bargain shares 201111 Feb 2011 16:13
Share price: 27p
Bid-offer spread: 26.5-27.5p
Market capitalisation: £65.9m
Website: www.shorecap.co.uk
For a company that has delivered an average return of 40 per cent a year to its shareholders, measured by the growth in NAV per share and the accumulated dividends paid between 1 January 2000 and 31 December 2009, it seems incredible that you can still buy shares in Shore Capital below book value.
Moreover, net assets of £68.7m look rock solid and include £27.5m of net cash, £1.9m in bonds, £3.4m of quoted equities and £13.8m invested in the asset manager's highly successful Puma Funds. It's not as if those funds under management have been poor performers as the track record of Shore Capital's alternative asset class and structured finance funds is mightily impressive. Total assets under management now exceed £1.28bn and the company reported a pre-tax profit of £1.3m from this operation in the first half of last year.
Shore also has a successful equity capital markets division which posted a first-half profit of £3.4m. In fact, the company is the second-largest market maker on Aim and the third-largest on the main London market, so it should have benefited from the surge in small-cap stocks last year.
Overall, the company reported pre-tax profits of £4.8m on revenues of £18.1m in the first half of 2010 and generated an annualised return on total capital employed of 12.8 per cent. And with chairman Howard Shore controlling 41 per cent of the share capital and managing director Graham Shore holding a further 8.9 per cent, then outside shareholders can expect dividends to remain firmly on the agenda. The company paid out 0.875p a share in 2010.
However, despite these positives, the shares trade slightly below book value even though a high percentage of net assets are in cash and readily realisable assets. That looks anomalous and fails to attribute any value at all to the asset management business the company has built up since it was formed in 1985. Trading on a bargain rating of 0.65, and with Shore Capital clearly able to redeploy its sizeable cash resources on value-enhancing acquisitions, the shares are undervalued.
another 10% monday will do nicely .volcano