Investment company watch

One of those directors, Mr Dubens also bought 300,000 shares in another Aim-traded company, Time Out (TMO:132p), the £181m market capitalisation media and entertainment business that is pursuing an expansion of its Time Out Market concept. Having opened venues in Boston, Miami and New York in the past few months, further openings are scheduled later this year in Chicago and Montréal, followed by Dubai in 2020, London-Waterloo in 2021 and Prague the year after. The first Time-Out Market opened in Lisbon in 2014 and is now Portugal's most popular attraction, welcoming 3.9m visitors last year.

Investors are clearly warming to the investment case as shares in Time-Out have rallied by almost 90 per cent since the start of January. That’s good news for Oakley as the company’s holding of debt and equity in Time-Out accounted for 11 per cent of Oakley’s net asset value (NAV) of £574m (281p a share) at the end of 2018.

Mark that stake to market value, and factor in the hefty 21p-a-share uplift I highlighted from the part divestment of one of Oakley’s investee companies, Inspired, a co-educational, non-denominational, independent school group (‘Oakley’s education in creating shareholder value’, 30 May 2019), and I reckon Oakley’s spot NAV per share is close to 319p after taking into account the 2.25p a share dividend the company paid out in April. In other words, even after the share price rally, Oakley’s shares still trade on an unwarranted 26 per cent discount to my estimate of book value despite the likelihood of further valuation uplifts being driven by the improving profitability of its investee companies.

Oakley’s shares have produced a total return of 70 per cent since I included them in my 2016 Bargain Shares portfolio and continue to rate a buy ahead of what promises to be a very positive half-year trading update at the end of July. Buy.

Augmentum gaining investor momentum

Augmentum Fintech (AUGM:112p), a leading venture capital investment group that became the first London Stock Exchange listed fintech fund when it raised £94m, at 100p a share in March 2018, has successfully raised £24.9m net proceeds at 112p a share from a placing, offer for subscription and intermediaries offer.

The equity raising was pitched at a slight premium to Augmentum’s end-March 2019 NAV of 109.6p a share, highlighting demand from investors who will have noted that the company’s initial portfolio has generated an eye-catching annualised internal rate of return (IRR) of 28 per cent since IPO. The company currently has £41m free cash to invest and a pipeline worth £450m of investment opportunities suggests there is no shortage of potential investments to make.

Since I covered the annual results (‘Exploiting the fintech opportunity’, 12 June 2019), Augmentum has made an aggregate £8.5m of follow-on investments in three portfolio companies: Monese, a smart and globally connected banking service for internationally mobile individuals; Tide, a banking platform that offers business bank accounts and related banking services to SMEs; and DueDil, a predictive company intelligence platform that provides its 400-plus clients, including Santander, Transferwise and Growth Street, with the data and tools to target, assess and on-board SMEs at scale. These three holdings account for £21m of Augmentum’s pro-forma NAV of £128m, and a further nine smaller fintech investments are in the books for a combined £33m.

Augmentum’s two largest holdings account for £32m of its NAV: Zopa, the world’s first peer-to-peer consumer lending platform; and Interactive Investor (ii), a leading UK investment platform. I maintain the view that there is significant upside potential to all of the investments in the portfolio and I continue to view the shares, which I included, at 102p, in my 2019 Bargain Shares Portfolio, in a very positive light. Buy.

Litigation Capital announces another settlement

Litigation Capital Management (LIT:102p), a Sydney-based provider of litigation financing to enable third-parties to pursue and recover funds from legal claims, has reached a conditional settlement in respect of one of its litigation projects: an open class action in the Federal Court of Australia which it funded on behalf of a group that suffered a financial loss following an investment in an allegedly fraudulent scheme.

The case will generate a bumper gross profit of around A$2.7m to A$3m (£1.5m to £1.7m) for the company. This is the fifth case settlement in the financial year to end June 2019 to add weight to broking house Arden Partners’ forecast that Litigation Capital will report pre-tax profits of A$9.5m on revenue of A$48.4m for the 12-month trading period.

Prospects are already looking good for a bumper financial year ahead, too. Litigation Capital has a portfolio of 29 litigation projects under management of which 23 are unconditionally funded (nine of these are class actions) and six are conditionally signed. In addition, the company has a pipeline of 59 projects with a potential investment in excess of A$380m (£211m) across a mix of litigation financing including commercial, international arbitration, insolvency, class actions and corporate portfolios.

I also understand from analyst Michael White at Arden Partners that the undisclosed litigation funding cooperation agreement Litigation Capital entered into earlier this year is believed to be with leading London-based international law firm Clyde & Co. The firm operates across six continents through a network of 50 offices, has over 400 partners, and is one of the most active in the litigation space globally, representing clients across the aviation, energy and natural resources, infrastructure, trade and commodities, and insurance sectors.

The point is that not only are Litigation Capital’s shares lowly rated on a price-to-book value ratio of 2.6 times (peer group average of 4.2 times), but litigation projects are held at cash on the balance sheet so NAV fails to capture the true underlying value of its cases given that the company has made a cumulative average return on invested capital (ROIC) of 117 per cent on all cases since 2012.

Conservative accounting and the ability to generate a mid-teens post tax return on equity in the coming year explains why Arden is pencilling in a pre-tax profit of A$14.9m on revenues of A$77.3m in the 2019/20 financial year, implying earnings per share (EPS) will surge from 6.3¢ to 10¢ (5.5p) to support a dividend per share of 3.1¢ (1.7p). This has not been lost on investors as Litigation Capital’s shares have risen by a third since I included them, at 77.5p, in my 2019 Bargain Shares Portfolio. However, I can see still almost 40 per cent further potential share price upside to fair value of 140p which is why I continue to rate the shares a buy.

Playing the BCA bid situation

Investment funds managed by TDR Capital launched a £1.9bn takeover for Europe's largest car auction operator, BCA Marketplace (BCA:244p), after I highlighted an opportunity to play the bid situation through the ordinary shares of Marwyn Value Investors (MVI:135p), a closed-end investment company listed on the Specialist Fund Market of the London Stock Exchange. Marywn subsequently announced a near-10 per cent rise in its own NAV per share to 193.2p.

Marwyn’s shareholding in BCA is currently worth £62m (92p per Marwyn ordinary share), so more than two thirds of Marwyn’s share price will be backed by cash if the BCA takeover completes. This leaves assets worth 101.2p a share in the price for only 43p even though these assets include stakes in three listed companies worth a combined 79p a share: Zegona Communications (ZEG:104.5p), an investor in the European telecoms sector that in turn owns high-yielding shares in Spanish telecoms group Euskaltel (MCE:EKT); Wilmcote (WCH:97.5p), a cash shell that has been established to acquire and develop target businesses in the downstream and speciality chemicals sector; and Safe Harbour (SHH: 132.5p), a cash shell that plans an acquisition-led buy-to-build strategy in the distribution sector. Buy.

■ Stock clearance offer ends 15 July. 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. 

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