RE: VLE one of Simon Thompson's Bargain Shares for 202518 Feb 2025 11:02
Since a few days have now passed, for non-subscribers here's some extracts from Simon Thompson's article - this is part one:
"Simon Thompson's Bargain Shares
An investment company with hidden value and huge potential
Bargain Shares 2025: Break-up value is materially higher than the current valuation with a cash exit on the cards
• Portfolio company Shire Foods realistically worth more than double current valuation
• Net cash and liquid resources back up 60 per cent of market capitalisation
• Break-up value 43 per cent higher than current share price"
"Although the shares are tightly held, with the directors and five other shareholders owning 51 per cent of the 2.21mn shares in issue, it’s worth pursuing given the material hidden value in the company’s balance sheet and potential to unlock it.
That’s because the company’s current market capitalisation of £38.6mn (1,750p) is only marginally above equity shareholders’ funds of £35.2mn (1,585p) after stripping out £3.3mn of non-controlling interests relating to the 20 per cent stake owned by other shareholders in frozen pie and pasty maker Shire Foods, the only remaining operational business owned by the company.
Group shareholder funds of £38.5mn include £7.9mn property assets relating to Shire Foods, current assets of £39.3mn and total liabilities of £7.5mn. Within its current assets the company holds cash of £22.1mn, £15mn of inventory and receivables, and equity investments valued at £2.2mn. Borrowings of £0.76mn are modest, so net cash and liquid resources of £23.5mn backs up 60 per cent of Volvere’s market capitalisation of £38.6mn.
It means that the company’s 80 per cent holding in Shire Foods (acquired between July 2011 and December 2012 for a bargain basement £0.5mn) is in the price for £15.1mn even though the food manufacturer almost trebled underlying pre-tax profit to £2.1mn (excluding £0.12mn of intra group interest and management charges) on revenue of £22.2mn in the first half of 2024. The performance builds on an impressive track record, as Shire Foods has increased underlying annual pre-tax profit from £1.4mn to £3.9mn on £20mn of incremental revenue in the past five years."
"Clearly, the business is worth more than the £16.3mn carrying valuation in Volvere’s accounts, of which the group’s share is £13mn. At that valuation it is in the price for only four times underlying pre-tax profit. Moreover, Shire Foods is heavily asset backed as the company owns freehold property with a net book value of £3.6mn, and plants and equipment which have been depreciated to £4.3mn, well below the £10.1mn cost.
To put the valuation into some perspective, when funds managed by DBay acquired cake maker Finsbury Foods for an enterprise valuation of £165mn in late 2023, the exit multiple was 8.3 times operating profit. Arguably, Shire should command an even higher multiple given its more impressive track record under Volver
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