courtesy R Beddard 24 Feb 2015 16:06
"The Share Sleuth portfolio's second biggest virtual holding is DWHT, the ordinary shares of lift component manufacturer Dewhurst. I also own Dewhurst shares in my own Self Invested Personal Pension. Not the ordinary shares but the 'A' ordinaries.
The 'A' ordinaries confer an equal right to dividends, and bear the same risk as ordinary shares, except they do not carry the right to vote at company meetings.
The reasons I chose the 'A' ordinaries are lost in time, but I recall checking that the ordinary shareholders couldn't gang up on the 'A' holders and reduce their rights further, and I wanted to be different. However, in the back of my mind was the fact that the difference in share price between ordinaries and 'A' ordinaries changes over time, and when I first bought Dewhurst shares, the 'A's were much cheaper, and, perhaps, better value.
As of today, that was a poor trade as the spread is at its widest ever, the 'A's' are even cheaper, and I have missed out on some of the gains experienced by the Share Sleuth portfolio, which owns the ordinaries.
This chart shows the discount of the 'A' ordinary shares compared to the ordinaries, DWHA (DWHA), versus DWHT (DWHT). The bigger it is, the lower the share price of the A's in comparison to the ordinaries.
Image(88)
I'd like to convert my 'A' shares to ordinaries. My attitude to ownership is changing and it annoys me that in practice nominee account holders sacrifice some of the benefits that come with owning a share. We aren't routinely invited to AGMs or sent annual reports and if we want to attend and vote at company meetings we have to request a letter from our brokers authorising us to do so. Under certain circumstances we are disadvantaged as I have discovered with an unlisted share I own. I can't vote in favour of a takeover because I missed a deadline imposed by my broker because it collates the votes of all its customers and submits them together. If I were on the shareholder's register I would still be able to vote.
Chucking away my right to vote seems a step too far, however with the 'A' ordinaries trading at such a big discount, now doesn't look like a good time to buy it back...
The efficient markets hypothesis holds that the price of a share incorporates all known information about it and is therefore the best indication of its value, but I sense an anomaly. To my knowledge nothing has happened in the last 20 years that would change investors' attitudes towards Dewhurst's two share classes yet the discount of the 'A' Ordinaries has been below 10% and above 40%. For patient traders (if that's not an oxymoron), I wonder if there is an arbitrage opportunity. To sell DWHT when the spread approaches 40% and buy DWHA. And to sell DWHA when the spread approaches 10% and buy DWHT.
It looks like it would juice the returns from a long-term holding in DWHA or DWHT, either of which I think is a pretty good investment anyway!"
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