UK stocks are dirt cheap. Why won't the boards act? $ZIG $CRW | Undervalued-Shares

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0:31All right.

0:32Undervalued-Shares: You're about to listen to the Yet Another Value podcast with your host, me, Andrew Walker. Today, we've got a podcast. You'll hear, I'm fired up. As they would say in Louisiana, I'm all fired up. I don't know if I can do that accent, but I am fired up about the podcast and the topic we're going to talk today. We have Sven Larson from Undervalued Shares. He has been publishing letters to a lot of UK companies talking to them about capital allocation, fixing their undervaluation. And if you've listened to this podcast for the past three years, you've heard me joke, quote unquote, that the UK market is an emerging market.

1:03Undervalued-Shares: The stocks are so cheap there. And the only solution so far has been huge takeouts by private equity companies or strategic partners. And it's nice if you own the company that gets taken out. But as a whole, I found the experience of owning UK stocks hasn't really generated that much return because you get the big return from the takeout. But what about the 80 % of companies that aren't taken out? So anyway, Sven's been publishing a lot of letters, working on them. We're going to talk about the UK market overall, what ails the UK market, what the fixes for the UK market are. And then we're going to talk about two specific companies that he's published letters on and kind of the issues, the opportunities, everything facing them.

1:38Undervalued-Shares: One of them is ZigUp. The ticker there is Zig. Disclosure, I own a little bit of the company. So that is the disclosure. There's disclaimers, everything at the end of the podcast, not investing advice, all that. But we're going to get there in one second. But first, a word from our sponsors. today's podcast is sponsored by fiscal.ai fiscal.ai is the modern financial data provider for global equities look that's what they have me tell you but let me tell you how i've been using fiscal.ai and i'll remind you i'm a customer i paid with my own money to connect to the fiscal.ai api there's two things that i've really found it useful for number one this is something super unique they've got a huge database of fund letters and the fund letters are created are connected by the API.

2:18Undervalued-Shares: So whenever I'm researching a company, whether it's researching the company because I'm interested in them or looking up an event or prepping for a podcast, the first thing I have my AI do is I say, hey, I'm prepping for a podcast on what are we I'm prepping for a podcast on hymns. And the first thing it does is it says, hey, here's all the recent letters on fiscal.ai of people talking about hymns. And here's their thesis, here's their thesis, all that sort of stuff. So that's the first thing. And that is really unique. And that is really fun. And then the second thing I do is I use it for edited financials, right?

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3:13Undervalued-Shares: I'm a big fan of the podcast. If you want to try it out, you can use my link at fiscal.ai.yav to get 15 % off their AI connector. That's fiscal.ai.yav, and there'll be a link in the show notes. All right, hello, and welcome to the Yet Another Value podcast. I'm your host, Andrew Walker, still sporting a mustache. And with me today, I'm happy to have on, I think this is actually the second time, my friend Sven Lawrence. Sven, how's it going?

3:36Swen Lorenz: Good, good. Great to see you again. Last time I saw you in New York at my conference, good to be on your podcast now for a change?

3:43Undervalued-Shares: It was a lot of fun. We'll get there. Well, maybe not to the government. We'll get there in one second, but two things before we start. First, note that Sven writes undervalued shares.com. I will include a link in the show notes for people to follow that and also a link to what we're going to be discussing today in the show notes for people. And then second, we're going to be talking mainly about the UK market, which as we'll talk about is basically an emerging market market. So everyone should remember nothing on this podcast is investing advice and that is an international market for my domestic listeners so it's not tax advice consider all that sort of stuff do your own diligence full disclaimers in the show notes and at the end of the podcast all right so sven the reason we're talking is you have been on a hitting spree recently of sending letters banging the drum on something that i've kind of mentioned off and on on this podcast over the past year uk companies are way too cheap and boards and companies need to sit up and do something about it or else the uk market is going to disappear whether it's from all of the companies going private or just because, you know, if a tree falls in the woods and nobody hears it, doesn't make a sound.

4:45Undervalued-Shares: So I'd love to just start kind of what's, I think you've written three letters, four letters, but what spurred this recent increase in output? Like, how are you seeing the situation? And then we can dive further into that and maybe talk about one of the two or the companies after.

4:59Swen Lorenz: So I've been going on about this whole subject of the UK market being way too cheap and being, you know, the equivalent of shooting fish in a barrel for private equity companies and strategic investors for years. And I was admittedly a bit early. I wrote about this sort of three years ago. And recently, it's been getting a lot of attention because there's been so many takeover bids solicited and unsolicited in the United Kingdom, that people are now quite rightly questioning whether the market is going to disappear. If you look at the main board of the London Stock Exchange, since 22, 25 % of the companies listed there have disappeared, Going private, takeovers, I mean, it's a mixture of things.

5:38Swen Lorenz: It's absolutely remarkable. The other thing that's remarkable are the premiums paid by bidders. Usually, you know, for a decent sized company, you'd expect a premium of 20 to 30 percent. But in the UK, it's often 40 percent, 50 percent, sometimes even more than that. I've seen triple digit premiums for takeovers. And that's just an indication that the market is severely undervalued. And this is very much what's driving this at the end of the day. The UK market is dirt cheap. A lot of very attractive companies there. A lot of companies are listed in London, but they're not so much British by way of doing business internationally.

6:13Swen Lorenz: And some of them may even do the majority of their business in the United States. So you'd have to say this is de facto in a way, an American company, but listed in London. And this is where private equity and strategic investors are currently having a field day. It's easy, easy winnings. And in a way, they have it too easy. And that's why I started writing letters.

6:35Undervalued-Shares: So let's start with the valuation. You know, I think you're attracted to the same reason I am. You look at these companies and, you know, I always say like, hey, if you're if you're doing an Excel and it says the stock is undervalued and that's the whole thing you've done. Well, you're probably missing something because like markets generally aren't that easy. But the UK market kind of has been that easy with one big pushback on that. I'll give you. But actually, I'll give it to you right now. Like, I think the pushback would be, hey, if you're doing all this Excel work and it's, says, hey, the stocks are too cheap.

7:06Undervalued-Shares: And then they just languish and stay too cheap until hopefully you get a big check from a private equity firm, which is awesome. But as you said, 25 % taken out over four years, let's call it. I came onto this bandwagon in 2024. You were a little early in 2023. The market has not risen. The only thing that's resulting in value creation is if you're lucky enough to get your company taken private. And on the whole, a super cheap market, you'd think the whole thing should rise. So I think the pushback would be, hey, Andrew Sven, you guys might be right on a spreadsheet, but if you're only takeout as private equity, it's not really alpha.

7:43Undervalued-Shares: You're just hoping that you get one of the lucky ones, but on the whole, the market doesn't generate a lot of excess return. So I'll break that down a lot of different ways. But what would you kind of say to that overarching thought?

7:54Swen Lorenz: I used to be in the camp of value investors, and I have to admit that I've somewhat left that in the sense that I think buying something that's cheap and waiting for the weather to change.

8:03Undervalued-Shares: This was Japan for 15 years, right? And if you did it in Japan in 2010 and you held it today, your return sucked. If you did it in Japan in 2000, let's say 23 and held it today, you did unbelievably, right? So it's just kind of like, yeah, sorry to interrupt you, but it just reminded me so much of it.

8:21Swen Lorenz: Yeah, well, and I'm a big believer in you need to have agency and you need to be proactive and you need to make things happen. unless you make it happen yourself you know no one else will make it happen for you usually and that's all the more true in the uk with its undervalued stocks someone needs to step in to do something about these undervaluations and that could be private equity making a bit but it could also be a board saying what is it which levers do we have control of and there's a lot that boards can do ceos cfos you know the whole management team the obvious one always being share buybacks If your share is trading at four times earnings and you have a relatively low debt leverage, the obvious thing is to start buy back shares.

9:05Swen Lorenz: That's one way. There are so many options that boards have. And too little of that has been happening in the UK. The UK is definitely behind in terms of governance. This is a financial market that, in terms of its size, is still one of the world's largest financial markets. But in terms of innovation, governance being ahead of the curve, it's just not there anymore. It's become a bit of a backwater. And there's also, I mean, I'm not getting political here, but the UK has had a rough time for 10 years now. We've had seven prime ministers there in a decade. This is what you used to see in Italy during its worst time or in Latin American banana republics.

9:45There's definitely an element of capitulation, depression,

9:50Swen Lorenz: lack of belief in the future. And I think this has also rubbed off on governance standards. boards are more about administering what they've got, being very happy with their board fee of whatever it is that they're charging a year, and ticking boxes of, you know, the boxes that used to tick 20 years ago, but the world has moved on and capital allocation standards have moved on, incentivization schemes have moved on. And UK is just stuck in the past. That's what it boils down to. I mean, the things that happened in the United States that changed in the United States in the, you know, 10 or 20 years ago already, the UK still hasn't figured that one out yet.

10:25Swen Lorenz: This is also where the opportunity lies. I'm saying this as I'm not moaning and complaining. I'm saying there's a huge opportunity for quick wins, all sorts of re-ratings, catalysts, special events and event-driven investing. You've got all of that right in front of you, but someone needs to do something. It's just not going to happen out of its own energy.

10:47Undervalued-Shares: No, I'm really glad you pointed to the boards because I want to go to – I think there's a lot of fingers to point, right? There's three main constituencies to kind of a company stock price, right? Not that anybody can control it fully, but there's the owners, the stockholders, there's the board, and then there's the management team, right? And all of them are intercorrelated somehow, but those are the three main constituencies. And we'll get there. I think when I've read your writings or seen your interviews, I think you point a lot of the fingers at the shareholders. And I'd love to discuss the shareholders, but I would put like 90 % of the blame, I would say, on the boards.

11:23Undervalued-Shares: Because I've interacted with some of these boards and everything you said is just spot on. You know, these are board members who they own no stock. So they don't care about the share price. You know, the share price is 100 or 10 doesn't really affect them. I'm sure they'd like it to be higher, but they're not really incentivized. They you know, you talk to them about capital allocation, as you said, hey, you know, dividends versus buybacks. If the stock is fairly priced, that's a discussion we can have when your stock is four times earnings. and every private equity bid is at 11 times earnings.

11:53Undervalued-Shares: Like it's a pretty obvious thing, but the boards, they just check the box and they don't want to change it. So I guess there's not much of a question there, but I do think there is something to, hey, again, to the point I was making earlier, this has been going on for a while now. And the boards, I don't really feel like they've had their feet held to the fire. Like aside from us hoping and praying or maybe getting activists writing letters, as you said, I love what you're saying, Creature and Destiny, but without that, like what hope is there? And look, you and I are just two handsome men on a podcast.

12:22Undervalued-Shares: Like, if it's just us, like, what hope is there? Because I've been kind of surprised we haven't seen more activism and more aggressive, you know, Dan Lopesal, medium-sized hedge fund buying 15 % of a company and starting to put some heads on a block.

12:39Swen Lorenz: There's a lot to reply and a lot to add, but I'll start with a point where I slightly disagree with you. the boards obviously ultimately they're sitting at the levers and they can implement changes but ultimately the boards are controlled by the shareholders if it's the wrong board it's down to the shareholder to say you guys are not doing your job you either call it incompetent negligent whatever it is you know and and they can change them and i think i mean i don't really want to i don't want to make this a negative finger pointing exercise but you know if there was one villain in this story to make it interesting i'd say it's probably the large corporate fund managers in the uk because they are the ones who are holding stakes of oftentimes five percent eight percent ten percent individual companies and if a bunch of them you know came to the same conclusions then words could easily be replaced and in a way what they've been doing instead i'm i'm very much generalizing now and there are very positive outliers among UK fund managers.

13:40Swen Lorenz: So I'm not having a go at absolutely everyone. But what's been happening among UK large investment funds is that they've had outflows for years. And to deal with these outflows with clients redeeming their fund shares, they need to raise cash. And that's why they've often been pushing companies towards paying dividends, even if that was a very bad decision in terms of optimizing your capital allocation. And there's certainly a culpability among UK investment funds and investment trusts who have had a hand in putting the UK stock market into what is effectively a status of or a process of self-liquidation.

14:21Swen Lorenz: It's going to disappear at the going rate. And if it's not the large shareholders who own five or eight or 10 % in companies that speak up and engage boards, you know, who else is going to do it? And that's the question you have to ask. And this is where I'm now saying, you know what, it's actually the little guy has to speak up as well, retail investors, because in their sum, they can also make a difference. First of all, by being a voice that gets heard by way of just the sheer number of people. And secondly, also, if you add up their holdings. And I mean, you know, I don't need to tell you this, that many UK companies, surprisingly, besides a range of investment funds, and it's often the same names of investment funds, there is then 20, 30, 40, 50 % of the shares in free float.

15:05Swen Lorenz: And that's, you know, plausibly predominantly retail investors. So, you know, they are, obviously, there's no single party that has caused this whole situation that the UK market is in. But I think it's now at a point where you have to ask not just what has caused this, but also, you know, who's involved in this and who's not doing their jobs. And the boards need to have their, you know, I wouldn't say you have need to have their feet held to the fire. I'd say, you know, like constructive suggestions would help for a start before we light a fire. And shareholders have a major role to play in there.

15:43Swen Lorenz: And it's funds, it's retail investors, and lots of parties at the table, but everyone needs to get up and, you know, put their, you know, get their boots on.

15:53Undervalued-Shares: There were three really interesting things in that that you just said that I want to pull on. So the first was, there are a bunch of large, if I could summarize, you said there are a bunch of large funds. These funds are experiencing outflows. They control tons of these companies. They're experiencing outflows. And because they're experiencing outflows, they are pushing the companies to pay dividends versus anything else. Because you could imagine, hey, the company pays me cash, and then I can use that to meet my redemptions. And there's three interesting things. I come from a domestic focus, but I'd like to pull on the three different angles.

16:30Undervalued-Shares: So the first is active outflows, right? Domestically, I mean, I think there have been, if I'm looking at the US or just across the world, active has been having outflows everywhere, right? Now, the money is going into passive and index funds for the most part. So I guess my question would be, I look at the UK stats and I think UK trades for like 15 times price to earnings. And if you get into smaller companies, they trade for, it's so clear they trade under their fair value or private market value. It becomes very clear. The US has had active outflows as well. And the US trades for, I don't know, 40 times price to earnings or something crazy.

17:08Undervalued-Shares: Now, you know, earnings are growing quickly over here and all this sort of stuff. So I hate to use one metric to indicate value, but I'll just say, hey, US is having the same outflow problem from active. And it doesn't appear to have the same valuation problem that we're having in the UK. So why is the UK unique versus the US?

17:26Swen Lorenz: It's culture. I think culture plays a huge role in here as well. And don't forget that the United States is the home of capitalism and, you know, taking charge of your destiny as entrepreneur, as investor. And in the UK, this whole subject of using your rights as a shareholder, being an activist, speaking out is very, very different. That's before we even speak of the rest of Europe. I mean, the UK within Europe is still, you know, one of the better countries in this regard. And I organized an event in April where I tried to bring together UK fund managers and American fund managers to discuss which companies are doing things really right.

18:03Swen Lorenz: What could we learn from that? And, you know, are there possibilities to push for change? and it is very clear to me that, and I'm speaking somewhat broadly here, outside of this quite depressed mood that you've got in the UK, there's also simply a culture of taking it, accepting what's being handed to you and not wanting to be seen as raising your head above the parapet, as we say. And that does play a role and that's why foreign activists can also play a role and we've been seeing the involvement of foreign activists and they're often then seen as, you know, these aggressive outsiders and Gordon Gekko types.

18:40Swen Lorenz: But to a good extent, that's also simply what's needed in Europe and in the UK in particular, because the talent and the willingness and the ability to do that doesn't exist quite to the same extent as it does in the United States. Okay.

18:55Undervalued-Shares: I don't know if that talks about the valuation, but that does touch nicely on the next point. So in the US, there are companies where activists take big position. You look and you've got Carl Icahn at 20 % or choose your big name activist. But for the most part, you know, it's Vanguard. Vanguard and the two other big index funds are the companies who control, you know, 40 % of every company on the private market. And what happens is the index funds, I mean, they don't they don't give a fudge, right? They just follow what ISS tells them for the most part. And I'm wondering over in the UK, you know, you've got it's kind of the five to seven big, big funds over there.

19:32Undervalued-Shares: Is it so broken? Like, how does it kind of work in terms of what they're doing? Because, again, if they're all passive and you're getting like MSCI is dominating all this sort of stuff, but I don't think it's MSCI, but people that benchmark to MSCI, like, is there a advisor who could kind of change this or who could really move the needle?

19:52Swen Lorenz: these advisors work in the united kingdom as well and fund managers do speak to them but to give you a concrete example earlier this year i got involved with a activist case where small real estate company listed on the main board of the london stock exchange where speaking figuratively the management was stealing everything that was nailed down i mean it was just blatant and Foxy advisors did point out that there were issues and management still got 95 % approval rates at shareholder meetings. So, you know, clearly something is broken and I don't claim that I can, you know, I can explain every single move on the UK market when it comes to voting behavior and fund managers doing or not doing their job.

20:35Swen Lorenz: But just by way of observing what's going on, you sometimes just have to say, I mean, guys, have you lost your mind? How is it possible that some executives and boards are blatantly ripping off shareholders and no one's doing anything, even when proxy advisors are gently pointing their finger towards it? So yes, something is definitely broken. And maybe raising awareness is something that helps. Maybe this podcast does something in this regard. More people are now starting to speak about it. And again, this is a huge opportunity. We're not just pointing the finger at a problem here. It's also a huge opportunity that you can use to generate value by being active and by suggesting change and making change happen.

21:19Swen Lorenz: And that's really what the UK needs. I think we need a path forward. We don't finger pointing to a certain extent, but then it's, you know, what can we improve? What can we do? What are the levers we can pull? There's so much value to be created. And that's really what I would love more people to focus on.

21:34Undervalued-Shares: No, it's interesting. I mean, in the US, you see it too. You're like, how are people still voting for this board? And I've seen some recently. I mean, I think ISS and these guys, I think they're so far, they're so slow, like they don't recommend against boards and stuff until it's just blatantly obvious that it's terrible. But I've seen examples recently where ISS comes out against a board for an activist and ISS is basically saying, you know, they flowered up more than this, but they're basically saying, hey, guys, this board is bad actors. They are stealing from you. This management team is terrible.

22:03Undervalued-Shares: And the management team still somehow gets 40, 50 percent. I mean, I've seen them win and you're like, who is voting for these guys? It's crazy. There's one more contention in your thesis that I wanted to go because it kind of ran counter to my experience. So you said, hey, these UK funds are experiencing outflows. So they are pushing for the companies to pay dividends so that they have cash to experience outflows. And that has gone a little bit against my experience in two ways. Number one, when I've talked to the boards, it seems like the boards are very much invested in paying these dividends, right?

22:38And when I've talked to maybe fund managers or something, I don't know if there's so much pushing for dividends for the liquidation.

22:46Undervalued-Shares: What I've heard is there used to be a lot of big UK funds that either were mandated to invest in – or sorry, big dividend-focused UK funds that had a lot of shareholders. And because they had so much capital, they could only invest in dividend companies. And if you were a company that paid a dividend, you got the big UK dividend funds in your stock and you got a big stock price. And I think like kind of the big UK dividend funds have shrunk a lot. And I think the companies and the boards haven't responded to that. Right. So I could be wrong, but my contention has been I think the boards are check the box dividend.

23:19Undervalued-Shares: And part of the reason they are that and there are a lot of reasons, but part of the reasons is they're stuck in a you said it 10 year ago mindset where, oh, if we pay the dividend, there's all this big money that's going to come to our stock. well, the big money's gone, but they're still in dividends and they're not thinking about anything else. So I don't know, because I haven't really heard a lot of fund managers say, hey, I need this company to pay a dividend. I mean, if they're a dividend focused fund, yes, but I haven't heard a lot of fund managers be like, I need this company to pay a dividend.

23:47Undervalued-Shares: Most of the people I've talked to have been like, I wish this company would cut it, but it feels like the intransigence is at the board, not the shareholder level. So that was the last thing that I thought was interesting there.

24:00Swen Lorenz: I actually agree with that and there's a multitude of actors there's never a single easy explanation for any of this and what you just said leads me back to my one of my favorite subjects which is culture and different countries just have very different cultures different financial markets have different cultures and this whole dividend subject is something that was very much something that investors across the board really aspire to in the 90s and the 2000s. Getting a nice dividend was a thing. And what changed in the 2010s is this enormous, this incredible undervaluation of the entire market where you just have to say, sorry, guys, we've been paying you a dividend for 20 years.

24:42Swen Lorenz: And for the last 19 years, we've been shouting from the rooftop, we've got this great track record and paying a dividend. Tomorrow, we're basically going to negate everything we've said for the last 20 years. We're going to cancel the entire dividend and instead we'll buy back stock. That is a bit of a shock change. And systems and countries and cultures don't change very quickly. So I don't disagree with you. There's a multitude of factors. And that very much plays into the whole equation as well. I will say, like, the other thing is I see some of these results. Again, this is where the... Go ahead.

25:13Swen Lorenz: No, please.

25:17Swen Lorenz: And again, this is where the opportunity lies to change something quite easily and quite quickly because implementing change when it comes to capital allocation doesn't require you to fire 10 ,000 employees and have them find new jobs after you've been in the media as the company that laid off lots of staff. These are relatively easy and straightforward changes that you can implement at the stroke of a pen almost with a good advisor. So then, you know, do all the work to get tender offers for shares, you know, done at a larger scale if your share buyback is at such a scale. But this is where the opportunity lies in the UK.

25:54Swen Lorenz: And it starts or, you know, in a way, it just has to be done by the boards. And shareholders can change boards if necessary.

26:02Undervalued-Shares: And the boards, again, I've got a very negative view of a lot of these boards. I think they're there to collect a paycheck, and they treat it like a board membership is a club. And once you're in the club, you're protected, and you're so much smarter than these shareholders. You're like, hey, guys, you guys don't own any stock. The share price is down 50 % over the seven years you've been involved. Maybe you should take some advice or listen to the shareholder owns 5 % of your company, and the only way they get a return is the stock going up. But, you know, I also wonder, I'll give an example that I think is nice and you can riff off this.

26:35Undervalued-Shares: But, you know, I look at these results in the takeouts and I wonder what that's happening. So Gamma Communications is a stock that I had a small position in and they ran like a six to eight month long strategic process that resulted in them getting taken out for an OK premium about two weeks ago. Right. It was a nice premium if you were involved before they announced the strategic review. it was an okay premium if you didn't. So it's not like I'm smashing the boat on some big winner, but they ran a six, eight month strategic process. They announced a definitive deal, signed merger contract. And then a week later, there's a UK Times article that says, hey, another private equity firm is going to come out with the topping bid, right?

27:18Undervalued-Shares: And you look at this and that's great, right? The company is going to get hopefully more value, but you look at this and you're like, they ran an eight month process and a week later, another private equity firm is coming out with a topping bid. Like, why didn't they just go with the other private equity firm to begin with, avoid all the legal fees, the break fees of the first thing. And I don't know the whole story, right? It hasn't finished. We haven't seen any docs, but I've seen stuff like this before. And like, this is like the third time I've seen a company sell themselves. And then a week later, someone go for a bigger premium, which it does speak to the undervaluation of the market in general, I think.

27:52Undervalued-Shares: But you're also like, What are these boards doing that they're signing definitive deals with not the highest bidder? Like they ran a full strategic review and there was another guy willing to pay that much more a week later. Like what are these boards doing? I just don't understand what's happening here.

28:07Swen Lorenz: Well, to defend the boards for a moment, I'd say there's very much an element of you get what you pay for. And board members in the UK are not well paid either. So the quality of board members you get, it's not all that great. and someone who is a board member of company XYZ in the UK may not have the experience to deal with such a strategic process in the right way simply because that company hasn't been hiring a candidate who's got the experience with that. That's something I would look at.

28:37Undervalued-Shares: Can I pause you right there real quick? You say you get what you pay for. I will say US board fees I think are about four times to seven times higher than UK board fees all in for companies of similar size. You could correct me wrong. but I don't know if US boards are that much better so I don't know if it's you get what you pay for I think it just might be it's not good all around you can correct me or you can continue, sorry

28:59Swen Lorenz: I'd say that that may be an aberration to the other side of the extreme

29:07Swen Lorenz: but yeah, ultimately boards are currently in the UK many people are very critical of the work that boards do and I've got nothing to add there other than shareholders have it in their hands to change them to hire different boards to pay them more to incentivize them in a different way just as executive compensation for CEO and CEOs and CFOs wasn't you know up to scratch in the UK for a long time and still you know has a lot of improving to do the same is true for boards you know why is any board member allowed to not own any stock in the company you know I just simply wouldn't allow that as a shareholder.

29:48Undervalued-Shares: You know, it's so funny because when you talk to these boards, I've heard multiple times, hey, you guys don't own any stock. Like, why don't you put a stock on our board? And I've actually heard several boards say, we think it would be a conflict of interest for us to own shares. I'm like, a conflict of interest for you to be aligned with shareholders. But it's so funny. I don't know how they got that in their head. Or maybe they're just saying that because they realize it's a good line to not have to go buy stock. But it's so crazy to me and i've heard it from multiple different companies and multiple

30:17Swen Lorenz: different directors i've i've been on boards i've also been on boards of charities and especially at you know non-profits in the uk that's sort of the standard line if you want to get out of something you say it's a conflict of interest and everyone is really startled and scared

30:31Undervalued-Shares: well so but that's a i mean yes you are a hundred percent correct but like a non-profit you can't own stock on it so it's okay but let me go to you've got uh an activist checklist for looking at uk companies that i thought was really good uh do you want to it's a pretty quick one but you want to quickly go through it because i think it kind of lays that lays out the opportunity for people who are just looking across the board pretty well oh one second

31:08Swen Lorenz: factors that we like to look at is very much capital allocation, governance, investor communication, removing structural blockers, slightly more complex subject, but you know, there's a lot of that. And then executive compensation. And once you've looked at these various factors, you can pretty quickly draw up an initial assessment, whether there's something that has to be discussed in a more serious way between shareholders and boards. and now it is obviously you've got ai the the ones that i saw and you can correct me if i'm wrong but

31:40Undervalued-Shares: the the ones i saw in your article were like you want something market cap between 250 million pounds and 2 billion you want something with no dominant shareholder you know so that you can come in you're really looking for something where there's the cluster of mutual funds who are at five to eight percent each because then there's no dominant shareholder but there's also hey if I can go make a compelling pitch, get three to four of these guys on my side, we can change the whole board pretty easily. And you want the board that owns no shares because everything we've talking about, you can make the case pretty easily.

32:10Undervalued-Shares: These guys are conflicted, all this sort of stuff. Add all that together, tie in a company with a low valuation, hopefully some cashflow that you could shift from dividends or whatever the F they're doing to share buybacks. And that's kind of your standard activist playbook because you can have the share buyback lever. You you can have the less incentivized management. So you've got a lot of different levers. Would that be kind of a good summary?

32:32Swen Lorenz: That is a good summary. To that, I would add that it is extraordinary how many companies in the UK, public companies actually fit that profile. Because normally you'd think, you know, it's a rarity to find a company that ticks all of these various boxes, or at least most of them. And in the UK right now, it's like shooting fish in a barrel. And that's what the market has really woken up to. And I published an article last week where I basically said that the dam is about to break for M &A and activism in the UK, because I've been going on about this for years. And most of the time it was a, yeah, Sven, that's a nice idea, but not all that much is happening there.

33:06Swen Lorenz: And suddenly all hell seems to be breaking loose. And the subject is all over the media, almost on a daily basis. A number of other players have spoken out as well, like M &G, the fund management company, $500 billion fund manager. They've come out with a statement saying that too many UK companies are sold off at too low a price. So this is not just me saying this. This is now actually the establishment waking up and saying there's something wrong here. And suddenly I can sense possibly in the next couple of months, maybe it might become a fashionable subject to associate yourself with, which could then lead to a lot of change very quickly.

33:44Swen Lorenz: And we may be surprised on the positive side with the UK suddenly changing because usually things take a while to get enough attention and awareness. And then things can change quite quickly because none of that is all that difficult to implement.

33:57Undervalued-Shares: I mean, Japan, people talk about it for years. And then once the changes happen, I mean, it can go fast. And the thing about undervaluation is you can cure it really quickly, right? If they don't want to sell for huge premiums, you can get the share price up pretty darn quickly by if your stock's undervalued, buy a lot of share, cancel the dividend, do a big tender offer. You can fix that pretty quick. Let's turn to one of the companies. I mean, the proximate reason for this is, again, you've written a lot of letters, but I think we're timing this podcast to launch with a letter to a company that you're writing.

34:31Undervalued-Shares: The company is ZigUp. This is the former Ready Northgate. I actually own a little bit of this company. I'll just kind of toss it over to you what is ZigUp and kind of what are you pushing them to do in the letter?

34:44Swen Lorenz: So it's a company that provides what they call mobility solutions I call that they're renting out commercial vehicles if you want to move house you need a white van a man with a van then ZigUp is a company to call they've got the largest market share for the rental of commercial vehicles in the UK they've got specialty vehicles as well like things with refrigeration and stuff like that They also do a whole range of services. They provide a range of services that fall into that same category, like fleet management for corporations, claims management in case of accidents and replacement vehicles for accidents, that sort of thing.

35:20Swen Lorenz: They're the largest such operator in the UK. They're growing nicely at single digit rates every year. And they're also operating a business like that in Ireland and also in Spain. and after the merger ready and Northgate you mentioned it in 2019 they obviously had COVID to deal with so there's been a period of significant change and external complications because of the pandemic and then the whole boom from the pandemic obviously cooled off as well so this company has had its fair share of challenges as well but management and let me just say this very clearly management has done a very very good job executing making sure that this business is successful and it is a good business.

36:01Swen Lorenz: It's just so damn cheap. I wrote about it in October last year already, and it was trading at three times EBITDA. And right now, the share price has gone up a bit, but it's still below four times EBITDA. And this is the business that's under levered, as you know, in my view, and we can we can talk about that a bit further. And it's just screaming out for share buyback. And I've written a letter to the board saying, you guys, you know, my suggestion is I strongly suggest and I really advocate for looking at your leverage ratio, carrying out share buybacks, ideally a tender offer, do something about your capital allocation.

36:38Swen Lorenz: So much other stuff at your company is going so well, but your share price looks like it's not going that well. The share price has gone nowhere for 18 years.

36:48Undervalued-Shares: No, that is very true. I want to ask some questions about that. But before, I mean, the reason I got interested in here, and I think something that really helps stage this is they have the VIP plan or MIT plan, whatever you want to call it, the value incentive program that they give to management. I got involved because this is really, it's not unique in the US, though it's a signal I really look for. It's kind of my corporate dark heart signal, but it's really unique in the UK. So do you want to talk about the VIP plan? And then I can kind of follow up with my questions after we set the groundwork with that.

37:19Swen Lorenz: Yes. So very unusually, they've implemented the, they call it the VCP, the value creation plan, where seven senior management members are incentivized to get the share price up. And the way how it works is actually quite simple. Above a certain hurdle, which is a share price of 521 pence, they get 10 % of the added shareholder value up to a maximum level of 800 pence per share. That's where it's capped. And they get, you know, if this bonus materializes, they get it issued as shares. And then there's a lockup on these shares, but in a way that's detailed. The interesting thing is that the seven management members can earn a total of 69 million pounds in bonus shares.

38:00Swen Lorenz: The CEO would receive up to 19 million pounds of that. The CEO has been running this company and the predecessor for many, many years. He's 59. So this would probably be a very nice reward ahead of a potential retirement at a later stage. And we're speaking big numbers here. I mean, a 69 million pound bonus split between seven people is, you know, is a transformative amount of money for most people who are in employment. It is a very simple system and it immediately gets across why this is good for shareholders, because they only get anything if the share price is at least at 521 pence. Right now it's 430.

38:42Swen Lorenz: And it's all on a very tight timeline. They have to deliver this until April 28. this whole thing was put in place a year ago. So we're already a year into it. And it's amazing the share price hasn't reacted more strongly to it. In my view, I think this is one of, I mean, you're the man for the dark arts of incentive schemes, but I think this is such an incredibly powerful signal that I'm amazed the share price hasn't reacted to a much bigger extent, but here we are. And you're effectively looking at a business that's leading in its industry. It's growing. It's been at an inflection point for its free cash flow.

39:20Swen Lorenz: Last year, free cash flow rose from£17 million to£96 million. And they're now looking at getting this above£200 million by 28. The company is also a potential platform for private equity to come in and consolidate the industry. They're the market leader. So this is just waiting for a private equity player to step in. I don't think in two or three years this will still be an independent company. I think someone will have made a bid for it. And this is where the danger lies, but also the opportunity. They have to somehow get their valuation. They have to get their share to re-rate and trade at a higher multiple, because otherwise it's just gifting money to private equity because they're going to get way too good a deal.

40:00Swen Lorenz: And that's what we have to avoid.

40:03Undervalued-Shares: So that's perfect. And as you said, the reason I got an interest here was I believe a mutual friend pointed this out. And I was like, holy, holy smokes. I've looked at 100 UK companies and I've never seen a VIP plan like this before. I want to call it a VIP plan. I think it's a BCP, but I'm just combining them. But I've never seen a plan like this before, except one other friend pointed out one other company that had done in like the past 10 years. You were going to say something? Go ahead. Yeah.

40:30Swen Lorenz: And I mean, just to give credit where credit is due, I believe some UK fund managers had a hand in this company implementing. So, you know, it's not like I'm bashing the entire fund manager sector. There are some very good outliers in there. And this was a case of positive investor engagement.

40:49Undervalued-Shares: That's almost certainly true. But, you know, I don't think at other companies, I think shareholders have pushed for something similar. And this was the first one I saw that implemented. So I got really interested. But I will tell you, I have been a little disappointed by the company because what I thought was going to happen, you know, and I probably bought the shares about a year when I saw the plan. And the plan, I mean, the stock was like 300 when you did it. It needs hit like 520 in the low end. I was like, oh, just hit the low end, just to start accruing money, the stock's got to be like 25 % annualized from here to the end date.

41:22Undervalued-Shares: That was kind of what triggered me and took me from this is just your typical UK cheap company to this interesting. But I've been a little disappointed because they have not bought back shares since they announced it. They've announced buybacks, but I don't believe they bought a single share since they put the plan in place. They've stuck with the dividends. And I'll talk about their IR strategy in a second. But they've invested into this Spanish platform and some growth assets that they say are really good. But I keep hitting them with, hey, everything is opportunity cost. And your stock trades below book value.

41:52Undervalued-Shares: You're saying your stock trades way below private market value. I understand you might have an attractive growth opportunity, but that is a risky growth opportunity investing into this new market. Buying back stock is not a risk opportunity selling the Spanish assets, that new market we're talking about, where they will tell you that they think those Spanish assets are massively, massively valuable, worth way more than book value, selling that to a private equity firm when everyone says there's a private equity bid and buying back more shares are taking advantage that like all of these are options and haven't really pursued them.

42:22Undervalued-Shares: So I've been a little disappointed. And the last thing I mentioned dividends, they pay out a pretty big dividend, which is nice, but they could be buying back shares and I've pushed them, cancel the dividend and buy back shares. And it's just falling on deaf ears. So I've just been a little disappointed where they put the plan in place and I thought it was off to the races, shareholder friendly, let's go. And I haven't seen that so far. So I have one other thing I want to talk about, but I'll kind of pause there.

42:48Swen Lorenz: I agree with everything you said here because it's, you know, these are the obvious observations that I think any objective observer would draw when they look at this particular company. I I wonder whether yet again there is an element of, first of all, not being pushed enough by, well, let me address another point. We just mentioned risk, you mentioned risk quite a lot. And I think what companies are forgetting often is the risk of being taken out by an unsolicited bid at way too low price. Because this company, again, Zigar, doesn't have any dominant shareholders. There are a couple of funds, they own between 5 % and 9 % at the maximum.

43:31Swen Lorenz: And these are funds that will have usually dozens, if not even more than that, of different positions in their portfolio. And if someone comes in tomorrow and offers, you know, say 50 % above the current share price, they might moan a bit and ask for 60%, but then the whole thing will be sold. And it will be yet another case of a UK company getting sold way too cheaply. And again, I'm not the only person, you know, pointing this out by now. It's even the establishment is waking up to this. And the risk of being bought and being taken over by, you know, through an unsolicited bid even at way too low a price, that is a major risk that boards need to consider as well.

44:09Swen Lorenz: Boards are not in the business and are not supposed to just give gifts to private equity firms and to, you know, financial investors. They are working for shareholders and not for acquirers.

44:20Undervalued-Shares: I'm laughing because if somebody came in and offered a 50 % premium, I would say, oh, that's way too cheap. And generally I would say, I would actually be like, you just run a full process and sell the company. But I'm also, I've just become increasingly of the opinion over the past few years. If somebody offers a premium, you say, great, have it. And I'll go find the next one because I've just, I've seen too many people and we might finish this conversation up with one example. I've seen too many people say, oh, that premium, it's way too cheap. And then two years later. Oh my God, we wish we could have sold.

44:51Undervalued-Shares: But the other thing I wanted to mention was ZigUp and then we can move on to the other company. And I'm picking on ZigUp here, but it is emblematic of UK companies across the board. The way I've seen them, shareholders are hammering them. You're too cheap. You need to do something. You should buy back shares. And that's my opinion, but I think a lot of shareholders have made that. And I've seen UK companies do this and US companies do it too. What is their solution? I mean, they hire a corporate broker. And if it's a UK company, they go to a US roadshow, right? And I just I don't understand it.

45:25Undervalued-Shares: You know, you are a UK and Spanish focused company. You don't have any US assets. Your stock is too cheap. You have levers you can pull. And instead of pulling any of them, you spend money to hire a broker. And then you fly your whole management team to the US to do a US roadshow to pitch to a lot of investors who like don't know the intricacies of the us the uk market i and again i'm picking on zig up here but i've seen three dozen uk companies do it and i just i don't understand who's giving them this advice or why they think it's a good idea well for a start that enables them to tick a box i i actually thought it enabled them to get a free vacation for their

46:05Swen Lorenz: and i was about to say and the second reason is because they like going to the united states on corporate expenses and taking investors to nice restaurants, et cetera, et cetera. That, you know, these things play into decisions like that without, you know, I'm not looking at any particular company, but it's normal that these circumstances play into such decisions. And the other thing is that, I mean, if you're a corporate employee who hasn't found the business, you're not the founder, you're not the major shareholder, investor relations is not something that necessarily is like your favorite subject to deal with.

46:41Swen Lorenz: And you're probably very passionate about your business. And then you also have to do investor relations. But you already have a permanent capital base because you're a public company and it's not like they need to raise more capital. So they're doing this as a bit of a box ticking exercise. But the question is, is there heart in it? Is it done consistently? Is it done with the right audiences? And I would simply question a lot of that, which just only further adds to your criticism.

47:05Undervalued-Shares: Yeah, I just they do it. And I'm just like, look, it's nice. You're trying to get new buyers, but you've got all these levers in place. You can do it. And there's a real expense here. I mean, the biggest expense is you fly the whole management team out. It's actually their time. They're not kind of running the business for three days. They're doing this trip. But, you know, the tickets, the dinners, the hotel rooms, like it all adds up. And I just I'm sure I won't get invited to the next one. But I've seen so many companies do this. And it's just mystifying to me why they think this works. uh last thing i'll say the vc people i was kind of having claude do the math for me while we chat if the ceo maxes out he earns more than 10 times his uh annual comp right so he can get more than a decade worth of comp for hitting the max out of this and as you mentioned he's at it would be it ends in 2028 he'd be in his early to mid 60s it would just be a perfect time max out sell so all those shares best, sell for a big premium, hit the road, you know, and probably take some of these cushy board seats we've talked about on the way up.

48:06Swen Lorenz: Probably the business will be sold one way or another. The question is, is it sold through a process where management really maximizes the value or does an unsolicited bid come in at some stage? And, you know, if you do the math, right now in Australia, there is a similar company called Fleet Partners that is, you know, managing fleets as well of commercial vehicles. And they've had three competing bids and a possible fourth bid was even rumored as well. That goes to show the attractiveness of this type of particular company. And I think it's only a matter of time before something happens at ZigUp.

48:44Swen Lorenz: The question is, is it driven by the board and the process and really focused on maximizing value? Are we going to get 10 pounds a share or are we going to get eight pounds or I don't know, six pounds 50 or five pounds 50? because right now this thing is at£4.30.

49:00Undervalued-Shares: Let's turn to Craneware, and then we can kind of wrap this up. But I'd love to briefly discuss Craneware because I think it's got a lot of interesting things that we've talked about throughout this process. So I'll let you describe Craneware, but the really interesting thing to me here is Craneware is a company that got an offer at a big premium from Bain in July of 2025. You know, the stock, Bain offered$2 ,600 per share. And fast forward to today, and this stock has stumbled and is trading at about$1 ,300 per share. I say dollars, pounds, whatever. But you can give the overview. But I think that's a really interesting – it's a really interesting example of a company that had a bid, maybe stumbled.

49:41Undervalued-Shares: The valuation is quite cheap on a whole, but it's got some SaaS fear. So I thought it was just an interesting one to discuss real quick.

49:48Swen Lorenz: Yeah, and it's a fascinating business because it's a UK company based in Edinburgh, Scotland. but 95 % of its revenue comes from the United States. So you have to ask, is this really a UK company or is this an American company that just happens to be listed and based on a UK market? They were set up in the late 90s and they're producing software for US hospitals. They're helping make hospitals be more efficient when it comes to delivering healthcare to their patients but also in terms of the operation. And I'm not an expert for that sort of software, but they're now installed in 40 % of the United States hospitals.

50:31Swen Lorenz: Number one leader in this field by far, which goes to show they're certainly doing something right. The company has put out some projections or calculations saying that basically they could grow by a multiple, five or eight times their revenue over a number of years long-term by selling more software to the same hospitals. There are more solutions that these hospitals need by also selling it to pharmacies and by capturing more market share. And they're basically aiming very ambitiously to basically say every single hospital in the United States need to have our software. And they're in 40 % now.

51:09Swen Lorenz: So it's a target that's to be at least taken serious and commended for being ambitious. And a year ago, Bain, as you said, offered 26 and a half. They didn't really offer. They went public with, we're considering an offer at 26 and a half. And the board and a variety of other key players basically screamed, this is way too low. And they were probably right at the time. The share, I think, went up as far as 22 or 23 pounds. And the offer was turned down as fundamentally undervaluing the business and its prospects. And it then fell to£12. We're currently trading at£13.5. So it's basically halved in a year.

51:52Swen Lorenz: And what's played into that is obviously the SaaSpocalypse, the fear that AI and someone will vibe code a software that will replace what Crainware does. But I think the market has now calmed down and has recognized that, I mean, if you have one particular client for software that is probably extremely resistant to changing an existing system that has been in place for years or decades and which staff has been trained on, then it's probably US hospitals and I mean, government in general. And it's probably a matter of time before another bid comes in. Again, the question is, what does the board do to maximize it?

52:31Undervalued-Shares: No, I think that's spot on. I mean, this one, it just jumped at me as interesting because you had the bid last year, right? That is way above, But then it also plays into my my prior stuff. You get the premium bid, you take it because I don't think anyone saw the sass apocalypse coming. And then the other really interesting thing is, you know, UK companies, I hate this trading update where they give you a little color, but not a ton. You know, they come out in July and they say, hey, our FY26 earnings are going to be kind of the same as FY25, if I remember correctly. And they say we had some deferrals late in the quarter that I think they run on July or June year.

53:07Undervalued-Shares: So the FY26 is over and ended the summer. FY27 is we're in it right now. They say, hey, we had some deferrals that pushed everything back from 26 to 27. So on the one hand, you look and say, hey, FY27 is going to be great. But on the other hand, I mean, every SaaS company that is actually getting killed by AI, they all say, oh, our customers are just holding off a little bit. And you kind of start to wonder, hey, is this an AI apocalypse name? Like, are they actually getting impacted? And it's just a fascinating example across the board of the big premium offer. This trades way cheaper than any listed U.S.

53:41Undervalued-Shares: SaaS company for the most part trades for. I mean, I'm sure you can find one or two examples. But they've also got the SaaSpocalypse fears and just an interesting push and pull of all these different dynamics.

53:51Swen Lorenz: Yeah. Now, imagine if someone offered, say, 20 pounds tomorrow. I think a lot of people would be tempted. Not the least because you can just take that money and reinvest it into something that's equally cheap.

54:03Undervalued-Shares: that's why I think the candy shops, you offer a premium. I hit it. And I'm just gonna, you know, I'll, I'll find the next one. Uh, Sven, this has been great. I'm going to include a link. I believe we're, we're taping this, what day is it? September 8th. We're going to, uh, release this on September 11th to time up with your ZigUp letter. So I'll include a link to the ZigUp letter for people who wanted to see it. And then probably a link you can send me, whichever one, to one of your UK articles. So people can see that too, but anything else we shouldn't be talking about? Any last thoughts for people who are kind of exploring the depths of the emerging UK markets?

54:36Swen Lorenz: I think the closing message should really be one that this entire conversation is about a golden opportunity that's in front of us. This is not about blaming anyone, about moaning and do-mongering, et cetera, et cetera. There are so many levers that UK companies and their boards and their executives can pull to create additional value for shareholders, which would do something for the wider good of the country as well and the finance industry and the city of london is obviously very important for the economy of the uk and i think a constructive open-minded positive-minded conversation is to be had in the uk among key players potentially with some americans at the table as well because you know you guys are always ahead of the time and i think some great stuff will come out of it and probably in two years time we'll look back at this conversation and say, it's just incredible.

55:27Swen Lorenz: We had all these undervalued opportunities. And then, you know, the whole UK market suddenly woke up and things changed overnight. And that's really the outcome I would like to see, you know, 24 months down the road.

55:40Undervalued-Shares: And, you know, the other thing, if I can just add one thing that I meant to mention, you know, I see a lot of people say, oh, the UK market's so cheap. We need to get all these companies off the London market and onto different markets. And as you said, like, hey, that would suck for London, you lose a lot of that. But But a lot of these companies show a ZigUp. They are London-based. They kind of belong in London. Now, a Craneware, that has a lot of US revenue. Like one option we didn't talk about that I just wanted to float out there and maybe this will be a to-be-continued. Like a Craneware should probably look at their stock price and say, hey, if the London market has deserted us, maybe we belong on a US listing.

56:14Undervalued-Shares: Like that's one other option for the company that you've published a letter to that I think exists for them that I wouldn't recommend for other ones. But I just it's another interesting thing. And it's another reason that boards probably need to take boards. The country as a whole needs to take seriously, hey, we need to fix these undervaluation problems or else we've gone from 1150 to 900. We're going to get down to 700, 600, 500. There's not going to be a London exchange anymore.

56:38Swen Lorenz: Yeah, that just about sums it up. And I would say this whole opportunity of relisting companies in the US is something to be looked at very selectively. The track record for doing this sort of thing is very mixed. So it's not like you just relist and then suddenly, you know, you get re-rated. It just doesn't work like that. It makes a lot of money for advisors, which is why sometimes these things...

56:58Undervalued-Shares: Somehow the advisors are not good. No, but people think it's a pancia and there are cases where it really works, but I think I'm with you. Selectively, it's just a perfect term. Anyway, I'm going to include a link to all those in the show notes. Sven, thanks for coming on and we will chat soon. Thanks, Andrew. It was great speaking to you. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

57:45Thanks.