The first is Aim-traded Pure Wafer (PUR: 185p), a leading global provider of high-quality silicon wafer reclaim services to semiconductor makers and foundries. It’s the tenth company on my watchlist to exit the stock market this year, all bar one of which have produced hefty gains, after shareholders approved the sale of its last remaining business, a US wafer reclaim operation in Prescott Arizona.
Shareholders will shortly receive a circular to convene a general meeting for the purpose of approving the appointment of a liquidator. If approval is sanctioned the shares will be suspended in early January ahead of an interim distribution of 167p a share being paid on or around 11 January 2016. A subsequent distribution is expected on or around 24 February 2016, and a final distribution will be made after HMRC provides tax clearance, and following the release from escrow of remaining sale proceeds owed to the company. The cost of the liquidation process is £80,000.
It’s a satisfactory outcome and based on a total cash distribution of 188p it means that the holding will have returned 159 per cent since I initiated coverage at 72.5p ('Time to chip in', 10 October 2013). I last advised sitting tight at 165p ahead of the general meeting three weeks ago as I anticipated “a capital distribution being made to shareholders north of 180p a share” (‘Running small-cap winners’, 25 November 2015). I would recommend voting for the resolution to appoint a liquidator and await the chunky cash distributions.
Bumper contract win for Trakm8
There seems no end in sight to the run of contract wins at telematics and data provider Trakm8 (TRAK: 360p). The company has just announced an extension to its current relationship with the AA (AA.: 270p). Trakm8 has supplied telematic systems to the AA for its fleet of 3,000 roadside assistance and recovery vehicles for the past four years, and has recently been working with the organisation to develop a new business-to-business fleet management system. The new product will be offered to 9.5m of the AA’s business-to-business customers, enabling them to help manage the cost and logistics of running their fleets. It is expected to be attractive to large fleet operators as well as SMEs running fleets of five or more vehicles. Execution chairman John Watkins points out that "this is a substantial contract and an extremely interesting opportunity for Trakm8”.
I wholeheartedly agree and, although analysts have yet to update their profit forecasts, I see obvious upside potential to EPS estimates of 16.5p for the 12 months to end-March 2017, up from 11.3p in the current financial year. Moreover, if the company continues to win additional contracts, as it has been doing for the past 18 months, then I can only see momentum in the order book and profits building.
So having first advised buying Trakm8’s shares at 92p ('Zoning in on a profitable price move', 16 Feb 2015), and watched them re-rate by a third since my last update (‘Patience is paying off’, 30 November 2015), I would run your 291 per cent paper profits given the earnings risk is heavily skewed to the upside. Run profits.
Profits go ballistic at Cohort
Aim-traded UK defence company Cohort (CHRT: 415p) has announced a 29 per cent surge in first-half adjusted EPS to 7.1p, and has revealed that order intake at the end of October accounted for 90 per cent of consensus revenue estimates for the financial year to end-April 2016.
The closing order book of £140m, up from £134m at the end of April, is highly supportive too and reflects a number of multimillion pound contract wins in recent months. I wouldn’t be surprised if further contracts are awarded, either, as chairman Nick Prest rightly points out that: "The recently concluded UK Strategic Defence and Security Review gives support to existing programmes, such as submarines, in which Cohort is engaged and foresees greater expenditure in areas such as Cyber and Special Forces in respect of which Cohort has strong and relevant capabilities."
The company is also augmenting its strong organic growth with acquisitions and expects to acquire a 57 per cent stake in EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market, in early January. The £7.7m cash consideration is more than covered by net funds of £11.4m on Cohort’s balance sheet. The deal will be earnings accretive too and supportive of analyst estimates that Cohort’s EPS will rise from 22.6p in the current financial year to 26.2p in the 12 months to end-April 2017. Mr Prest expects his company to acquire the outstanding equity in EID by June 2016 at the latest.
The positive trading backdrop for Cohort’s businesses, its knack of winning contracts, and scope for earnings-accretive acquisitions, has not been lost on investors. In fact, having initiated coverage at 214p ('Blue-sky buy', 6 Oct 2014), and banked total dividends of 5p a share, excluding the interim just declared of 1.9p a share, up 19 per cent year on year, the holding has produced a near-100 per cent total return in the past 14 months. Rated on 15.5 times prospective earnings for the April 2017 financial year there could be further upside, so I would top-slice two-thirds of your holdings and enjoy a free ride on the balance.
Housebuilder first quarter effect
Last week I made a strong case to jump the gun and buy shares in the nine FTSE 350 housebuilders to exploit the tendency of the sector to outperform in the first quarter (‘Time to buy the builders once more’, 7 December 2015). To that list I can also add Aim-traded Inland Homes (INL:74.5p), the specialist housebuilder and brownfield land developer. It’s a company I know well having seen the shares rise by 220 per cent since I recommended buying at 23.5p ('How the 2013 Bargain shares fared, 7 Feb 2014).
A trading update at this week’s annual meeting only reinforces my positive view. For instance, Inland has sold off 244 plots across three sites since the start of July for a total of £21.5m including 175 plots at the former RAF Stanbridge site in Leighton Buzzard. It has also completed 74 private sales at an average of £333,000 each and has forward sales of £21.7m.
There has been significant progress on developing the land bank of 5,043 plots, of which 967 plots have planning consent, 1,079 plots have applications in the planning process, and a further 1,719 plots are in the pre-application discussion stage. Consent has been agreed for a 95 residential unit development in West Acton, London with a gross development value (GDV) of £50m; and Inland has signed an agreement with Southampton City Council as development partner for 380 homes on an 8.9 acre site known as Chapel Riverside with a GDV of £110m. The company has also put in a planning application for 400 homes on its site at Aston Clinton in Buckinghamshire.
So with substantial land sales being completed, planning consent won on a number of sites, and the company’s move to EPRA accounting set to reveal substantial hidden value in its land holdings in its next results ('Tapping into hidden value', 9 November 2015), then the bull run in the shares looks to have further to go. Indeed, analysts at brokerage Stifel have just upgraded their current-year net asset value per share estimate by 20 per cent to 93p to reflect a ‘hidden’ £88m valuation surplus on land holdings in the accounts at cost. My raised target price is 90p and I have a break-up value of 100p, slightly below Stifel’s June 2017 EPRA net asset value estimate of 107p. Buy.
Growth procured
Shares in PROACTIS (PHD:132p), a Wetherby-based company that creates, sells and maintains specialist software that enables organisations to streamline, control and monitor all internal and external expenditure, excluding payroll, have now hit my 130p target price, taking out the 117p bull market high dating back to 2007.
I first recommended buying at 93p ('Procuring growth', 11 August 2015), and updated when the price was 102p a few months ago post the company’s full-year results (‘Secured growth for re-rating’, 13 October 2015), so the holding is up 42 per cent in a market down 9 per cent in the past four months. At this level the shares are rated on 20 times forecast earnings for the 12 months to end-July 2016, and on 17 times estimates for the following year, assuming EPS grows 15 per cent in both years. Analyst Andrew Darley at broking house FinnCap is even more bullish, having raised his target price from 115p to 150p after October’s results. The shares may yet get there, and I really like the business model, but on valuation grounds I am inclined to bank the hefty paper gain. Take profits.
Gresham House Strategically sound
It’s worth noting that the net asset value of Gresham House Strategic (GHS: 845p), an investment company I recommended buying shares in at the equivalent of 900p ('Cashed-up for gains', 23 July 2015), has held steady at 988p even though the UK stock market has fallen by 8 per cent since late summer.
I had an interesting results call with investment manager Graham Bird, of Gresham House Asset Management, a subsidiary of asset management company Gresham House (GHE: 350p), another company I am keen on. I advised buying those shares at 320p a few months ago (‘A sound mandate for growth’, 12 October 2015). Although the tone of the report was more cautious on the general equity market outlook, Mr Bird feels superior investment returns can be made by focusing mainly on cash-generative companies where there is scope for management engagement to implement strategic, management or operational changes that will create shareholder value over a three- to five-year investment horizon.
This strategic public equity strategy is targeted on the UK small-cap sector, my own hunting ground. In the past few months, GHS has acquired a 1.8 per cent stake in Quarto (QRT: 225p), a leading illustrated book publisher, and a 6.1 per cent stake in Be Heard (BHRD: 3.25p), a small digital marketing services company headed by Peter Scott, the former chief executive of Aegis. In both cases GHS is backing the management team’s ability to execute a ‘buy and build’ strategy, so expect it to support fundraisings from both companies as and when bolt-on acquisitions are identified. With net funds accounting for half GHS’s market cap of £31m, it’s cashed up to do so.
I also feel that there is decent upside in GHS’s shareholding (worth £15.5m) in IMImobile (IMO: 150p), a London based provider of software and services for enterprise mobile engagement. Undoubtedly, so does Tosca Asset Management which has built up a 27.7 per cent stake in that company. Interestingly, in the past year, Tosca has taken technology groups Phoenix IT and Daisy Group private. GHS also has a small stake in Miton Group (MGR: 28.5p), an asset manager whose shares have risen by 24 per cent since I initiated coverage (‘Poised for a profitable recovery’, 4 April 2015). I remain positive.
So with GHS current portfolio and investment strategy attractive, and cash equating to 419p a share ready for selective acquisitions, I feel that a 15 per cent share price discount to book value of 988p is very harsh. Medium-term buy.
Please note that until the end of the month, my book Stock Picking for Profit is being offered for sale at a promotional price of £11.99 plus postage, subject to availability, full details enclosed below.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies since the start of last week:
■ UK housebuilding sector: Buy and hold until end March 2016 ('Time to start building once more', 7 December 2015)
■ GLI Finance: Recovery buy at 35p ('Refinancing for GLI Finance', 9 December 2015)
■ Ensor: Hold at 90p and await news of disposals; Renewable Energy Generation: Await capital payout of 60p a share in January 2016 ('M&A updates', 9 December 2015)
■ Non-Standard Finance: Buy at 89p and take up open offer; Arbuthnot Banking: Buy at 1,530p, break-up value 2,200p ('Speciality finance plays', 9 December 2015)
■ Bilby: Buy at 132p, new target range of 150p to 160p (‘Bilby set for new highs’, 10 December 2015)
■ 600 Group: Hold at 13p, medium-term fair value target of 24p (‘European markets hit 600 Group’, 10 December 2015)
■ Vislink: Hold at 28p (‘Vislink’s sales fall short’, 10 December 2015)
■ easyHotel: Buy at 83p, target 100p ('Check in for a profitable booking', 14 December 2015)
■ For a limited period and strictly subject to stock availability, Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com at a special promotional price of £11.99, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
