Following on from a blog post I penned back in April, Stilo International will de-list from the AIM market tomorrow (Tuesday 8th October) :-
This is April's blog post giving my thoughts at that time:-
http://michae1mouse.blogspot.com/2019/04/a-de-listing-bring-it-on.html
There's not a huge amount to add other than I've retained my entire holding in Stilo International and remain cautiously optimistic for the future.
The interims were released with a notice of their intention to de-list, and as anticipated the outlook for this year is lacklustre at best. There was a tender offer of 1p to purchase shares from private shareholders, but it appears that almost all private shareholders (like myself) have passed on the tender offer and are happy to hold their shares in the private company. Indeed it was pretty much a no-brainer since if you'd wished to sell out some or all of your holding since the de-listing announcement it's been possible to sell shares significantly above 1p. It should be noted that the company did buyback over 15,000,000 shares from Giltspur and Brewin nominees at 1p to reduce the share capital to around 98,000,000. It also worth mentioning that C.Lee has been acquiring shares and now owns over 10% of the company.
I am very happy that the company has de-listed since it doesn't need to raise funds from the market with a very solid debt free balance sheet and a cash balance (last reported) of over a £1m. This is against a market cap. that had fallen to around the company's cash level. The saving over £120,000 per annum on listing costs will be very significant for the company. In fact £120,000 represents around a 0.12p possible dividend. If you were lucky enough to get shares for around 1p then that's a 12% return. I expect dividend payments to return very soon following their de-listing.
From the General Meeting circular issued in August
(http://www.stilo.com/wp-content/uploads/2019/08/General-Meeting-Circular-23-August-2019.pdf), we also had this included in their reasons to de-list:-
"the Directors believe that the Company’s AIM-quoted status – in which the Company has a tangible share price and hence a perceived “value” - has presented a significant barrier, in practice, in advancing M&A discussions with potential acquisition candidates. Additionally, the Board’s experience is that many privately owned companies are not attracted by the prospect of acquiring, or becoming part of, a publicly traded company. The Directors believe that if the Company was off the market, it might be possible to command a much higher company valuation than that which is currently reflected in our share price."
My guess is that the company will return to profits and cash generation in the not too distant future and then sell the company at a hefty premium to its listed market cap.
Anyway, I'll keep you posted, and it'll be interesting for me since it's the first time I'll have held shares in a private limited company.
Monday, 7 October 2019
Friday, 19 July 2019
Dividends can keep you happy whilst you patiently wait for capital returns
It's a little while since I last produced a blog post so I thought I'd write a short article about Aeorema Communications (AEO). I've mentioned them several times in the past. It's basically a great value micro-cap that's returned to encouraging growth. The market is currently overlooking this little gem, although it does appear that micro-caps are, in general, currently out of fashion with Mr. Market. It'll all change in time. It always does.
From 2014-2018 revenues at AEO fluctuated in the £4m-£5m range, although pre-tax profits were declining. It's worth noting that the company did remain profitable during this period and continued paying dividends.
However, AEO's current management appear to have now got the company back on a growth trajectory. After reporting a half-year loss, chiefly due to the lag between making two senior appointments to their team and the inherent recruitment costs and time to make an impact, and the usual second half weighting they've now rapidly turned the half year loss into a full year profit which has beaten market expectations at over £350,000. Revenue took a big leap forward to £6.7m which is a quantum leap from the 2014-2018 figures. It appears that the new appointments are already beginning to prove their worth.
Their cash position is strong and it's their intention to continue with dividend payments. In 2018 the dividend was 0.75p so I'd expect a further increase this year. The current p/e ratio is around 7, and I'd guess the cash on the balance sheet is at least half the current market cap. of £2.4m.
Bizarrely, after the ahead statement yesterday and an initial 20% rise in the share price, the shares have now fallen back to where they started on Thursday.
From a personal perspective whilst it can be frustrating waiting for the market to recognise AEO's true worth, and in my view the company is stupidly cheap, I've received around 25% of my money back in dividends already with more to come following the release of their full year results.
Finally, a Mr Jonathan Hicking appears a regular and keen buyer and has today upped his stake further to 13%.
From 2014-2018 revenues at AEO fluctuated in the £4m-£5m range, although pre-tax profits were declining. It's worth noting that the company did remain profitable during this period and continued paying dividends.
However, AEO's current management appear to have now got the company back on a growth trajectory. After reporting a half-year loss, chiefly due to the lag between making two senior appointments to their team and the inherent recruitment costs and time to make an impact, and the usual second half weighting they've now rapidly turned the half year loss into a full year profit which has beaten market expectations at over £350,000. Revenue took a big leap forward to £6.7m which is a quantum leap from the 2014-2018 figures. It appears that the new appointments are already beginning to prove their worth.
Their cash position is strong and it's their intention to continue with dividend payments. In 2018 the dividend was 0.75p so I'd expect a further increase this year. The current p/e ratio is around 7, and I'd guess the cash on the balance sheet is at least half the current market cap. of £2.4m.
Bizarrely, after the ahead statement yesterday and an initial 20% rise in the share price, the shares have now fallen back to where they started on Thursday.
From a personal perspective whilst it can be frustrating waiting for the market to recognise AEO's true worth, and in my view the company is stupidly cheap, I've received around 25% of my money back in dividends already with more to come following the release of their full year results.
Finally, a Mr Jonathan Hicking appears a regular and keen buyer and has today upped his stake further to 13%.
Tuesday, 30 April 2019
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!!
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!!
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