Hyper-value gains
Aim-traded investment company BP Marsh & Partners (BPM: 129p) pulled off a brilliant deal yesterday by selling 80 per cent of its stake in global insurance broker Hyperion Insurance Group - one of the fastest-growing companies in the UK - to global private equity firm General Atlantic. The consideration of £29.2m equates to a cash return of 100p a share. In addition, the acquirer has a call option to purchase the balance of the stake for £7.3m either before the third anniversary of completion of the above disposal or upon Hyperion undertaking an IPO. There is also a clause that could mean a further £2m cash payout for BP Marsh if Hyperion undertakes an IPO within 12 months and dependent on certain price conditions being met.
The bottom line is that the £29.2m cash proceeds from the sale, the carrying value of the remaining 2.76 per cent stake in Hyperion (worth £7.3m, or 25p a share) and £6.1m loan made by BP Marsh to Hyperion at a minimum interest rate of 7.5 per cent are, in aggregate, worth more than BP Marsh's own market value of £38m. That, in effect, means investments in another eight investee companies, worth 57p a share, are in the price for free. Moreover, once the disposal goes through, BP Marsh will be sitting on net funds of £20m, worth 68p a share, after all tax liabilities and adjusting for the above loan to Hyperion, and will still have a further 45p a share of equity and loans in Hyperion. This not only substantially mitigates risk, but makes the shares, trading on a discount of well over 30 per cent to pro-forma book value, a bargain buy at 130p. I have raised my price target to 160p.
Broking for success
Shares in private wealth manager and corporate broking house WH Ireland (WHI: 65p) are starting to look interesting again after the company revealed that full-year losses fell to only £177,000, down from a £1.44m loss in 2011.
Turnover hit a record £25.1m, including an increasing amount of recurring revenue as the company grows its wealth management side. Funds under management and administration increased from £1.3bn to £1.7bn and, since the year-end, WH Ireland has bought the private wealth management business of investment bank Seymour Pierce, which was placed into administration in February. The assets under management acquired were valued at £270m and generated a £200,000 profit in the year to 30 September 2012, but WH Ireland was able to buy this business from the administrators for a paltry £25,000. That barely scratches its net cash pile of £7.2m, or 30p a share.
Moreover, analyst John Borgars at equity research house Equity Development, estimates that WH Ireland's private client wealth management business is worth £30m, or 2 per cent of assets under management, excluding execution-only clients. Mr Borgars also estimates that the head office is worth £3m net of the mortgage secured on it. So, in effect, the company has assets and net cash worth £40m - or more than twice its market value of £15m. That leaves a corporate broking business, the third ranked Nomad on the London market with 87 clients and a business making trading profit of £1.2m in the price for free. With a return to profitability on the cards and WH Ireland scaling up its wealth management operations shrewdly, the shares rate a recovery buy at 65p.
Film, camera, action
I noted with interest the pre-close trading update from film producer Entertainment One (ETO) as this has a direct read-across for Marwyn Value Investors (MVI: 147p), a company I advised buying shares in seven weeks ago ('A highly profitable arbitrage play', 11 February 2013). That's because around 75 per cent of Marwyn's net asset value of 208p a share is accounted for by its stake in Entertainment One.
The trading update didn't disappoint and analyst Patrick Yau at broker Peel Hunt expects pre-tax profits to have risen more than 30 per cent to £52m in the 12-month period to produce EPS of 15.4p, rising to £76m and 20p, respectively, in the next financial year, reflecting the full contribution from the acquisition of Alliance Films. That looks realistic and it would be no surprise to see Entertainment One's shares running up ahead of results on 21 May, which will support the investment case for Marwyn. Priced 30 per cent below book value, I continue to rate Marwyn shares, at 147p, a trading buy and maintain a conservative price target of 165p.
A copper-bottomed investment
Investors are starting to warm to the merits of small-cap resource company Bezant Resources (BZT: 29.5p) following my recent article and the company's results ('Double your money on a copper-bottomed investment', 20 March 2013). It's not hard to see why considering the company is returning £5.2m, or 8p a share, to shareholders by the end of April.
Bezant is flush with cash after Gold Fields, the major gold miner, acquired a 21 per cent stake for $7.5m and paid a further $2.5m non-refundable upfront payment to Bezant to give it the right to acquire the company's flagship Mankayan copper/gold project in the Philippines for $60.5m by the end of January 2014. Assuming Gold Fields exercises its option, Bezant's board has stated that half the cash received will be returned to shareholders.
Or put it another way, for a net investment of 21.5p a share (adjusted for the 8p-a-share imminent cash return) you could receive a further cash return of 24p a share early next year and still end up holding shares backed by 16p a share of cash after adjusting for tax liabilities on the disposal and Bezant's operating costs and capital expenditure over the next year. The shares continue to rate a medium-term value buy at 29.5p.
Land ahoy
It was difficult not to be impressed by the half-year results from brownfield regeneration specialist and housebuilder Inland (INL: 27.5p). The company trebled pre-tax profits to £3m in the second half of 2012, buoyed by land sales, and is well on track to ramping up its housebuilding operations.
The company sold 355 plots in the period for a total of £15.3m, or £43,200 per plot, and is currently sitting on a land bank of 1,931 plots, including 516 at the Drayton Garden Village joint venture in West London. The book value of the inventory is £36m and there is a further £8.8m of investment property, so there is substantial asset backing.
Inland sold 15 residential units in the period for £3.1m and has a further 146 under construction across four sites, which will help underpin profits this year and next. Analyst Duncan Hall at broker FinnCap expects 25 completions in the six months to June 2013, generating housebuilding revenues of £5m and a profit of £1m, and predicts 70 completions in the 2013-14 financial year, which could generate revenues of £15.4m and profits of £3.4m.
So, with full-year profits set to rise by 150 per cent to £4m and the shares trading below a conservative book value of 28.2p, which doesn't recognise the 5p a share of net profits to come from Drayton Gardens, I continue to rate Inland shares a value buy at 27.5p.
