The Alternative Investment Market (AIM) of the London Stock Exchange (LSE) is a great place for investors to find bargains and mispriced securities. A lot of the companies have market caps too small for brokers or institutions to care about, which means small investors like us are left to competed with only each other. But it doesn’t come without its risks: stocks are illiquid with large bid/ask spreads, regulation is more relaxed than the main market and the stock prices are very volatile.
Games Workshop (LSE:GAW) is a company that I have had my eye on for a while. My brother is a big fan of their table top Warhammer fantasy games, and at one point I played the Warhammer Online game, so I am well aware of their products, and how loyal their fan base is. After a shock fall in sales for the first half of the year, and a failure to declare a dividend, the share price has plummeted 25% so the shares may offer good value.
Barnes & Noble is making big losses on paper and looks pretty worthless at first glance, but headline numbers are masking two very profitable segments worth more than the current market cap. The company also has a 26% shareholder as its chairman and completely separate management teams for different segments, which suggests a separation of the businesses is a very real possibility.
It is time to look at some of the stocks that I considered, rejected, and that didn’t do well. I don’t tend to write many posts about companies which I am not interested in so it is hard to track my past thinking without resorting to my (poor) memory. I think I will make more of an effort to write up bad stocks next year, they can still offer good learning points.
Collectors Universe has an Enterprise Value of $110m, and the companies free cash flow has averaged $10m over the last 4 years. It also boasts a 10% dividend yield. But what is most interesting about this investment is its competitive advantage. In a niche industry it is already a dominant player, with significant barriers to entry. The industry is likely to last for decades and will not become obsolete. Going forward the company is expanding internationally and potentially more than doubled its market by opening an office in China.
Ithaca Energy is a stock I looked at quite a while ago. I wrote the following article and was about to buy shares, but in an extreme case of bad luck, just before I could initiate a position the shares rallied 30%. I haven’t since initiated a position but think the shares are still compelling so thought I would post the write up. They have just reported Q3 2013 results which showed record cash flow, putting them at a EV / Annualised Cash flow multiple of just 3.5.
For those that aren’t aware, Craven House Capital is far and away my largest holding, and sat at 22% of my portfolio yesterday. I have no other holdings above 10% which should give you an idea of how much I like this stock.
In my previous post I spoke of how management issuing new shares at 1.25p (a premium to today’s share price) was beneficial for existing shareholders and that I expected management to drastically increase the size of the balance sheet. Well today has confirmed that assumption was correct, as they have just announced a new deal which I calculate has increased my adjusted book value from £2.6m to £3.8m, a 45% increase.
Emerson Radio Corp (AMEX:MSN) is one stock that appears to be a no-brainer. Its market cap, at $51m, is less than its net cash of $61m, yet the business is profitable, generating $7m of pre-tax profit in the last 12 months. Who wouldn’t be tempted by such numbers, until you learn the unpleasant truth about why this company deserves to be trading at such low multiples. Its management and owners are surrounded by countless accusations of corruption, so much so that if all are to be believed, shareholders of Emerson should expect nothing more than to be conned out of what is rightfully theirs. This is a warning to investors – an investment in Emerson as it currently stands is nothing more than a gamble on a change of ownership.
Markel Corporation is an insurance company, and a well run one at that. I have talk about insurance previously in my Amlin article so this article just goes straight into the facts. Markel has increased book value by a compounded 11.6% annually for the last 10 years, and sells at a price to book ratio of just 1.2
A recent buy in my portfolio is Awilco Drilling (OSL:AWDR), which owns and contracts out two drill rigs. It has a dividend yield of 20% and a stable stream of income under contracts for the next few years. But the dividend has only just started to be paid quarterly, so it does not appear in a lot of screeners which is why it has gone unnoticed.
The oil industry is priced low all-round at the moment, so there are bargains around and I feel this is one of them. Read the piece I linked in my last post for more info on why the oil market is undervalued.
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