I am still of the opinion that the offer undervalues Lighthouse’s equity, but clearly not enough other investors share my view. Nonetheless the offer has crystallised a 16 per cent total return on the shareholding since I first suggested buying the shares in my June 2018 Alpha Report, a period during which the FTSE Aim All-share index has recorded a 12 per cent loss.
Tendering a hefty cash return
After we went to press last week, Aim investment company Volvere (VLE:1,300p) announced a proposal to return £16.6m of its bumper £36.2m cash pile back to shareholders by way of a tender offer at 1,290p a share, representing a thumping 208 per cent premium to the 419p entry level at which I first recommended buying the shares in my 2016 Bargain Shares portfolio. Shareholders on the share register on Tuesday 11 June 2019 have a basic entitlement to tender 41.18 per cent of their holdings.
My advice is to do just that in order to release 126 per cent of the capital you invested three years ago while at the same time getting a free ride on a retained stake worth more than double the sum you originally invested. As I noted in my last article, founders Jonathan and Nick Lander are scouring the market for their next turnaround situation (‘Bargain shares: result updates’, 23 May 2019). With a retained cash pile of around £20m, they have ample firepower to do so.
The capital realisation from Volvere marks a pivotal point for investors in my 2016 Bargain Shares Portfolio. If you have been following my advice then you will have exited holdings to release 104 per cent of the capital invested a little over three years ago and still retain holdings worth 78 per cent of your original investment. The 82 per cent portfolio total return is not only more than double that of the FTSE All-Share index, but is well ahead of the 46 per cent total return on the FTSE Aim All-share index too. Importantly, the portfolio’s outperformance has been generated at far less risk given the hefty cash weighting.
| Bargain Shares Portfolio 2016 performance | |||||
| Company name | TIDM | Opening offer price (p) 5.02.16 | Latest bid price (p) 3.06.19 | Dividends (p) | Total return (%) |
| Bioquell (see note one) | BQE | 125 | 590 | 0 | 372.0% |
| Volvere | VLE | 419 | 1290 | 0 | 207.9% |
| Gresham House | GHE | 312.5 | 600 | 3 | 93.0% |
| Bowleven (see note two) | BLVN | 18.935 | 13 | 15 | 63.0% |
| Oakley Capital | OCI | 146.5 | 215 | 13.5 | 56.0% |
| Gresham House Strategic | GHS | 796 | 1080 | 32.25 | 39.7% |
| Juridica (see note three) | JIL | 36.1 | 14 | 32 | 27.4% |
| Mind + Machines (see note four) | MMX | 8 | 7.5 | 0 | 2.8% |
| French Connection | FCCN | 45.7 | 41 | 0 | -10.3% |
| Walker Crips (see note 5) | WCW | 44.9 | 25 | 5.59 | -31.9% |
| Average return | 82.0% | ||||
| FTSE All-Share Total Return | 5180 | 7174 | 41.7% | ||
| FTSE AIM All-Share Total Return | 747 | 1072 | 46.1% | ||
| 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). Company was taken over at 590p cash per share in January 2019. | |||||
| 2. Simon Thompson advised banking profits on half your holdings in Bowleven 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 company subsequently paid out a special dividend of 15p a share on 8 February 2019. 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 August 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 April 2017), hence the price quoted in the table. | |||||
| 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 advised selling the entire holding at 7.5p which is the exit price stated in the table ('Strategic acquisitions', 9 May 2018). | |||||
| 5. Simon Thompson advised selling Walker Crips shares on Monday, 4 March 2019 at 25p ('Bargain Shares Portfolio updates', 4 March 2019). | |||||
| Source: London Stock Exchange share prices | |||||
Hitting target prices
Aim-traded shares in Character (CCT:555p), the owner of a portfolio of iconic toy brands targeting the niche pre-school market, have hit the 550p target price I outlined in my last article (‘Five small-caps with Character’, 30 April 2018). For good measure - the board have paid out dividends of 23p a share, excluding the recently declared interim payout of 13p share, to produce a total return of 19 per cent in a 15-month period during which time the FTSE All-Share total return index has lost 9 per cent of its value. Longer-term holders who bought in when I first suggested buying the shares, at 415p ('Playtime', 1 June 2015), have banked total dividends of 68p a share and made an acceptable four-year total return of 50 per cent.
Character’s shares now trade on forward price/earnings ratio (PE) of 12 for the financial year to end August 2019, a fair rating in light of market expectations of 5 per cent earnings per share (EPS) growth in the 2019/20 financial year although a 4.9 per cent prospective dividend yield is clearly attractive for income seekers. On balance, take profits.
Property plays
In order to avoid duplication of IC company coverage and to free up my time to source out more under researched small-caps plays, our larger cap desk are solely covering Aim-traded housebuilder Telford Homes (TEF:299p) and budget hotel group easyHotel (EZH:75p), companies I have covered in the past.
I first suggested buying Telford’s shares, at 289p, post the Brexit vote in the summer of 2016 ('London property trading play', 22 August 2016), since when the board have paid out total dividends of 41.2p excluding the 8.5p a share final dividend for the 2018/19 financial year which goes ex-dividend on Thursday, 6 June 2019. True, the share price has come under pressure in the past 12 months, but the company’s positioning in the build-to-rent residential market (70 per cent of the development pipeline) and smart partnerships with asset managers M&G Real Estate and Invesco mitigate investment risk and should enable the board to maintain a 17p a share annual payout. A 15 per cent share price discount to forecast March 2020 net asset value indicates value too.
Shares in easyHotel (EZH:80p) are a few pennies shy of the 83p level at which I first advised buying at ('Check in for a profitable booking', 14 December 2015), and are trading slightly below book value even though the company has net funds equating to 11 per cent of its market capitalisation. They are also priced around 50 per cent below analysts’ sum-of-the-parts valuations. Ultimately, the driver for a higher share price rating will be management delivering the step change in profitability from a planned accelerated roll-out of its development pipeline in order for the operational gearing of the business to really kick in.
■ Stock clearance offer. Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order.
Subject to stock availability, each book can be purchased at the promotional price of £9.95 per book plus £2.95 postage and packaging, or both books can be purchased for £19.90 plus postage and packaging of only £3.75. The books are being sold through no other source and are normally priced at £16.95 per book plus postage and packaging. A detailed outline of the content of each book can be viewed on YPDBooks website.
