Volvere Share Discussion Threads

[rivaldo] 03/10/2019 15:02

Indeed EM - obviously the weighty investment in Shire's PP&E is reflected in the consolidated assets and VLE's NAV, which is why you can't double-count it in a sale valuation.

Interesting to see if anyone here has an informed opinion on what an acquiror might pay for those assets (plus the property less the loans), given that much of that value will have been incurred recently on modern equipment to meet the increased demand.

Similarly as to whether anyone has info on what multiples of PBT (or more likely EBITDA) food sector business sales generally achieve or have achieved recently. I posted a while ago about a pie business which had been sold, but can't remember the name offhand.

EDIT - sorry Jaknife, our posts crossed! Glad you've confirmed that EBITDA is the more likely multiple.

[rivaldo] 03/10/2019 13:37

Yamaha, the accounts don't from memory include anything (or at least anything material) for the valuation of Shire in terms of either consideration paid or valuation of the business.

The accounts DO consolidate Shire's assets and liabilities of course, including the freehold property and associated loans. Which is why I've simply taken the overall NAV of VLE, and not added anything further to the valuation of Shire other than its value as an ongoing business to an acquiror.

[yamaha865] 03/10/2019 13:30

Hey Rivaldo

Is it right that the £13.56 NAV doesnt include the net assets of Shire? My reading of the accounts is different...

[rivaldo] 03/10/2019 11:44

I've updated the thread header post with a new summary of the present NAV and a guesstimate of Shire's worth and total "real" NAV. Any material corrections happily accepted.

The shareholder list is also updated.

Looks like the seller of 10,000 shares at 1150p yesterday just reported doesn't think pies (veggie or otherwise) have much of a future! Or he ignored the 1290p tender offer and has cashed out given current markets (which will of course benefit VLE given the almost £20m cash pile).

[glawsiain] 02/10/2019 07:50

No problem, Riv. Afraid I'm not an IC subscriber anymore so can't expand on ST's comments.

[rivaldo] 02/10/2019 06:38

Simon Thompson of the IC commented on VLE the other day and concluded thus:

"I also note that the recent trading performance of Volvere’s one remaining investment, an 80 per cent stake in Leamington Spa-based food manufacturing business, Shire Foods, fully justifies its £7m (371p) carrying value. Revenue of £10m in the first half was a record and the business improved its operating profit by £410,000 year on year.

The Landers are really smart investors and I would continue to hold Volvere’s shares ahead of news on their next acquisition. The general UK economic and political uncertainty is likely to provide rich pickings for them to take advantage of. Hold."

Glawsiain, cheers re Graham Neary's article.

[hpcg] 26/9/2019 13:51

Given the track record I would like the company to be as patient as it needs to be in finding its next investment.

[glawsiain] 26/9/2019 13:02

Volvere (LON:VLE)
Share price: 1250p (+9%)
No. of shares: 1.8 million
Market cap: £23 million
Half-year Report

(In case anybody was not aware, I have a long position in VLE.)

Volvere has published some decent interims - happy days.

This is an investment company which currently has just a single operating subsidiary, Shire Foods, after all the other subsidiaries were sold for handsome profits.

Shire, in Leamington Spa, seems to be doing nicely. I attended Volvere's AGM this year, and reviewed my notes from it this morning. At the AGM, Volvere management talked about Shire's capacity constraints and its expansion push in terms of production lines and cooking vessels.

The H1 revenue increase at Shire is even better than I would have hoped for, at 39%. This helped to offset margin pressure from raw materials and wage inflation. The overall jump in Shire's adjusted PBT was from a £170k loss to a £240k gain.

Shire supplies frozen food to discount supermarkets, and this is a nice sector to be in right now (e.g. Aldi expansion).

As far as developing its product portfolio is concerned, Shire is focused on the vegan segment - another growth area:

We are actively responding to the increased demand for vegan products and have agreed several new products with retail customers. In addition, we have launched our own brand - Naughty Vegan - into the foodservice market.
Time for a few calculations.

Last year, Shire produced an adjusted PBT result in H2 of about £1 million (based on a £170k loss in H1 and an £850k profit for the full year).

If it matches that this year, it is on course for adjusted PBT of £1.24 million. But given the strength of H1 this year, the end result could (should?) be materially better than this. Maybe £1.5 million is a reasonable guess. Volvere says that additional opportunities will be sought for Shire in 2020, on the back of its increased capacity.

Another little tidbit that is worth noting: the "majority" of Shire's expansion is being funded externally, i.e. Volvere is keeping its own powder dry for acquisitions, rather than funding Shire.

The balance sheet is spelled out here:

5d8c8eed1cb45VLE_20190926.PNG

If you can read these, you'll see that Shire ("Food manufacturing") has more than £6 million in liabilities/provisions (up from £4.4 million a year ago).

Evidently, Volvere wants to keep that £19 million cash pile available for takeover opportunities, rather than funding Shire unnecessarily.

But Shire seems able to carry this leverage, at least for now. You can see from the above table that it still has net assets of £7.1 million (including freehold property).

Volvere HQ, meanwhile has no debt and is sitting on £19 million of cash. Volvere management have said previously that about £20 million is the most they need to execute their strategy.

Outlook

The Chairman says: "We remain positive about the outlook for our business and believe that the current economic and political uncertainty will provide further investment opportunities."

The logic here is that uncertainty can create buying opportunities for value investors such as VLE.

The CEO says (and I've added the bold):

Our strategy throughout 2019 remains as before - to deliver shareholder value through improving trading performance of our existing portfolio, identifying new opportunities, and investment realisations. The level of deal opportunities has increased since 2018 and we remain optimistic that we will identify new businesses in which to invest.

My view

The only slight worry is that there hasn't been an acquisition for some time. It looks like the last one was in March 2015.

But having said that, I am much happier for Volvere to remain patient and to wait until it gets something that it is very confident in, rather than doing something for the sake of it. So I really don't mind if deal news is slow. Better to be slow than to get it wrong.

As for the current valuation, I am inclined to believe that Volvere is worth central cash (£19 million) plus the value of Shire. Some investors might then apply a discount given the administrative overhead and the uncertainty over future investment performance.

Personally, I think that Volvere management have done more than enough to prove the soundness of their approach. They might mistakes in future, and/or they might be unlucky, but I don't think there can be much doubt that their methods have been sound (at least historically).

Let's think for a minute about what Shire is worth. Book value is £7.1 million, and adjusted PBT (to exclude intra-Group management charges and interest) looks like it could hit £1.5 million this year. Let's call that net income of £1.2 million.

The ROE at Shire might therefore be in the region of 17%, thanks to the use of leverage.

It will be difficult for Shire to grow very fast very quickly, although if the "Naughty Vegan" brand were to take off, who knows how lucrative that might be?

Personally, I would value Shire today at around £10 million, or 8x after-tax earnings. That's a modest but fair multiple for a food manufacturing business, and not an outrageous premium to tangible book value. So I believe that this is a conservative estimate.

Volvere owns 80% of Shire, so I would put Volvere's stake at £8 million. The 20% that it doesn't own is important - it helps to incentivise the managers on the ground at Shire.

Add on the group cash balance and you get a Volvere valuation of £27 million. Feel free to disagree with this number.

You then have the great imponderable of future investing performance to consider. I think that Volvere management are very good at their jobs, and I'm happy to back them. Others might disagree, and might have no interest in VLE at all, or unless it is much more keenly priced.

Based on my £27 million estimate, VLE trades at a 15% discount to current fair value. The discount is more like 8% if you use the official NAV published today.

Both of these estimates are based on the mid-price. The bid-offer spread, as always, is huge, so short-term traders must stay away. This share is something to hold for years, to give management a chance to work their magic (or to fail miserably, as the case may be - but they haven't made too many mistakes so far!)

Despite this share representing 17% of my equity portfolio, I have no immediate plans to sell.

[rivaldo] 26/9/2019 12:36

Graham Neary has opined on VLE this morning (it's his largest holding). Much of it ia available to cheapskates like me (up to his calculations). Anyone got access to the rest?

[eezymunny] 26/9/2019 07:45

Naughty Vegan - set up as a standalone company. Float it in the US I say. Must already be worth 50 billion :)

[eezymunny] 26/9/2019 07:12

The Naughty Vegan thing is interesting. I once asked JL why they don't try to create a brand of some sort. He said "never on my watch" would Shire be anything other than a contract manufacturer, so looks like a change of heart and worth a go. Only way Shire will ever get margins up and the timing/sector looks perfect.

[yamaha865] 26/9/2019 07:12

Looks like Shire should get close to £1.5m pbt for the year- 39% revenue growth (albeit with capex) is impressive

[eezymunny] 26/9/2019 07:10

Indeed. Shire looks like will do £1m+ pbt to me, with TBV £7m. Is it 80% attributable to us VLE shareholders?

As ever VLE is too cheap. I just love owning VLE and love even more the rank stupidity of the sellers that keep allowing me to fill my boots at silly prices. Bring on a stonking bear market and an opportunity to buy Shire for free :)

[longshanks] 26/9/2019 06:50

Astonishing really that you can still buy £13.56 for just £11. I guess like an investment trust we should expect the price to be at a discount to assets, but given those assets are mostly cash it seems rather ridiculous here.

[rivaldo] 26/9/2019 06:21

Excellent and pleasantly surprising performance by Shire in H1 - a £240k profit in H1 is an impressive £400k turnaround on last year in such a seasonally weaker half.

The full year should now make impressive reading following the big demand-led investment and roll-out of Aldi, Lidl and Morrisons stores.

Net assets per share have soared to 1356p per share - with no goodwill - including £19.7m cash.

Very happy with that, and the comment about new acquisition opportunities increasing. VLE are in prime position to take advantage of the current climate.

[totana] 26/9/2019 06:09

Half year report is out.

[eezymunny] 24/9/2019 11:54

Cash at 29/5/19 was stated as c. £36.2m. After tender and buyback that reduces to £19.7m (£10.74/sh). I guess not much different at end H1, but depends on capex timing etc.

So Shire valued around £2m at 11.80/share. I bought bank a chunk of those I tendered for below £11.50 a few days ago. Seems much too cheap there.

Shire unpredictable but may do £1m pretax? and and had tangible book £6.2m end 2017. Reckon Shire worth in £6-10m range? So Volvere really should be at £14-16 quid IMVHO.

H1 results - maybe Shire breakeven, but overall well profitable including Sira sale?

We'll see.

As is so often the case VLE looks to be a very very good risk/reward here IMVHO.

[rivaldo] 24/9/2019 08:28

H1 results could be any day soon judging by prior years. Not expecting much from Shire given the heavy H2 seasonality, weak pound, rising labour costs etc, but with the £21m m/cap (1.834m shares in issue) likely almost entirely covered by cash Shire is effectively in for free at present.

[boadicea] 21/9/2019 14:56

Interims this Thursday ???

[rivaldo] 16/9/2019 08:14

Aldi have announced a £1 billion investment programme, opening another 100 stores across the UK.

They've also been increasing their percentage of UK-sourced food.

All of which should be very good news for VLE:

[picnic] 03/9/2019 17:16

A few meaty trades gone through today.Bit of a safe harbour?

[rivaldo] 16/8/2019 08:01

Just back from hols again WB. 'Twas very good thanks :o))

Looking at the trades, still can't believe anyone's selling at 1140p or so when they could have had 1290p in the tender!

The £21.5m m/cap at 1170p compares with around £20.5m cash plus Shire Foods (including its freehold property).

The number of bargains popping up on the Landers' potential acquisition screens will be rising fast in the current climate.

[wild bill] 11/8/2019 13:03

You still 'ere rivaldo?
ps
it's 'twas and not t'was
:-)