I must admit to feeling just a little bit queasy when I saw that Avesco had released two news statements at just after 5pm this evening. Normally this doesn't signify good news!
However, on this occasion and to my relief, it was quite the opposite.
Firstly, let's deal with the prelims which didn't make very good reading. Avesco had previously indicated that 2013 had been a challenging year for the company and this is apparent from the final results, and of course comparisons with last year are unfair since revenues and earnings had a very substantial boost from the London Olympics.
Nevertheless, they did make a small trading profit of £0.5m, but more significantly the final dividend of 4p is a 33.3% premium to last year's (3p) and a 25% increase on the full dividend (5p compared to 4p in 2012). Moreover, the company are committed to a progressive dividend policy.
I'm not going to spend too much time analysing the 2013 results because there are several figures that could be quoted for EPS, the headline figure of course is 136.2p because of the huge income received from the Disney litigation.
The main drag on underlying earnings this year appears to have been CT Germany and Presteigne Charter. The company had to incur restructuring costs in both of these divisions.
Looking forward however, Richard Murray states:-
"The first quarter of the current financial year has started in line with the Board's expectations. As we look further into 2014, the Group anticipates a return to profitability with the benefits of a reduced cost base and an expected increase in demand over 2013 for its services, with a number of major "even year" sporting events being held, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil."
There will still be some costly restructuring at their loss making European operations, but the business should be stronger and more predictable going forward as a result.
Overall, the fact that they have no requirement for the Disney cash going forward, and are intent on a progressive dividend policy, is an excellent and reassuring sign for the future.
The £1.10 return of cash to shareholders will now take place at the end of January and shareholders can opt for the pay-out either as income or capital. With the share price currently standing at £2.26, post Disney pay-out and share buyback (mentioned below), Avesco is valued at just £21.4m.
This brings me on to the unexpected buyback from Taya of nearly 30% of the company's issued share capital. The shares will either be held in Treasury or cancelled. The number of shares in issue will fall from around 26m to around 18.4m and as consequence should enhance earnings significantly.
I must admit this wasn't a move I had anticipated, but it is extremely welcome.
Their reasoning is as follows:-
"The completion of the Share Buy-Back is expected to be earnings-enhancing, post on-going funding costs. After the completion of the Share Buy-Back, the value of the net assets per Ordinary Share will increase proportionately."
"The total voting rights of Independent Shareholders (excluding the interests of the Directors) will increase to 66 per cent. from 47 per cent. and, in this context, the Independent Directors believe that the removal of a significant shareholder will remove a possible disincentive to other institutional investors considering an investment in the Company."
"In recent years the Company has been reporting its financial results on a quarterly basis to enable Taya to comply with Taya's own reporting obligations on the Tel Aviv Stock Exchange. After completion of the Share Buy-Back, the Company will be able to revert to producing its financial results on a biannual basis which will remove a management and administrative burden."
"It is estimated that the Company will save approximately GBP0.2 million per year in quarterly audit review fees, director's fees and related expenses."
"The reduction in the issued share capital will result in a 29.2 per cent. reduction in the amount of cash being paid out in dividends by the Company and will, therefore, provide further support to the Company's intention to maintain its progressive dividend policy."
If my calculations are correct then post Disney pay-out and share buyback the shares stand at a 40% discount to Avesco's net asset value (and they are quality assets). In my view this still means the company is significantly undervalued.
Avesco has been a stellar performer for me, and I am extremely grateful for all the efforts of those involved with the company.
Merry Christmas to all readers of my blog, and congratulations to all shareholders in Avesco.
As ever no advice intended or given.
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