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Here are some special situations that could be ‘ poised for action’ that is independent of the general economic / stock market background
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Have a restful Holiday
Amr Shell for nothing and Bob for free
Pebi Mellon juice
Ukr War is over ?
Snt Boiling value
Armour (LSE:AMR)
5p (4.5p-5p)
Mkt Cap £4.26m
Next Results Interims Feb
Shells are created when the original business plan is no longer supported. Armour, a mini-conglomerate decided that its rating and prospects were so low that the Chairman Bob Morton, a seasoned entrepreneur decided to sell off or close down the three/four unrelated businesses. The process has come to an end when the disposal of Armour Home and Armour Hong Kong was announced in August. The net cash is £4.1m which is around teh current market cap and allows no value for the Aim Shell or the goodwill premium for Bob Morton, the chairman. An Aim listed vehicle is arguable worth up to £300k. Bob Morton is 70 could have retired as his personal fortune is around £200m and he is on the Board of many companies eg. Port Communications and Servoca etc. Bob holds 31% of AMR shares. So give and take a bit the market cap is around the current intrinsic value and shells can be worth many times its intrinsic value.
The very outline plan is to become an investing company, specializing in the technology sector, for which we can assume that some tax losses can be carried over.
Trading Strategy
There are around 1,900 shareholders so there is a long list of investors with only a few shares each which can depress a raising price
Port Erin (LSE: PEBI)
11p (10.5-12.5p)
Mkt Cap: £3.72m
Next Results: Finals by End December
Port Erin is a sub-scale AIM investment vehicle in Biopharma. Despite that it has done relatively well over the last three years –all costs of being on Aim have been meet while growing the NAV to 15.9p. Jim Mellon is a 29% shareholder, the Non-Executive Chairman and an investment manager who knows a thing or two about biotechs and making money. He is, based in the Isle of Man and is a renowned fund manager and entrepreneur worth an estimated £300m-£500m. During the past three years, Mr Mellon has invested widely in the biopharma industry and having started PEB with about £3m, he has even after listing costs etc and management fees increased the value. The invested assets were reported at £4,991,105 (2012: £3,031,135) for the six months to December 2013 cash and equivalents were £802,741 (2012: £101,241) giving total assets stood of £5,798,952 (2012: £3,141,411).
An astute strategy that helped to build value was the transfer of a basket of shares into the Magna Biopharma Income Fund which is quoted at NAV and lead to an interim profit of £1.8m. The lock-in for this investment expires on 10 December 2014 when the value which we estimate is worth around 9p a share will be distributed to shareholders. The proposal is that a pro rata cash distribution will be offered to shareholders in the form of a tender offer to redeem shares of the Company on a basis to be announced, shortly.
Financial
On our figures there is still around 6p of assets per share of which 2.1p is cash and the rest is in listed and some unlisted securities.
Trading Strategy
Once the Manga Biopharma cash is distributed buyers at the current offer price of 11.5p will own part of a shell at a discount to its net asset value. A shell with a renowned Fund manager / entrepreneur would normally be expected to trade at a premium and Jim Mellon will be looking to adapt a suitable new investment policy and all should be revealed before 2015.
UKRPRODUCT GROUP (LSE: UKR)
7.5p (6.5p/8.5p)
Mkt Cap £2.97m
Next Results Finals May
Ukrproduct is one of the leading Ukrainian producers and distributors of branded dairy foods and beverages (kvass). Yes, Ukraine. There are two things you need to read and agree before we get into the details- Once Ukraine have an elected Government there is likely to be real ‘negotiations’ with Russia, NATO etc and that a Government could be appointed within weeks.
Now moving on….Ukrainian Consumer confidence has fallen and the population’s purchasing power has been reduced by rising costs including the very significant increase in fuel prices due to the deterioration of relations between Ukraine and Russia. The interims to June 2014, reported in late September showed that profits on operating more than doubled to £1.3m, helped by a gain of £835k on Forex but deducting currency exchange differences amounting to £ 2.8m . There is always demand for skimmed milk, butter, cheese etc although demand for Ukrainian kvass in Crimea may have changed. UKR have slimmed down to an appropriate level and are optimistic that branded product volumes will improve which is being underpinned by a strong marketing programme. Since the beginning of November Director’s have brought around 1m shares at 7.5p
Financials
The Group reported total assets of approximately £21.1 m with cash of £0.4m and consolidated revenues of approximately £17.2 m for the six months ended June 30, 2014. Gearing is 36% and interest is covered 2.8x. The Group’s cash levels and bank facilities are sufficient to meet current debt obligations in the short and medium term
Trading Strategy
We are unlikely to fall in love with the share but we may have spotted an opportunity. Paying upto 15p would still be a 50% discount to NAV and on an estimated normalised PBT of £1m for the full year the P/E would be around 15x. Udachi (good luck!)
SABIEN TECHNOLOGY (LSE:SNT)
16.5p ( 15-18p)
Mkt Cap £5.4m
Next Results: Interim February
This manufacturer and supplier of the patented energy efficient M2G boiler, reported mixed finals earlier this month. Losses were reduced to £0.29m from £0.41m on sales of £2.1m down from £2.5m the reduced losses were despite higher administration costs at £1.8m as the sales staff has been increased. The shares drifted lower and are well off its year high of 43.5p. There are some noteworthy but seemingly unnoticed investment bullet points. We at OMG! like spotting companies with decent fundamentals and a visible sales pipeline as the company either starts reflecting this in EPS growth or the ‘light fingers of capitalism’ will take-it-over.
Floated on Aim in 2006 the UK-based Sabien specialises in providing proven and commercially viable technology to reduce carbon emissions and energy usage for private and public organisations. The M2G is a patented energy efficient technology using intelligent software and hardware, it is designed to reduce fuel consumption and energy wastage in commercial boilers and it can be retro-fitted and fully integrates and complements existing controls. Pilot schemes are offered to customers with large estates as part of the monitoring and verification process prior to deploying M2G to their wider estate. Currently the M2G is installed at 3 sites monitoring the results for 4 weeks using 3rd party logging technology. The company charges for all its pilot programmes and related consultancy services, following this the potential customers should then indicate its orders and level of interest. The time frame from pilot completion to receiving an order can vary between several weeks to several months. The case study reference is BT who spend over £1m after successful trials a point that also illustrates that orders can be lumpy.
Sabien’s net cash is £1.42m with a sales pipeline of £6.9m. International sales should grow from last year’s £188k as the number of distribution agreements has increased to include China, Greece, Middle East, India, Italy, France, Germany, Belgium, Netherlands, Spain, UAE and South Africa. Existing customers include BT, MOD, some Councils and BNP Paribas. A new version, the M1G was recently launched which is, a retrofit control technology designed to reduce the operating costs of direct-fired water heaters.
Financials
The cash generated by operations to June 2014 was £0.2m compared to an outflow, while the current ratio is 6.9x which allows plenty of headroom to fund growth. The gross margins are 70% so there is around £5m of gross profit to be booked within the next 12-18months. Adding back the net cash and deducting admin it is only a bit of a stretch to say that the mkt cap is not that much more than the prospective EBITDA cash value. There is a commitment to a progressive dividend policy which currently yields 1.5%.
Trading Strategy
Around 79% of the shares are either held by institutions or by the management. A couple of orders could soon see the value improve.
