Avesco released their interim results on Thursday including details of the Disney pay-out. Remarkably the share price dipped by more than 10% at one stage. I can only imagine it was a knee-jerk reaction by some investors anticipating a greater return of cash directly to shareholders. In my opinion this provided a fantastic opportunity for savvy investors to pick up shares at a truly bargain basement price.
As an investor in any company you effectively own a percentage of the business and are a part-owner of that business, however large or small that percentage is. In my mind there was a simple calculation to do following the pay-out details. Avesco have received a whopping £44.6m (far more than originally anticipated) from Disney and the current market cap. is approximately £53m. Effectively a profitable, cash-generative, dividend paying company with quality tangible assets is valued at £8.4m. That's less than the value of Fountain Studios!! At one point on Thursday the market cap had fallen to around £48m and it was no surprise when value hunters quickly pounced. The shares recovered even further yesterday.
An alternative way of looking at it is that the current NAV without the Disney cash is £1.53, add in the Disney cash and it's £3.31.
Whilst some investors may have been disappointed with the £1.10 pay-out they would receive (odd in itself??), it appears they have neglected the fact that the £14m that Avesco are keeping in the company will be used to pay down debt and effectively grow the business to keep the dividends rising and flowing in the future.
This has been a fantastic investment for me, and continues to be so. The company remains considerably undervalued in my view.
In another development for one of my investments, the takeover of Datong has now been confirmed at 50p which gives me a 31% profit within a few short months. I was hopeful that the offer would have been a lot higher than this, but at least it's a decent profit and provides some useful cash to invest elsewhere.
In wider issues markets are pretty volatile at the moment, and we are experiencing a few dips. Nobody can predict the direction of the market with any certainty, but I've stated before that I believe the current bull run may have considerably further to run. Interestingly I noticed a strong bout of Director buying this week in a whole range of companies which clearly provides some food for thought. After all they are insiders.
Anyway, as a stock picker I'm far less concerned with the direction of the markets than the price of individual companies, and if a price is a bargain then it's a bargain whatever the market direction.
As ever, no advice intended or given.
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