I have been following the company for the past 17 months, having originally advised buying at 83p ('Set up for a buying opportunity', 10 June 2013). My last recommendation was around the same price four weeks ago ('Small-cap updates', 14 October 2014). Since then, the Cambridge-based set-top box designer of digital entertainment systems for IPTV, home multimedia and products that deliver content over the open internet, has announced two major contract wins.
The first is an agreement to provide Amino's newly launched A150 IPTV set-top box to a leading European network operator. This underlines Amino's longstanding commercial relationship with the operator, a European telecommunications company that offers customers mobile, fixed broadband, telephony, data network services and content services.
The second contract is to a subsidiary of 35m-subscriber mobile operator Turkcell (NYSE: TKC) to provide Amino's Live Advanced Media Platform for the rollout of IPTV services, advancing Turkcell's triple-play strategy. Turkcell Superonline passes 2m homes so far and has 1m subscribers, two-thirds of whom are connected over a gigabit fibre network. The Amino Live Advanced Media Platform, at 10 times the processing power of a standard IPTV set-top box, will support the 'Turkcell TV+' approach to cloud access to content over any device anywhere anytime, with the ability to rewind up to 12 hours of the programme guide. Powered by the Intel® dual core ATOM™ processor, this is Amino's latest generation home media hub for multi-screen and multi-stream delivery around the home.
I also noted with interest, and as predicted in my article last month, that Amino's board has been making some significant share buybacks. In the past four weeks, its directors have gone into the market and bought up 1.475m shares, or 2.5 per cent of the issued share capital in five separate transactions at an average price of 96.5p. The lowest price was 81p and the highest so far being 108p. It certainly makes sense to do so because these purchases have only made a small dent in the company's £19.7m cash pile and are significantly earnings enhancing. That's because the low-yielding cash pile equates to 36p a share, so net of cash Amino's board has been buying back the shares at only 60p each. To put that price into some perspective, analyst Andrew Darley at broking house FinnCap expects Amino to report EPS of 7.4p for the 12 months to end November 2014, up from 6.3p in 2013, so the average buy-in price equates to just eight times cash-adjusted earnings.
Let's not forget either that there is decent income on offer as Amino's board is committed to raising the dividend by 15 per cent to 4p a share. Expect a payout of 4.4p for the 2015-16 fiscal year, implying a prospective yield of 4 per cent.
So with Amino winning contracts, and implementing an aggressive share buyback programme, I remain positive on the shares ahead of January's results release. Trading on a bid-offer spread of 111p-112p, the shares are now closing in on my year-end target price of 120p, so if you followed my earlier advice I would ride the gains. That target could prove conservative. Hold.
Flying high
Shares in Aim-traded Hangar 8 (HGR8: 325p), one of Europe's largest operators of privately owned jet aircraft, have been firmly in the ascent since I recommended buying at 225p ('Ready for take-off', 12 May 2014). In fact, they have smashed through my upgraded target price of 300p ('Profit from an earning lift off', 2 July 2014) and hit an all-time high of 375p ahead of a bumper set of full-year results at the end of last week.
The share price advance is certainly warranted by the company's operational performance: adjusted pre-tax profits of £2.6m and EPS of 22p for the 12 months to end June 2014 represented a near-30 per cent profit uplift on the previous financial year. And with cash generation strong - operating cash flow pre-working capital movements jumped almost £400,000 to £2.3m - this lifted net funds up by a fifth to £4.6m, or the equivalent of 49p a share. Strip that sum out from Hangar 8's current share price of 328p, and the shares are being rated on an historic cash-adjusted PE ratio of 12.7. That's hardly a punchy rating for a company that is clearly benefiting from a strong tailwind. It is also one that will be paying out a maiden dividend of 2.3p a share in January.
The focus on heavy jets certainly looks a smart move as this reduces reliance on the more volatile, spot charter business and focuses the business on the more lucrative and faster growing intercontinental business air travel market. The Oxford-based company now has 47 planes under management, of which 27 are long-range heavy aircraft. Operating from 17 bases across Europe, the Middle East and Africa, Hangar 8 offers customers 12 different types of aircraft, including 15 super heavy jets (greater than 20 tonnes) that can fly up to 9,000km without the need for refuelling.
And given Hangar 8's customers generally sign up for contracts of between one and five years, this improves the quality of the company's revenue stream. In fact, contracted gross margin of £7.8m in the financial year just ended represented 87 per cent of the total.
Analyst estimates are now under review, but it's only reasonable to expect another year of decent progress. Also, small-cap income funds will now be able to buy into this growth story with a dividend on the way to add further support. So trading on a four point discount to the support services average of 17 times earnings, I would run your bumper profits. Hold.
Betting on sound fundamentals
London-listed property developer and closed-end investment fund Macau Property Opportunities (MPO: 237.5p) has released its first-quarter results to end September 2014, which reveal a near-2 per cent rise in net asset value per share to $4.97, or 310p at current exchange rates. This was driven by a share buyback programme - the company purchased and cancelled 3.2 per cent of the shares in issue at an average price of 246.85p - and by a 1.2 per cent uplift on the portfolio's valuation. That growth is a far cry from the rampant uplifts we have seen in the past 18 months, reflecting ongoing property curbs to restrict price growth in the former Portuguese territory of Macau, the Chinese equivalent of Las Vegas.
Sentiment is not being helped either by China's slowing economy and Beijing's anti-graft drive that has meant some mainland punters are more cautious about visiting Macau in the short term. As a result, gaming revenues in the territory are now expected to be flat this year, albeit at $45bn (£28.1bn) they have risen eightfold in the past decade. This more subdued activity is unlikely to change in the near term as Chinese president Xi Jinping, who is trying to stamp out corruption and ostentatious spending in the Communist party, is planning to visit Macau next month making it far less likely that high rollers will be making a visit too.
That said, the fundamental drivers supporting the investment case still hold. Firstly, the demand for residential property - both rental and owner-occupied - is being supported by the rising number of workers needed to support the wave of new casinos coming on stream next year and beyond. And not all the 30m visitors expected to descend on Macau this year are gamblers either. Importantly, housing supply remains restricted, which explains why Macau Property's rental values rose 7 per cent for high-end properties in the first six months of 2014. Further growth is expected in the second half too. This is being seen across the company's portfolio and in particular at its Waterside development of 59 flats (book value of $306m). That investment accounts for over half of Macau Property's portfolio worth $543m.
It's worth noting too that the company plans to continue to take advantage of the deep share price discount to book value - the shares are priced 23 per cent below net asset value - through further share buybacks. Moreover, with a loan-to-value ratio of only 25 per cent, and with free cash available of $22.3m, it is well placed to do so. Also, the company can expect a cash inflow of $19.5m from its Fountainside niche residential development in the coming months when the first release of sold units are handed over to buyers. That sum represents around a quarter of the market value of the investment.
So with rising rental demand underpinning property valuations in a market with tight supply, and the territory still expected to see record numbers of visitors this year, then I feel comfortable recommending buying the shares. Liberum Capital's June 2015 year-end net asset value (NAV) estimate remains unchanged at 328p, and looks achievable as it is less than 6 per cent above Macau Property's spot NAV. In fact, the ongoing share buyback programme could easily make up half the forecast NAV increase by itself. On a bid-offer spread of 236p-238p, I rate Macau Property's shares a medium-term buy, but have reined in my target price from 290p to 270p to reflect a less buoyant property market in the territory. That new target coincides with the all-time high from July this year.
Please note that I initiated coverage 13 months ago when the price was 177p ('Far Eastern delight', 6 September 2013), since when the company paid out a 21p-a-share capital distribution in April. My last buy recommendation was at 230p ('Play on Macau', 23 September 2014).
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.75 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
