Group revenue growth of 24% to £29.410m (2015: £23.764m) on the back of an increasing workload driven by the current strong London property market; Profits before taxation of £2.157m from continuing operations (2015 profit: £2.203m); Income of £1.424m recognised from the profit share agreement with Sunbel Development Limited and Pinacle Developments Limited in relation to a development property at Norwich House (2015 £2.421m); The Group is pleased to report continued sales of its apartments in its completed development at 159-161 Iverson Road, London NW6 in the year ended 31 August 2016.
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.
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