A de-listing? Bring it on!

I've written about Stilo International several times in the past. It's a tiny company with a market cap. around £2.3m. The share price has bounced up and down for years, and currently sits near its all time lows. It's disappointing since I had high hopes for Stilo, and have written very positively about them in the past.

There are two key reasons that the share price is currently languishing at 2p. Firstly, growth suddenly stalled in 2018 after looking like the company might be reaching an inflection point. Through 2015, 2016 and 2017 revenues had been steadily growing and although EPS had remained flat due to increased development costs, the company boasts 99% gross margins and it doesn't take too much imagination to see how quickly operational gearing would have kicked in and increased sales would have dropped to the bottom line. Alas in 2018 revenues suddenly dipped, and although the company was still profitable, growth had stalled. Unfortunately, sentiment was not helped by the following comment in their preliminary report, "2019 is going to be a challenging year for the Company, with potential demand, as always, difficult to predict at the current time."

The uncertainty regarding trading in 2019 coupled with the following hint that management may favour a de-listing i.e."Given our size, we continue to incur significant financial overheads associated with being a public listed company, but notwithstanding this we were able to generate a post-tax profit for the period of £177,000.", "spooked" investors and decimated the share price.

If you don't like the possibilty of holding shares in a de-listed company then I'd suggest you stop reading now. However, if you're more adventurous then read on.

My feeling from the tone of the 2018 prelims is that management would be happy to de-list. Indeed why wouldn't they be? Currently the shares yield a 6% dividend, a dividend that has incidentally doubled in the past four years. In fact, it rose 20% this year (a dip year) which indicates huge confidence in the long term future and an extremely robust balance sheet. In essence, de-listing would save them a further £150,000 per annum which is enough to double the current dividend immediately i.e. a potential 12% yield. That's mouth watering! It should be noted that the Directors hold around 25% of the shares and consequently a (potential) double digit dividend would be highly appealing. It should be noted though that they would need the support of all their major shareholders to secure the 75%+ votes to enable a de-listing to happen.

For such a tiny company, the balance sheet is absolutely superb. Cash stands at £1.3m and there is zero debt. The NAV is £3.8m (TNAV is £1.3m) against a current market cap of £2.3m, although if you do your research I believe the true value of Stilo is very significantly higher.

From the prelims, it suggests that their trading statement in May will be lacklustre and it's possible that they might even try and persuade investors to back a de-listing. I'm comfortable holding or even adding whatever happens.

Stilo has excellent financials and the potential to restart their growth trajectory again. Whilst growth may not resume this year, I very much suspect that the medium to long term looks far more rosy.

The shares are already highly illiquid, so any potential de-listing won't improve that situation but by way of compensation you just might get a double digit dividend yield!!

As a final note, I'd add that I've never held a micro-cap company before that was profitable, pays a generous and improving dividend that has doubled over four years and has a rock solid balance sheet.

I hope that they can regain their growth trajectory in the medium to long term because that would truly be very exciting whether they're listed or not!!

De-listing? Bring it on!!