollars”.
Another strategic review situation that I also missed out on was National Western Life (Nasdaq: NWLI) which has chronically appeared as one of the deepest value stocks on a price to book stock screen – the issue being that they had management/owner that was entrenched and was so glacial it made my investment style look like a meth-addled day trader by comparison.
This type of situation is very frustrating. For a company significantly below tangible book / NAV – why not go into run down mode – sell asset / buy back shares aggressively. I guess this is tougher for a Canadian bank to pull off. But invested quite heavily in shipping where firms are washed with cash with an active secondary market for vessels and lot of them are well below NAV. Really wish management would sell asset and buy back shares instead of continuing on.
Interesting that you mentioned NWLI – i made some money in the past on them. I had actually bought back in again in 2019 but became convinced management would never do anything to increase shareholder value and bailed on it. Very interesting to see them doing a strategic review. It’s one of those “one day” stocks and I did not have the patience – never thought the one day would come for these guys.