Bearing that in mind, I still think investors have yet to fully grasp the obvious value in the shares of Marwyn Value Investors (MVI: 150p), a company I advised buying shares in three months ago ('A highly profitable arbitrage play,' 11 February 2013).
The company was created in April 2008 through the amalgamation of two Marwyn funds and was admitted to trading as a closed-end investment company on the Specialist Fund Market of the London Stock Exchange in December 2008. The investment objective of the company is simple: to maximise total returns through the capital appreciation of its investment in Marwyn Value Investors LP, an open-ended fund domiciled in the Cayman Islands, which was launched in March 2006 with backing from more than 60 leading institutions and alternative funds.
Marwyn Value Investors LP specialises in the acquisition of growth businesses by taking significant stakes in quoted portfolio companies and has so far invested in 13 portfolio companies which have together completed 68 transactions, with an aggregate transaction value in excess of £1bn. It has been successful, having generated net asset growth of 140 per cent in that period.
Film, camera and time for 'share price' action
Currently, the ordinary shareholders of Marwyn Value Investors have interests in five companies: film producer Entertainment One (ETO); healthcare software company Advanced Computer Software (ASW); Breedon Aggregates (BREE), the largest independent aggregates company in the UK; specialist asbestos services company Silverdell (SID) and transport and consumer goods investment company Marwyn Management Partners (MMP). Of these companies, all bar Marwyn Management Partners, which only accounts for 1.7 per cent of net assets of MVI, are Investors Chronicle buy recommendations.
However, by far Marwyn's largest holding is in film producer Entertainment One (ETO). That's because around 77 per cent of Marwyn's net asset value of 194p a share is accounted for by its stake in Entertainment One. Moreover, that valuation was taken on 19 April when Entertainment One's share price was 170p. It has since risen 9 per cent to 185p, which by my reckoning adds 12p a share to Marwyn's own net asset value to take book value to 205p a share.
Importantly, Entertainment One is due to release results on 21 May, which should support the investment case for Marwyn no end. We can expect some decent figures, with analysts at N+1 Singer forecasting a 13 per cent rise in pre-tax profits to £48.6m, based on a 14 per cent rise in revenues to around £577m in the 12 months to end-March 2013. However, with the full contribution from the acquisition of Alliance Films to come, N+1 Singer expects revenues to soar to £802m and pre-tax profits to increase by more than 50 per cent to £74m in the current financial year to March 2014. On this basis, EPS surges to 19.5p, up from the 14.5p expected in the 12 months to March 2013.
That looks realistic and it would be no surprise to see Entertainment One's shares make headway towards 200p following what are likely to be very positive results. This can only be good news for Marywn's share price. For good measure, shares in Breedon Aggregates and Advanced Computer Software are up by 10 per cent and 6 per cent, respectively, since Marwyn last issued a net asset value update. These holdings account for the vast majority of Marwyn's other assets.
So, by my reckoning, Marwyn's current net asset value is actually nearer 210p a share. Priced around 30 per cent below book value, I continue to rate Marwyn's shares, on a spread of 148p to 151p, a value buy and maintain a conservative price target of 165p.
Broking for success
Shares in private wealth manager and corporate broking house WH Ireland (WHI: 60p) have yet to make a move, but in my view are worth picking up at this depressed level.
In fact, having drifted down from 66p in the past three months, the 14-day RSI is on the floor and the share price looks primed for a sharp rally on any positive newsflow. We don't have long to wait, either, as the company is due to release half-year figures for the six months to end April in mid-July, a little over eight weeks away.
With this in mind, it's worth recapping that, in the financial year to end-November 2012, WH Ireland’s 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 grew from £1.3bn to £1.7bn and, since the November year-end, WH Ireland has bought the private wealth management business of investment bank Seymour Pierce, which was placed into administration in February 2013.
As I have pointed out previously, 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 the company’s net cash pile of £7.2m, or 30p a share, which equates to half the market value.
Hidden value
Moreover, analyst John Borgars at equity research house Equity Development, calculates 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 almost three times its market value of £14.7m. 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.
But what we need is a catalyst for a rerating for the share price to narrow the gap to the obvious underlying value in the company’s assets. And that is what the forthcoming financial results are likely to do. We have been given a hint in any case as chairman Robert Lowe noted six weeks ago that: "The board remains optimistic about the future prospects for WH Ireland, as reflected in the reinstated dividend, and we look forward to building on the sound foundations that have been laid during the period." In other words, the company would not have reinstated the payout if a move back into profits was not on the cards. The shares rate a recovery buy on a spread of 58p to 62p.
MORE FROM SIMON THOMPSON ONLINE...
I have written six other articles in the past week, all of which are on my homepage and include the following companies or sector trades:
KBC Advanced Technologies ('Fuelled for growth', 6 May 2013)
Communisis ('Buy the triple top breakout', 7 May 2013)
Global Energy Development ('A share priced for a sharp re-rating', 8 May 2013)
Spark Ventures, Greenko ('Awaiting another spark for a re-rating', 9 May 2013)
Thorntons ('A sweet investment', 13 May 2013)
Treatt ('A real treat, 13 May 2013)
