I have been casting my eye over the annual results from Aim-traded investment company Volvere (VLE:940p). It’s a company I know well, having included the shares, at 419p, in my 2016 Bargain Shares Portfolio. I last advised running profits ahead of the full-year results (‘Bargain Shares: Beating the market’, 12 Mar 2018). They were eye-catching.
Volvere’s pre-tax profit surged by 74 per cent to £3.45m on record revenue of £43.4m, driven by the performance of Impetus Automotive, a provider of consulting services to the automotive sector in which Volvere has an 83 per cent stake. Impetus trebled its pre-tax profit to £3.3m (better than I had expected) on revenue of £27.3m, reflecting an improved client focus, and a major contract for the management and delivery of a large automotive manufacturer's learning and development activities in the UK. Impetus accounts for just £3.7m of Volvere's net asset value (NAV) of £26.1m, or 659p a share, so is effectively in the books for little more than its annual pre-tax profit.
| Bargain Shares Portfolio 2016 performance | |||||
| Company name | TIDM | Opening offer price (p) 5.02.16 | Latest bid price (p) 18.06.18 | Dividends (p) | Total return (%) |
| Bioquell (see note one) | BQE | 125 | 305 | 0 | 144.0% |
| Volvere | VLE | 419 | 900 | 0 | 114.8% |
| Bowleven (see note two) | BLVN | 18.935 | 37.4 | 0 | 87.8% |
| Gresham House | GHE | 312.5 | 438 | 0 | 43.1% |
| Oakley Capital | OCI | 146.5 | 182 | 9 | 30.4% |
| Juridica (see note three) | JIL | 36.1 | 14 | 32 | 27.4% |
| Gresham House Strategic | GHS | 796 | 950 | 15 | 21.2% |
| French Connection | FCCN | 45.7 | 52 | 0 | 13.8% |
| Mind + Machines (see note four) | MMX | 8 | 7.5 | 0 | 2.8% |
| Walker Crips | WCW | 44.9 | 35 | 2.43 | -16.6% |
| Average return | 46.9% | ||||
| Deutsche Bank FTSE All-Share ETF index tracker (LSE:XASX) | 341 | 426.15 | 47.96 | 39.0% | |
| Notes: | |||||
| 1. Simon Thompson advised buying Bioquell's shares at 149p in February 2016. Bioquell bought back 50 per cent of shares in issue at 200p each in June 2016 through a tender offer and Simon recommended buying back the shares in the market at 145p to give an average buy-in price of 125p (‘Bargain shares updates’, 22 June 2016). | |||||
| 2. Simon Thompson advised banking profits on half your holdings in Bowleven's shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The total return reflects this share sale. | |||||
| 3. Simon Thompson advised buying Juridica's shares at 41.2p in February 2016. Juridica subsequently paid out a special dividend of 8p a share in June 2016 and Simon recommended buying shares in the market at 61p using the cash proceeds to take the average buy-in price to 36.1p (‘Brexit winners', 1 Aug 2016). Juridica then paid out a special dividend of 32p a share in September 2016 and total return reflects this distribution. Simon advised selling the holding at 14p ('Taking Q1 profits and running gains', 4 Apr 2017), hence the price quoted in the table. Please note that Juridica has since paid out a further special dividend of 8p a share and current share price is 9.2p. | |||||
| 4. Simon Thompson advised buying Mind + Machines' shares at 8p in February 2016. Mind + Machines subsequently bought back 13.22 per cent of the shares in issue at 13p a share. The total return reflects this capital distribution. Simon then advised selling the holding at 7.5p, which is the exit price stated in the table ('Strategic acquisitions', 9 May 2018). | |||||
Source: London Stock Exchange share prices | |||||
Volvere’s 80 per cent stake in Shire Foods looks undervalued, too. It’s valued in the accounts at £6.2m, representing less than eight times underlying pre-tax profit of £830,000, which was earned on slightly higher revenues of £15.8m. True, profits slipped as margins took a hit from higher raw material and staff costs, and restricted the ability to pass on these increases to customers. However, finance director Nick Lander notes that “in recent months there has been a greater realism about the need to either increase consumer prices (or reduce the quantity of product supplied at a given retail price), or to absorb cost increases from Shire.” A planned £950,000 investment in new equipment will enable Shire to manufacture its products at a higher margin, offering substance to the directors’ view that the business will return to growth this year. That possibility is not being priced in.
That’s because if you strip out Volvere’s net funds of £16.3m, a sum worth 445p a share, from its £34.3m market value, then the stakes in Shire and Impetus are effectively in the price for £18m, or only 4.4 times their combined annual pre-tax profit, and this ignores any value in Volvere’s small digital CCTV business. Run profits.
■ Simon Thompson's new book Successful Stock Picking Strategies was published on 15 March and can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. It is being sold through no other source and is priced at £16.95 plus £2.95 postage and packaging.
Simon's second book Stock Picking for Profit has now been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order.
