Great value special situations

In these circumstances, my own strategy has been to focus on undervalued special situations that have been overlooked by market participants, which is why in recent weeks I have suggested buying shares in Spark Ventures, LMS Capital, Anglo Asian Mining and Goals Soccer Centres.

We have already enjoyed some success as re-ratings of Spark and LMS are firmly under way, Asian Mining has signalled a chart break-out and is in the process of back-testing the break-out point, and the Goals Soccer Centres takeover situation has taken another interesting twist. In fact, not only is Goals Soccer Centres being courted by Ontario Teachers' Pension Plan, which has been set a new 'put up or shut up' deadline of 5pm on Monday 23 July by the Takeover Panel, but the company has now also received a bid approach from Patron Sports, the controlling shareholder in rival Powerleague. Patron has until Monday 30 July to make its own intentions clear.

So, with shares in Goals Soccer Centres currently trading at 133p, a discount to my estimate take-out price of 155p to 160p ('Bid target worth punting' on, 28 May 2012), there is little reason to change my positive view. Most of you will have bought in around the 127p level, but it's still not too late to play what could turn out to be an intriguing game of two halves. I still rate the shares a short-term buy.

Rugby Estates cash return offers buying opportunity

Another special situation worth another look is property investor and asset manager Rugby Estates. The company has been making steady progress towards selling off its entire portfolio by the year-end and last month returned a further £6.4m to shareholders. However, after the payment of that 250p a share distribution, investors have yet to factor in the impact of a seven-for-three share consolidation on the likely final capital return to shareholders. In my view, this has created another low-risk buying opportunity.

That's because at the time of Rugby's full-year results on 17 May, the directors' best estimate of the amount that shareholders might expect to receive if the company and its subsidiaries are put into members voluntary liquidation within the next 12 months was between £11.2m and £12.2m. This sum was calculated after deducting costs of between £3.5m and £4.5m - including legal fees, property sale fees, redundancy costs and pre-liquidation trading losses - from the company's triple net asset value (NAV) of £15.7m. So, if we deduct the £6.4m cash returned to shareholders last month, then a further distribution of between £4.8m and £5.8m to shareholders seems likely. And with the shares in issue being reduced from 2.55m to 1.1m post the share consolidation, this equates to an additional cash return of between 440p and 530p a share.

Moreover, if all of Rugby's remaining property sales are agreed or completed this year, then we shouldn't have long to wait to find out the exact amount of the final distribution. In other words, with the shares trading at 415p we have the opportunity to buy into a special situation that could deliver at best a 25 per cent return in the coming year.

Follow director buying at Polo Resources

Shares in resource investment company Polo Resources have been a casualty of the market turmoil and, at 2.85p, are trading 11 per cent below my advised buy-in price of 3.2p (adjusted for a 2p a share special dividend). Stephen Dattels, co-chairman of Polo, clearly sees value as Regent Mercantile Holdings, a company in which he has a beneficial interest, has just purchased 4m shares at 2.6p. Mr Dattels now has an interest in 228m shares, or 9.94 per cent of the issued share capital. He is not alone, either, as co-chairman Neil Herbert recently bought 2m shares at 2.58p each in late June to take his stake to 3.72 per cent of the share capital.

It's easy to see why they have been buying as Polo's shares are currently trading a third below the company's reported NAV of 3.9p a share at the end of June even though 1.6p a share, or £36.3m, is in cash, short-term investments and receivables. So, in effect, Polo's other investments, worth £53m or 2.3p a share, are being attributed a value of only 1.25p a share despite their obvious potential.

For example, a couple of months ago Polo made a further $10m (£6.5m) investment in African oil and gas explorer Signet Petroleum and now owns a 21.7 per cent stake, worth £17.3m, in a company that has four prospective assets in Benin, Burundi, Namibia and Tanzania.

Interestingly, Signet holds an 80 per cent interest in Hydrotanz, a company that has a production sharing agreement with the United Republic of Tanzania and the Tanzania Petroleum Development Corporation on the offshore North Mnazi Bay Block. The acquisition of 3D seismic data on the licence area was completed in the first week of June and results are expected in the next three months. It is realistic to expect some good news, too, as earlier 2D seismic interpretation suggested that there is an extension to one of the gas prospects identified in an adjoining licence area. That prospect is owned by a joint venture between BG and Ophir Energy, so some big players are investing here.

Polo Investment portfolio at 30 June 2012

It's also worth noting that Polo owns a 90 per cent stake in the Nimini-Komahun Gold Project in Sierra Leone, which is only in the books at £19m; the equivalent of only 0.8p per Polo share. A month ago Polo reported a 374 per cent increase in the indicated gold resource to 521,000 troy ounces and there is another 263,000 inferred ounces of gold there, too. This means that the 784,000 ounces of gold are being valued at $29.5m (£19m), or $37.55 an ounce, less than half the sector peer average of $84.50 an ounce. So the valuation is not only conservative, but it could become even more so once Polo completes a pre-feasibility study in the first quarter of 2013.

Trading 27 per cent below book value and with Polo's directors buying heavily, it's worth following the insiders' lead.

Built on solid foundations

Shares in east London housebuilder Telford Homes are closing in on a 12-month high at 107p and there is every reason to believe that a move towards my fair value estimate of 135p is on the cards. Last week the board announced that the company has already legally completed or pre-sold over 70 per cent of the open market homes targeted to complete in the year to 31 March 2013. Moreover, reflecting development timings, profit before tax in the three months to 30 June 2012 alone already exceeds the £3m achieved in the whole year to 31 March 2012.

The strong sales momentum is being maintained, too, as "sales continue to be secured at a healthy rate across all developments and significant launches planned later this year include Parliament House near the Albert Embankment and the remaining homes at Avant-garde in Shoreditch". As a result, analysts estimate that pre-tax profits will surge from £3m to £8m in the 12 months to March 2013 to produce EPS of 11.8p, up from 4.4p in the prior year. And with the board's intention "to pay out a third of net earnings as dividends", last year's payout of 3p could rise to 3.9p in the current financial year. So, not only are the shares rated on a modest nine times earnings estimates, but they are supported by a healthy prospective yield of 3.8 per cent. They are also priced on an unwarranted 20 per cent discount to book value of 133p a share.

And it's fair to say that the Bank of England's new round of quantitative easing, announced on 5 July, and the ongoing eurozone crisis, are both supportive of investment demand for property in the capital. In the case of Telford, the 6 per cent rental yields achieved on some of its property sales and the healthy rental demand being seen in east London are further reasons why both domestic and overseas investor demand is strong in the area. The shares, which I advised buying at 91p in February, continue to rate a buy at 107p.

How Simon Thompson's 2012 Bargain Share Portfolio has performed

e-books drive Bloomsbury sales

Growing demand for e-books and a strong line-up of best-selling titles is doing wonders for profits at Bloomsbury Publishing. In the financial year ending 28 February 2012, digital book sales soared 159 per cent to £5.7m and the company has just reported that its global e-books sales rocketed a further 70 per cent in the first three months of the current financial year. Bloomsbury's exposure to this fast-growing segment is clearly positive as, in the first three months of 2012, The Association of American Publishers points out that e-book sales in the US exceeded hardback sales and the rate of sales growth in e-books for young adults and children's books exceeded that of adults.

Bloomsbury has also been using its healthy cash pile to make some smart acquisitions, including the purchase of New York-based Fairchild Books for $6.1m. The publisher of textbooks and educational resources for students of fashion, retailing and interior design posted $706,000 (£440,000) net profits in 2011. And the £1.7m bolt-on acquisition of AVA boosts Bloomsbury's market share in applied visual arts, where it is the world's leading publisher, and provides significant opportunities for new digital initiatives. Expect more deals, too, as Bloomsbury still retains £10m of net cash on its balance sheet.

However, this good news is yet to be reflected in the price, as the shares, at 128p, are only trading on a modest ten times Peel Hunt's EPS estimate of 12.9p for the financial year to February 2013 and are supported by a healthy 4.3 per cent historical yield. They are also priced 14 per cent below the company's NAV of 148p a share. Moreover, with broker Malcolm Morgan of Peel Hunt factoring in a 5 per cent fall in print sales in those forecasts above - they only fell by 2 per cent in the first quarter to the end of May - and the benefits of the AVA acquisition yet to be factored in, upgrades are a real possibility as the year progresses, especially as the single-digit earnings growth embedded in those estimates is hardly exacting. If anything, the investment case for Bloomsbury is stronger now than when I first recommended buying the shares at 115p in February. Medium-term value buy.