In my last update I noted that the company was in the process of raising £50m of new equity at 220p a share through the issue of 22.7m new shares, representing 40.1 per cent of its existing share capital (‘Cashing in on a top performer’, 23 November 2015). The capital raise completed a few weeks later and the net proceeds of £48.4m will be used to invest in at least five new investments being targeted by Marwyn Value Investors LP, an open-ended Master Fund domiciled in the Cayman Islands, which was launched in early 2006 with backing from more than 60 leading institutions and alternative funds including Marwyn Value Investors.
Marwyn Value Investors LP specialises in the acquisition of growth businesses by taking significant stakes in quoted portfolio companies. To date, it has so far invested a total of £300m in 15 companies and generated net returns of 233 per cent for Marywn Value Investors' shareholders since inception in February 2006, making it the second-best performing listed fund in private equity and UK small caps.
Adjusting for the 22.7m new shares in issue, and the £1.6m cost of the capital raise, the company’s proforma net asset value was around £193m, or 244p a share, at the time of my article three months ago. It’s now £181m, or 229p a share, representing a decline of 6 per cent. However, 4p a share of the 15p decline reflects the payment of dividends last month, so the actual fall in the value of the company’s investments is only 4.5 per cent. By contrast, Marwyn’s shares have fallen 12 per cent to 190p in the same three month period and are now priced on a deep 17 per cent discount to book value. That seems harsh considering that its net asset value per share has risen by 90 per cent over the five years to 6 November 2015, a performance that is three times better than the FTSE All-Share index ex-investment trusts.
Moreover, the Master Fund held £86m of its assets in cash in early November last year and owned equity stakes worth £122m in four companies. So after adjusting for the £48.4m cash raised from the December share placing, this means that in effect more than half of Marywn Value Investors’ net asset value is in cash. This means that after stripping out cash from the company’s current market capitalisation, its equity investments are in effect being valued a third less than their open market value.
That’s a severe valuation considering the company has an indirect interest through the Master Fund in a 2.33 per cent shareholding in FTSE 250 constituent BCA Marketplace (BCA:170p), Europe's largest car auction operator. The investment accounts for a quarter of the equity portfolio. The Master Fund also holds a 31 per cent stake in Zegona Communications (ZEG:123p), a small cap company with a market value of £244m, having backed that company's acquisition of Telecable de Asturias, the leading quad play telecommunications operator in Asturias, north-west Spain. A pre-close trading update from Zegona was very positive, and highlighted a “build up of momentum post acquisition, driven primarily by the implementation of strategic improvements under Zegona's ownership and recovery in the Spanish telecoms market”. In fact, Telecable delivered its highest fourth quarter revenue growth in the past five years. The holding in Zegona accounts for half the Master Fund’s portfolio.
The point being that if investors react positively to the progress being made by Zegona when it publishes its 2015 financial results next month, and if BCA Marketplace maintains the momentum in its business since listing last year, then the valuation of these equity interests in Marwyn’s share price is simply anomalous. The investment adviser of the Master Fund clearly thinks so as it has just upped its stake in BCA Marketplace.
Trading on a deep 17 per cent discount to book value, I believe this is a valuation worth exploiting ahead of both Zegona’s results next month, and a pre-close trading update from BCA Marketplace. Buy.
MORE FROM SIMON THOMPSON...
I have written articles on the following 73 companies since the start of this year:
■ Grainger: Buy at 243.5p, target 280p; Dart: Take profits at 580p; Crystal Amber: Hold at 159p; Redde: Take profits at 203p; Burford Capital: Run profits at 196.5p; Renew: Run profits at 404p; Plethora Solutions: Speculative buy at 4.5p ('Stock check', 5 Jan 2016)
■ Elegant Hotels: Buy at 118p, target price 130p to 135p ('Check in for a profitable stay', 6 Jan 2016)
■ Safestyle: Run profits at 272p ahead of pre-close statement on 25 Jan 2016 ('Clear cut gains', 6 Jan 2016)
■ Epwin: Run profits at 143p, new target 170p ('Epwin on the acquisition trail', 6 Jan 2016)
■ GLI Finance: Recovery buy at 37.5p ('GLI shelves fundraise and its chief executive', 6 Jan 2016)
■ LXB Retail Properties: Buy at 97.5p, new six-month target 120p; Urban&Civic: Buy at 286.5p, target 325p; Conygar: Buy at 172p, target 200p ('Hot property, 7 Jan 2015)
■ Somero Enterprises: Buy at 139p, target 185p; 1pm: Buy at 70p, target 82p; First Property: Run profits at 53p; Avation: Buy at 145p, target 200p ('Small-cap value plays', 11 Jan 2016)
■ 32Red: Run profits at 147p; Netplay TV: Buy at 7p ('Chipping in', 12 Jan 2016)
■ Cambria Automobiles: Buy at 87p, new target 95p; Vertu Motors: Buy at 76p, target range 85p to 90p ('Motoring ahead', 12 Jan 2016)
■ Global Energy Development: Hold at 24p ('Cash rich, but unloved', 12 Jan 2016)
■ KBC Advanced Technologies: Bank profits and sell in the market at 183p ('Tech watch, 13 Jan 2015)
■ Sanderson: Buy at 75p, target range 85p to 90p ('Tech watch, 13 Jan 2015)
■ Trakm8: Buy at 300p, new target 400p ('Tech watch, 13 Jan 2015)
■ Amino Technologies: Buy at 120p, new target range 155p to 160p ('Amino has the ammunition', 14 Jan 2015)
■ easyHotels: Buy at 89p, initial target 100p ('easyHotels ramps up expansion', 14 Jan 2015)
■ Stanley Gibbons: Hold at 58p ('Stanley Gibbons fundraise', 14 Jan 2015)
■ Miton: Buy at 28p, target 35p; Moss Bros: Buy at 97p, target 120p to 130p; Bioquell: Buy at 140p, minimum target 170p; UTV Media: Trading buy at 184p ('An awesome foursome', 18 Jan 2015)
■ Equity market strategy ('Bear Market signals', 25 Jan 2015)
■ STM: Buy at 47p, target 80p; Stadium: Trading buy at 103p; Fairpoint: Run profits at 150p, target range 200p to 220p ('Exploiting market anomalies', 1 Feb 2015)
■ Character: Buy at 505p, target 600p; 1pm: Buy at 67p, target 82p; and Entu: Hold at 68p ('A trio of small cap plays', 2 Feb 2016)
■ Inland: Buy at 83p; Henry Boot: Buy at 220p, target 260p; FTSE 350 housebuilding sector: Trading buy ('Playing the housing market', 3 Feb 2016)
■ Flowtech Fluidpower: Buy at 109p ('Undervalued and ripe for a re-rating', 4 Feb 2016)
■ Safestyle: Run profits at 253p ('Awaiting news on a cash return', 4 Feb 2016)
■ Bowleven; Volvere; French Connection; Bioquell; Juridica; Mind + Machines; Oakley Capital; Gresham House; Gresham House Strategic; Walker Crips ('Bargain shares', 4 Feb 2016)
■ AB Dynamics; Inspired Capital; H&T; Netplay TV; Mountview Estates; Crystal Amber; Arbuthnot Banking; Record; Pittards; Stanley Gibbons ('How the 2015 Bargain share portfolio fared', 4 Feb 2016)
■ IS Solutions: Buy at 120p, target 150p ('Big data, big profits', 8 February 2016)
■ 32Red: Run profits at 133p, easyHotel: Run profits at 99p; Burford Capital: Run profits at 230p; Bilby: Buy at 136.5p ('Hitting record highs', 9 February 2016)
■ BP Marsh & Partners : Buy at 157p, new target 190p ('Primed for investment gains', 10 February 2016)
■ Gama Aviation: Hold at 270p ('Gama hits guidance', 10 February 2016)
■ Bloomsbury Publishing: Buy at 150p, target range 175p to 185p ('Book into a trading play', 11 February 2016)
■ PV Crystalox Solar: Speculative buy at 8.2p ('Lights brighten at PV Crystalox Solar', 11 February 2016)
■ Alpha Real Trust: Buy at 80p, target 105p ('High yield property play', 15 February 2016)
■ LMS Capital: Buy at 68p; Leaf Clean Energy: Await news on Invenergy; Eurovestech: Sell at 7p (‘Investment company watch’, 16 February 2016)
■ GLI Finance: Buy at 31p (‘GLI Finance review offers potential for gains’, 17 February 2016)
■ Trifast: Buy at 112p, target 140p (‘Engineered for a higher rating’, 17 February 2016)
■ 600 Group: Sell at 10p ('600 Group warns', 17 February 2016)
■ Marwyn Value Investors: Buy at 190p (‘Undervalued, cash rich investment, 18 February 2016)
■ 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 £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking
