A Few Idea Updates (MHI.AX, PAC.AX, TFG.AS)

I haven’t done an update on any of the stocks I’ve written up so thought it’d be a good time to do so. Of the three I am updating below, only Tetragon made it into the Halvio Capital portfolio and for the purposes of full disclosure, I personally own some Fannie/Freddie common and a small amount of Merchant House International Limited.

Merchant House International Limited (MHI.AX)

If you remember they announced they were going to be liquidating their remaining assets and distributing the proceeds to shareholders upon the sale of their property and equipment (prior write up here). The remaining property was just a textile factory in Virginia, not exactly Class A property. Well, because their only Australian director resigned from the board in February (there was no real point in being on a board anymore for a company liquidating I assume) the ASX suspended trading in the stock. It’s been frozen at $0.15/share since. In that time period the company disposed of their new equipment on their premises for US $4m and have now announced a sale of their factory and land in the past couple of days. This was the company’s balance sheet as of March 31, 2025 with an NAV just under AUD $.24/share.

On April 1, a day after this balance sheet date, they collected the final tranche payment from their sale of the equipment for $US 2m, which would be AUD $3.09m that needs to be added on to the balance sheet.

The proceeds from the sale of land and building are for AUD $12.3m for a gain of AUD $3.61m. I’m not an expert in Australian taxes but my understanding is that for companies with less than $50m in sales the rate is 25%. Taxing that gain at the Australian capital gains rate of 25%, their net proceeds should be AUD $11.4m. The company also owned a condo that it sold at a profit that would net about AUD $132K.

This is now my updated model with a vast amount of the assets in the bank account. I believe I am being conservative in the costs as they’re are currently no operations and so the only expenses would be listing, audit and board fees.

What’s next is TBD shareholder vote to distribute the proceeds and a timeline for payout which should be relatively quick as it is essentially just cash sitting in a bank now.

Pacific Current Group Ltd. (PAC.AX)

This one didn’t quite work the way I envisioned. But because the downside was quite limited due to the hard asset values, it was a relatively small loss. Here was the write up. They weren’t able to repurchase as many shares as I would have liked and the stock drifted a little lower. My whole thesis was that it would move up with the buyback as the NAV would now be higher but it hasn’t responded like that. There is now a short report out on one of their large holdings I’ve read. The stock still might work but I’ve found better uses of the capital that I will get into in my Q2 letter with larger upsides I decided to put it toward.

Tetragon Financial Group (TFG.ASX, initial writeup)

Just a refresh. The main thesis was and is asset sales to repurchase stock at a huge discount to NAV as 1) management owns a large percent outstanding now and can make more from the stock going up than milking fees from the company and 2) buyback a ton of shares to benefit insiders more before Ripple IPOs.

TFG put out a press release on April 30th stating that they didn’t expect a transaction regarding Equitix would occur in the immediate term. You can read the part of the release about Equitix below.

In my opinion, they left the door open for not only Equitix but also other asset sales as well. And sure enough on June 16th, a month and a half later, they sold 14.6% of their stake to Hunter Point Capital.

I’m not sure what occurred in the time frame from no ”..immediate transaction” to a partial sale. It could be that TFG executives saw the Circle IPO on June 6th rip from their IPO price of $31/share to $69/share on the first day, which is now sitting at $240/share, and thought they should start selling assets to buyback TFG shares to get ahead of the Ripple IPO so they’d own more. Or the fact that Ripple itself is buying back shares at $175/share, which now implies a $25B valuation of Ripple and is a huge premium to where it traded in the private markets just a couple months ago. The only question I have to all of that is then why wouldn’t they just sell their whole stake? Why just a smaller portion? Maybe TFG got cold feet from the all the fees they currently earn on NAV? I’m not sure of the answer and would welcome anyone reading this their opinion as well.

Now to the updated NAV. The sale of their 14.6% stake in Equitix will bring in gross proceeds of $256m. Not to mention that now their is a mark on their remaining 66.9% Equitix stake at $1.177B, $184m greater than their carrying value of $993. The total change in value of $440m (proceeds + remaining stake over carrying value), needs to take a 25% management fee into account so call it a $330m uplift, or $3.7/share just from this monetization.

With Ripple at an implied $25B valuation, TFG’s approximately 2% stake would be $500m vs where they have it marked at $239.5 so it should be adjusted upwards of over $200m. Take 25% management fee off the increased mark and it would net $195m or $2.2/share. Adding these new values, TFG’s adjusted NAV should be about $41/share now.

Since the stock has historically traded at a 60% discount to NAV, the price today should be $16.5 today vs $15.75 of where it currently sits. So TFG is now trading at a larger discount prior to any Equitix monetization or Ripple increased valuation, which doesn’t really make sense. We still need to see what TFG does with these proceeds too as they have about $400m in leverage they could pay down or split the proceeds between tender and pay down. One other interesting point regarding Ripple is that WHEN or IF Ripple files for an IPO, I would imagine XRP would rally. And because Ripple owns a ton of XRP, it would create a reflexive loop making Ripple even more valuable as a result.

As alluded in the press release, there is still the potential for a further full sale of Equitix and other assets that can be monetized. As a reader astutely pointed out to me, they have a put option on their BTO asset next year that allows TFG to monetize that asset as well which is 8% of their NAV. How this plays out still remains to be seen but your downside is well protected by the even larger NAV discount it is trading at now and you have a potentially explosive upside should management conduct any type of tender(s) prior to a Ripple IPO.