Quarto Group, Tandem and Walker Crips - 'Value Portfolio'

The final three companies that appear in my value portfolio include Quarto Group, Tandem Group and Walker Crips.

Quarto Group describes itself as 'the world's leading international illustrated non-fiction book publisher and distribution group'. A brief look at the financials suggests that the shares at 163p represent good value. The market cap. is £32m and they pay a dividend of 5%. The historic p/e ratio is 6.3.

Revenue at the half-year was a tad down, but the interim dividend has been maintained and a recent trading statement suggests that the group is on track to meet market expectations for the full year.

The business is highly cash generative, and boasts a NAV of 260p per share, although if you strip out the goodwill and intangibles this falls to -265p and the group carries significant debt.

Whilst I like the cash generative nature of the business, the high levels  of debt may be a deterrent for me. However, it should be noted that the business has implemented a progressive dividend policy since 1998, and the debt clearly hasn't caused any issues to date. In the interims they also state their intention to bring down their levels of debt,  "importantly we are clearly bringing down our debt levels and shall continue to do so.", and recent asset sales would provide further confirmation that they are making steady progress in this area.

On the face of it Quarto looks like a pretty secure income play. We shall see.

Next up is Tandem, a company that I have looked at several times, but have never invested in. Rightly or wrongly I associate this company with middle aged men trying to regain their youth and vitality by donning ludicrous lycra outfits and buying expensive biking gear, and then cluttering up country roads on Sunday mornings and generally getting in the way (Just joking - I don't want  to alienate half my audience!!).

Anyway back to the statistics. Tandem is valued at just over £3.5m, and currently boasts a yield of about 4%. It has a single digit p/e ratio of 5.4 and, the shares at 79p, are just above net tangible asset value.

The recent trading statement was a bit of a mixed bag. Revenues were slightly behind last year's, but operating profit for the full year has improved and they are confident that operating profit can be improved again in 2014 whilst they reduce debt levels. Against this are competitive pressures that are squeezing margins.

It doesn't necessarily appeal to me, but then again it could prove to be good value in the longer term.

Finally, Walker Crips, the investment and wealth management services group. At first sight this appears to have made the value portfolio based on the disposal of  Walker Crips Asset Managers Ltd ("WCAM") fund management subsidiary in April 2012 which realised a one-off gain of in excess of GBP11.7m and which helped the group deliver record pre-tax profits of GBP9.1 and pay a special dividend of 7.5p.

In fact they actually made an operating loss of £2.3m without the exceptional gain and the dividend payment was 1.37p. Based on a current share price of 44p, the dividend yield is actually around 3%.

At this year's half-year the company have made a small operating profit of £263,000. There was also a further exceptional gain from the disposal mentioned above. The interim dividend has been increased by 8.5% and the recent interim management statement is encouraging. It indicates further improvements in trading with like for like revenues increasing by 16.3%. The Group remains in a strong financial position with more than GBP10 million of net cash on its balance sheet.

They sound cautiously optimistic about the medium term.

Anyway, that concludes my summary of all of the shares included in the value portfolio and I'll review it's performance against the FTSE-all share index every six months or so.

Avesco update

I see today's biggest riser, following a trading update, was Snoozebox (zzz) which supplies portable hotel accommodation to events and festivals. I notice the trading statement contained the following:-

"In addition to the events calendar, the Company is seeing demand from the wider corporate market. In the last six months Snoozebox has hosted a range of events on behalf of blue chip retailers, banking clients, car manufacturers, travel companies and event agencies."

This may just be company specific, and of course, the business is different to Avesco's. However, given the recent statistics regarding economic recovery, I wouldn't be surprised if the corporate market (certainly in the UK) is springing back into life with a vengeance which will greatly benefit Avesco.

It's easily forgotten that Avesco has thrived despite the turmoil over recent years. This is an excellent showing given the cyclical nature of the business.

The even year effect (Winter Olympics, World Cup, Commonwealth Games), higher corporate spending, a significantly reduced share capital and an increasing dividend policy could bode well for shareholders.

Richard Murray recently purchased another £108,370 worth of shares if that's any guide.

As ever no advice intended.

Avanti Communications interims

It's been some time since I've commented on my holding in Avanti Communications, the satellite operator, which has been somewhat of a volatile performer in my portfolio to date. Given that this is a speculative holding in a company that is still to make a profit, the share price performance holds no surprises, and I'm happy to sit tight.

The interims look encouraging to me, and whilst I have no illusions about the risks involved with these type of investments, if they are eventually successful then the nature of the business suggests that the market cap. will substantially increase from current levels, and Avanti should become a handsome dividend payer.

Revenues for the year were up an impressive 81%, and they attained 40 new contracts in the period with sales momentum continuing with high quality global telco and media customers.

The outlook statement is very encouraging:-

"The second half started positively with the award of a large African government contract. We won several million dollars of broadband business in Western Europe from competitors based on quality of service advantages. Our cellular backhaul product gained new pilot projects in Africa last month, and our SNG product is currently used in high profile events like Sochi. We continue to sell to new large and expert customers and backlog is growing. Our business growth will remain difficult to forecast, but the growth in the size and quality of the customer base and a satisfying repeat order rate gives us firm belief that we are building a profitable and enduring business."

Cash flow, as would be expected, is rapidly improving and cash on the balance sheet is $78.3m. In September the company entered the debt capital markets with their first $370m bond issue placed on competitive terms to re-finance and extend maturities which David Williams, Chief Executive Officer, said:

"diversifies and increases the sources of funding available to the Company. The greater flexibility which the Notes provide will allow us to utilise our balance sheet more effectively and to respond to new opportunities. The Notes have no financial ratio covenant tests and greatly enhance our cashflow."

Bizarrely, it appears that the usual suspects are still trying to short Avanti's shares. Albeit with little success for the time being.

I say bizarrely for the following reasons. 

Whilst nobody should pretend that this is anything but a highly speculative investment, it does appear that sales momentum is beginning to gather considerable pace. They are winning business from competitors based on the quality of their service, and they are picking up high quality global Telco and media customers. With the acquisition of the Artemis satellite they now have valuable Ka band (and some Ku and S band) spectrum filings in the ITU Master Register at 33.5degW, 21.5deg East and 31.0deg East.

It's no mean feat to build and launch two satellites successfully with full operational capability, and whilst risk still remains, my guess is that at worst the company will be an acquisition target.

Anyway, time will tell, and as ever no advice is intended or given.