Playing the long game!

Those of you who follow my blog will know that I am truly a long term investor. I love to spot and buy shares in small/micro cap companies which the market has either overlooked, discarded or simply fallen out of love with. Often these companies offer exceptional potential.

Avesco is one of those companies that I spotted back in 2009 which has produced superb capital gains and generous dividends, not least the £1.10 pay out to shareholders last year following the successful outcome of the Disney litigation.

The company released it's full year results this week, and despite significant share price appreciation since 2009, the company still remains considerably undervalued. As ever, I would recommend reading the results in full before coming to your own conclusions, but I'm more than comfortable with their performance last year and their forward looking statements. Richard Murray, Chairman stated,

"The first quarter of the current financial year has continued the positive momentum from last year. We expect to see further benefits flow from the cost savings generated by the Group's restructuring programme, so that any "odd year" dip in profitability is minimised. With the restructuring programme now completed and substantial forward momentum in the businesses, we are able to continue our focus on increasing profitability, generating cash and growing dividends."

I don't think you can ask for too much more than that? Total dividends for 2014 were 6p, representing a yield of around 4.8%, with a forecast of 7p this year and 8p in 2016 (5.7%, 6.5% respectively). The current share price represents a 28% discount to net tangible assets, and the market cap. is less than it's EBITDA. Does this sound familiar? It does to me. Post 2 and 75 back in 2009 when I initiated the ADVFN thread:-

http://uk.advfn.com/cmn/fbb/thread.php3?id=20681152&from=2

http://uk.advfn.com/cmn/fbb/thread.php3?id=20681152&from=75

Of course, since then investors have 10-bagged their initial investment (including dividends) and are currently taking a 25% yield on that initial investment which is set to become 32% by 2016.

As an aside and before I continue, I just want to briefly explode one or two pieces of absolute claptrap that I hear on bulletin boards and elsewhere:-

1) It's illiquid and you can't buy in size. Avesco shares are purportedly illiquid, but I've never had a problem buying substantial quantities. Neither did Taya, and neither did Richard Murray, the Chairman who currently owns close to 30%. In fact, his most recent purchase was £136,000 worth on Friday.

2) It's risen ten fold it's expensive, it's fallen by ninety five percent it's cheap. Total rubbish. Avesco is a great example of the former, it's still cheap and there are numerous examples of the latter, just because a company's shares have fallen 95% doesn't mean they won't fall another 95% or worse still lose all their value.

3) The AIM market is too risky. No it isn't. Some companies listed on AIM are risky and some aren't. Basically don't buy overvalued companies of any sort wherever they're listed or companies that are overloaded with debt etc. In 2009 do you choose AIM listed Avesco or main market listed HMV?

Anyway, I digress.

Playing the long game has worked well for me and Avesco is just one such example. I will continue to hold for the foreseeable future.

Some further food for thought before I conclude though. Firstly, there is considerable intangible value not recognised in Avesco's balance sheet. Not least "Fountain Studios" (Wembley)  that is listed at book value, but must be worth considerably more, and their long list of prestigious clients that return year after year because of Avesco's quality service.

Finally, Murray holds near 30% of the company and is 65 years old or thereabouts. When he eventually chooses to retire (of course he may decide to continue for some time yet), he might well wish to cash in his holding. If I was him, I'd be looking at far more than EBITDA for my holding. How does 3 or 4 times EBITDA sound?