Firstly, starting with Avanti Communications. This is one of my more speculative investments, and I have mentioned it several times on my blog. The shares nosedived following their most recent trading statement, but after publication of their prelims this week, the shares have bounced back by over 30%. You need a strong stomach to invest in these type of stocks since at the early stages in their development, the share price movements can be volatile and highly unpredictable. I try generally to think long term, and I'm talking several years not months.. I try to buy when the risk/reward ratio looks favourable and just hold on unless I feel the story has changed so much that I have lost all faith in the company.
In Avanti's case, I have held on and now believe it could be a multi-bagger from these levels. The key to my cautious optimism is that they have recently turned cash-flow positive, they are picking up blue-chip customers and from the finals:-
"with £39 million of cash on the balance sheet at year end and operating cashflow positive reached in June, we have the comfort of sufficient cash to cover debt repayments for two years. We plan to meet those obligations from cash generated from operations and with Backlog in FYE 2014 of £42 million, we expect to generate strong positive cash flow from operations this year."
Directors picked up around a quarter of a million pounds worth of shares between them following the results, and have been consistent buyers over many months. This further adds to my renewed confidence.
Next up, Avesco. This has been an outstanding investment for me, not least with a bit of good fortune from the Disney pay-out which they intend to distribute to shareholders in December. Whilst their third quarter trading update wasn't great, the balance sheet more than makes up for it.
I still believe that Avesco is significantly undervalued with the shares standing at £2.13 and NAV of £3.09 made up of quality assets. This is a cash generative company that is yet to benefit from improving conditions in the world economy. If you couple that with the even year effect then shareholders might reasonably anticipate (as indicated) a progressive dividend policy. Strip out the £1.10 cashback to shareholders in December, and I expect this year's dividend to be around the 5% mark and rising in future years. I still believe that you are pretty much getting one of the market leaders in it's sector for nothing, and merely paying for it's assets. Many sector peers are priced at a premium to NAV, Avesco at a significant discount. I also wouldn't discount Private Equity interest in Avesco at some point in the not too distant future.
It's worth noting that trading profit for the 9 month period was £3.8m compared to £4.1m in 2012 (Olympic year). The shortfall in operating profit against last year is due to a one off cost of just over £3m from payments to LTIP holders and bonuses in connection with the Disney settlement.
Finally, 2014 is an even year which should boost profits substantially. Quite frankly in more than ten years of investing on the stock market I can't remember a situation where a profitable, cash generative and growing company(long term) with a NAV of £80m (mostly quality tangible assets) and £48m of cash on the balance sheet is valued at just £55m.
Finally, just a brief mention about Interior Services Group which I reported on last year:-
http://michae1mouse.blogspot.co.uk/2012/10/interior-services-group_4968.html
They also released their finals this week with improved underlying profits, net cash and order book.
The outlook is encouraging. From the CEO :-
"ISG has delivered an improved performance and growing order book.
In the UK, we have seen signs of improvement in the London office fit out market and have maintained our market leading positions in the office fit out and retail sectors. We have had considerable success in the data center sector. Our UK Construction business has increased its level of repeat work through its focus on key customers and frameworks.
Overseas, our businesses are performing well and we are entering new markets and strengthening our existing presence through selective acquisitions.
We are looking forward to the future with growing confidence."
The dividend is 9p for the full year. I mentioned the shares at around £1.35 and they currently stand at £2.29 (up 70%).
Right, I'm off to watch Dragon's Den.
As ever, no advice intended or given.
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