2016 – The Great Irish Share Valuation Project (Part I):
Company: Formation Group (FRM:LN)
Last TGISVP Post: Here
Market Cap: GBP 14.3 M
Price: GBP 6.5p
At 2.05p per share, I tagged FRM as a ‘penny stock, which…could rally very nicely if it catches investors’ attention’. Little did I see it trading sideways for a year…only to transform, in a mere eight months, into a bloody six-bagger (hitting a 12.7p high). A typical case of small PIs losing their friggin’ minds!
Formation is: i) a governance nightmare, with the Kennedy family owning a 60% stake & activities devoted primarily to related-party deals/JVs, and ii) essentially, a construction management company (a perpetually unattractive business for most investors) that still can’t turn a profit, despite the ramp-up in revenue…and risks. Granted, the Kennedy Show works both ways, as FRM earned a quick £2 million on this related-party deal & the construction business arguably covers an otherwise substantial overhead burn for such a small company. [Though if we exclude the sweetheart profit, FRM’s actually made zero progress vs. my £6.9 million adjusted equity estimate from two years ago]. But overall, considering the improved investor sentiment & likely near-term news/profits from its Iverson Road development, a 1.0 Price/Book ratio now seems appropriate (based on adjusted equity, to reflect the post year-end write-back of non-recourse Dunbar Assets loans):
(GBP 7.6 M Equity + 1.0 M Neg Equity Reversal) * 1.0 P/B / 221 M Shares = GBP 3.9p
PIs got well ahead of themselves here…despite being sliced in half since the Jan high, FRM remains substantially over-valued. And if 6.25-7.25p support breaks, we’ll probably see another nasty shake-out. But the elevated share price may still be good news for management, as a substantial fundraising might be possible, which would help close the value gap here (as NAV would increase) – and with two well-known Irish politicians appointed since as directors, a new focus on Irish investors/projects wouldn’t be surprising, though Greater London residential also remains attractive.
When that is sold payment will be made soon to FRM and that should be a very nice profit. Price has been hammered a bit due to impatience and tax sellers but now on the bounce should be good for 8-10p maybe when they Rns this payment in the next 6 weeks guesswork
They upped the bid just before the close. Waited a hour to see if there was a delayed buy but nothing. Maybe a mm sees value and wants to buy stock while it's low and now the tax loss sellers have done their deals.
Expected results hence a few selling, but the 23/9/15 statement was one of the reasons I bought in here:
"As a result of these developments, the Board is confident that profits for this financial year, ending 31 August 2016, are likely to be substantially in excess of double the £1.75m anticipated in the financial year ended 31 August 2015. It is also anticipated that this exceptionally strong performance will generate sufficient cash for the Company during the forthcoming year to invest in further projects, some of which are already in the process of being appraised"
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