It's been a terrific two weeks regarding news stories for three stocks that are in my portfolio.
Firstly, let's start with Avesco. On Friday Avesco announced that Disney have finally run out of lifelines and now they need to pay up. At long last. Disney really do come out of this saga badly. Quite ironic if you think about their history and the wonderful films they have produced with moral story lines that children have enjoyed for years. It appears that Disney are more the 'Wicked Witch' rather than 'Snow White'.
One thing perhaps that they have got right though is their slogan, because on behalf of all shareholders, "Thanks Disney, dreams really do come true!", and the company can now look forward to a massive £40m payout, the majority of which will be paid to shareholders.
At Friday's close Avesco's share price stood at 221.5p.
What's the company worth now though?
There are all sorts of measures on which we could reach a valuation, but let's keep it simple. When media companies are sold they are valued on a multiple of EBITDA. No ifs or buts that's basically it. Avesco is slightly peculiar in that it tends to do better in even years rather than odd because business booms during major events e.g. Olympics, World Cups etc. In the last two years EBITDA has been £20.3m and £27.1m respectively. For arguments sake let's take the mean of these two figures £23.7m. Conservatively, let's apply a valuation of 4 times EBITDA. This gives a valuation of £94.8m (about £3.65 per share). Avesco's current market cap. is £57.5m with net assets amounting to £38.6m, and this is a growing business which already pays a good dividend which is set to increase year on year.
That's all before the the Disney payout. Now £40m amounts to about £1.57 per share. How much will shareholders get? Impossible to say. Tax calculations will be complex, and it depends what Avesco define as the "majority" of the money. However, one thing is for sure, a large percentage of the current market cap. will be returned to shareholders in due course.
I've read some absolute drivel on the BBs about this prospective payout with some posters speculating about possible scenarios on the negative side of any payout. Here are some things to consider on the positive side:-
Disney will already have paid tax on the profits that they made on the show, so this immediately clouds the picture, I would also be surprised if there wasn't nearly three years of interest to add to the payout since the case was won in 2010. However, I know nothing about these matters and clearly neither does anybody else.
In conclusion, the eventual payout will be substantial. Make no mistake.
I built most of my stake in Avesco between 20p-30p and I 've been fortunate that this has turned out to be such a rewarding investment. I haven't sold a single share. What am I going to do now? Do you really need to ask given the above.
One final little caveat on the Disney case. Will Celador now pursue the William Morris agency?
http://www.imdb.com/name/nm1140125/news?year=2010
Surely not another payout further down the line?
Finally, if you wish to recieve the 3p final dividend from the finals then ex-dividend date is 15th March. The AGM is on the 14th March and the first quarter results on either the 13th or 14th. So plenty of news due this week.
First quarter results will undoubtedly show a loss given the trading statement given in the finals, but looking forward, Avesco indicated that business had picked up again at the turn of the year. 2014 should again provide a bumper year.
In other news, Datong issued a trading statement last week to indicate that trading was in line with expectations. This should should help consderably in negotiations to sell the business should they find more potential offerees. However, it certainly wouldn't be a disaster if they don't sell the company in the near furture since longer term I believe that prospects for the company are very encouraging. Even after the rise in it's share price, Datong remains considerably undervalued
Finally, Angle have released Parsortix into the research market. This is another major step forward. Using the terminology, Angle might be described as a 'blue sky' company. I would describe it as a speculative investment, but so far so good. Fingers crossed because success with Parsortix will bring huge rewards.
Sunday, 10 March 2013
Sunday, 24 February 2013
Datong up for sale. Markets overheating?
I don't expect it will happen too often that I write about a company in which I have recently invested on a Wednesday, and on Friday they declare that they have received an approach by a potential offeror for the company. However, that's exactly what happened with Datong this week.
As always with my stock picks, I try to buy the shares when I perceive them to be cheap, so I don't suppose it should come as any surprise when other companies recognise that this is the case and make an offer for the entire share capital.
Over the medium to long term I was hoping that Datong would become a multibagger, but if they do receive a good offer for the company then that's fine since it will inevitably be at a significant premium to the price I have been paying to acquire shares.
The share price finished Friday at 48.5p, a jump of nearly 25%. I expect that if an offer does materialise then further substantial gains are to be had, although it should be emphasised that the sale process is at an early stage and there are no guarantees that an offer will materialise.
At this stage it's impossible to say what a potential offer could be pitched at. I would argue that it's worth NAV plus a mutiple of future earnings (bearing in mind that they have just secured a £7.5m contract to be delivered over two years). In this case a price above £1 is not unreasonable. However, an offeror might argue that they will pay let's say 20 times last year's earnings about 60p or around NAV 74p.
Given that the company has put itself up for sale, I am hoping for two or three interested parties to create a bidding war which will ultimately lead to the best price (closer to my figure), but as I've said they might not get any bids at all.
I shall hold all of my shares regardless of what happens since even at 48.5p the shares remain undervalued.
On other matters, I notice that some of the pundits are predicting a market correction. I say, who cares, unless you trade the indices? As a long term investor and stock picker I'm only ever concerned whether or not the stocks I hold are undervalued or overvalued, if it's the former then I continue to hold and acquire and if it's the latter then I sell.
However, to add my own two-penneth, I would say this. Certain stocks have clearly run ahead of themselves, and judging by the general euphoria and self-congratulation on the bulletin boards, I anticipate one or two are in for a nasty surprise. It appears that certain companies have had a rapid run up in their share price linked to recovery prospects and improving economic conditions. However, all indications are that economic recovery both domestically and globally is going to be slow progress, and some results are likely to disappoint in the near term.
That said, the financial crisis and global recession of recent times was an extremely unusual event, the dot-com mania in reverse, if that makes sense. In my view there will be some market pull-backs (there always is), but for what it's worth given that global growth has hardly got back into first gear, I suspect that the current bull market will last far longer than even some of the most optimistic analysts predict.
As always with my stock picks, I try to buy the shares when I perceive them to be cheap, so I don't suppose it should come as any surprise when other companies recognise that this is the case and make an offer for the entire share capital.
Over the medium to long term I was hoping that Datong would become a multibagger, but if they do receive a good offer for the company then that's fine since it will inevitably be at a significant premium to the price I have been paying to acquire shares.
The share price finished Friday at 48.5p, a jump of nearly 25%. I expect that if an offer does materialise then further substantial gains are to be had, although it should be emphasised that the sale process is at an early stage and there are no guarantees that an offer will materialise.
At this stage it's impossible to say what a potential offer could be pitched at. I would argue that it's worth NAV plus a mutiple of future earnings (bearing in mind that they have just secured a £7.5m contract to be delivered over two years). In this case a price above £1 is not unreasonable. However, an offeror might argue that they will pay let's say 20 times last year's earnings about 60p or around NAV 74p.
Given that the company has put itself up for sale, I am hoping for two or three interested parties to create a bidding war which will ultimately lead to the best price (closer to my figure), but as I've said they might not get any bids at all.
I shall hold all of my shares regardless of what happens since even at 48.5p the shares remain undervalued.
On other matters, I notice that some of the pundits are predicting a market correction. I say, who cares, unless you trade the indices? As a long term investor and stock picker I'm only ever concerned whether or not the stocks I hold are undervalued or overvalued, if it's the former then I continue to hold and acquire and if it's the latter then I sell.
However, to add my own two-penneth, I would say this. Certain stocks have clearly run ahead of themselves, and judging by the general euphoria and self-congratulation on the bulletin boards, I anticipate one or two are in for a nasty surprise. It appears that certain companies have had a rapid run up in their share price linked to recovery prospects and improving economic conditions. However, all indications are that economic recovery both domestically and globally is going to be slow progress, and some results are likely to disappoint in the near term.
That said, the financial crisis and global recession of recent times was an extremely unusual event, the dot-com mania in reverse, if that makes sense. In my view there will be some market pull-backs (there always is), but for what it's worth given that global growth has hardly got back into first gear, I suspect that the current bull market will last far longer than even some of the most optimistic analysts predict.
Wednesday, 20 February 2013
Value share heading for growth?
At heart I would describe myself as a value investor, and over recent years I have tried to identify what I perceive to be value shares with good growth potential in the micro-cap sector. If you get the sums right, management prove to be competent, and you throw in a little bit of good fortune then the results can be spectacular.
Two relatively recent examples for me have been Avesco and Indigovision. Both have been multibaggers (I still hold Avesco), because I was fortunate enough to spot their potential whilst their shares traded below asset value. Whilst there were no guarantees that the companies would prosper (both made losses when I originally picked them up), I always felt that they had the potential to become profitable and show good growth with a medium to long term view. Fortunately in both instances that was exactly what happened.
I am hoping that I have now identified a similar opportunity, and in recent weeks I have been acquiring a holding in a company called Datong (DTE). There is a rather excellent article posted by 'hastings' on the ADVFN thread for the company which summarises all of the key details which made the company attractive to me. I am re-posting it below:-
http://www.cambridge-news.co.uk/Business/Private-Punter/Intelligence-on-Datong-shows-profits-wont-stay-under-cover-19022013.htm
The only details I would add are that current assets minus all liabilities amounts to £6.45m against a market cap. of only £5.2m (the company is debt free). NAV is almost twice the current market cap. at £10.3m. Cash on the balance sheet is £2.5m and the company is profitable and generating cash. In fact, if my calculations are correct, on last years figures the market cap. is less than five times the Free Cash Flow.
Add in the fact that the company announced in December that it had just secured a two year contract worth £7.5m then the company does appear to be very cheap. I'm not sure what proportion of that revenue will be booked this year, but given that total revenues last year were just £9.7m, it's certainly a significant contract.
To add some balance it's worth noting that results will probably be second half weighted for 2013, they don't pay a dividend (at the moment) and the p/e ratio (based on 2012 results) is about 13.
Their AGM is at the end of this month (28/02/13) and it will be interesting to see if there is any news about current trading.
As ever, no advice is intended or given and this is a micro-cap and all the usual caveats apply.
Two relatively recent examples for me have been Avesco and Indigovision. Both have been multibaggers (I still hold Avesco), because I was fortunate enough to spot their potential whilst their shares traded below asset value. Whilst there were no guarantees that the companies would prosper (both made losses when I originally picked them up), I always felt that they had the potential to become profitable and show good growth with a medium to long term view. Fortunately in both instances that was exactly what happened.
I am hoping that I have now identified a similar opportunity, and in recent weeks I have been acquiring a holding in a company called Datong (DTE). There is a rather excellent article posted by 'hastings' on the ADVFN thread for the company which summarises all of the key details which made the company attractive to me. I am re-posting it below:-
http://www.cambridge-news.co.uk/Business/Private-Punter/Intelligence-on-Datong-shows-profits-wont-stay-under-cover-19022013.htm
The only details I would add are that current assets minus all liabilities amounts to £6.45m against a market cap. of only £5.2m (the company is debt free). NAV is almost twice the current market cap. at £10.3m. Cash on the balance sheet is £2.5m and the company is profitable and generating cash. In fact, if my calculations are correct, on last years figures the market cap. is less than five times the Free Cash Flow.
Add in the fact that the company announced in December that it had just secured a two year contract worth £7.5m then the company does appear to be very cheap. I'm not sure what proportion of that revenue will be booked this year, but given that total revenues last year were just £9.7m, it's certainly a significant contract.
To add some balance it's worth noting that results will probably be second half weighted for 2013, they don't pay a dividend (at the moment) and the p/e ratio (based on 2012 results) is about 13.
Their AGM is at the end of this month (28/02/13) and it will be interesting to see if there is any news about current trading.
As ever, no advice is intended or given and this is a micro-cap and all the usual caveats apply.
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