Small Cap Value Report (18 Nov 2016) - AVS, EYE

18th Nov '16 by Paul Scott

40 comments 16601 reads

Good morning!

I'm still basking in the excitement from the 650p takeover bid for Avesco (LON:AVS) - at a remarkable 125% premium to the previous day's price. That's the benefit of having a founder Chairman who controls nearly 30% of the shares, and is past retirement age. I was expecting a sale of the company, as mentioned in previous SCVRs, including this prophetic one from 30 Sep 2016;

So that looks an excellent outcome, dropping off another non-performing asset, following the sale of freehold land earlier this year.

My view is that Avesco is possibly being prepared to maximise shareholder value, maybe in a trade sale? Its US subsidiary, Creative Technologies, is I think worth considerably more than the current market cap.

Even though this share has risen a lot, it's still not expensive, on forecasts of about 25-27p for this year & next year. It should be debt-free now too. I'm hoping for upside to 400-500p here, in the long run, and it remains one of my core personal holdings. So far, so good!

Yes, you've guessed it, I'm going to be absolutely insufferable for the next few days! Still, it's good to enjoy the victories, as that builds up a buffer (financial as well as emotional) to help us cope with the failures.

Thank you for all the messages from readers who have also gained on this share. We're happy to have been of service.

STOP PRESS! I've just had David Stredder on the phone, and we're going to have a little celebration of Avesco at Mello Beckenham this coming Monday. Here is the link for more info & details on how to book your place.

David has asked me to give a 5-10 minute talk on why I was so keen on Avesco, and what traits we can identify from it that may be of use in identifying other similar situations. So I'll put together a short talk on that over the weekend.

Also, David will be leading a discussion on stocks with high dollar earnings, which may become targets for takeovers from larger US competitors - as this seems to be emerging as a trend.

So it should be an interesting & enjoyable evening. David has advised me that there are already about a dozen people who say they want to buy me a pint of Peroni. So I've…

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seadoc

18th Nov '16

Hi Paul,

Congratulations! Interesting you hold but 40 shares, despite you spending all day researching, how do "professional" active funds hold over 200, unless on basis of pseudo-tracker to an index? Just an observation. No matter how good the story I do not buy more once I get to a holding of 10% of funds (but have been known to do that in one) and sell some (usually 1/3) once at 15% of the total and that total is the value of shares held rather than total portfolio value which includes the cash. Those figures are completely arbitrary but they have worked well for me over last 20 years, despite the (odd) occasion when there is a major take-over event just after I have downsized.

Do have a large glass of lemonade on me tonight,

Regards,

Seadoc

PS, being Friday you may add a "mixer" to that lemonade.

btgmf

Paul, to echo the others, thanks so much for all your work on Avesco!

In terms of the time scale, what makes you think the end of December for the deal to close? I personally am considering selling now unless I could hold through the new year, so I'm trying to figure out how to think about the expected closing date.

Thanks!

Azhar Allahdad

same boat as you was on my wish list but didnt pull the trigger what were we thinking

FREng

fg2k:

In my case, it was because the available bid was 635p, so the possible gain was 15p if I waited for the deal to close (plus the option of a higher bid, which I discounted); 15/635 is 2.4%, and the deal could take 2 months or more to close. Is that the best use for the money? Possibly not.

If the deal fails to complete (which it still might, if the directors won't sign the necessary warranties, or if the disclosure letter reveals anything that the purchaser doesn't like, or if detailed DD finds a problem, or if there's some other issue, ... ... then the fall in SP is likely to be over 50%.

I decided that wasn't a bet that I'd take and stake £30K on.

Trident

I thought about Avesco but couldn't get over personal filter of the market cap and the liquidity issue. More fool me I guess!

Congratulations to all those made the leap.

whitmad

btgmf: it's in the RNS - "it is expected that the Scheme will become effective by the end of December 2016."

Richardc

Hi Paul,

Just to say many thanks for your views on Avesco. I have done very well on it thanks to your input.

All the best,

Richard

emmettsmith

Hi Paul

Based on your 10th June SCVR and followed up with my own research, I took a small position later in the month.

Thanks very much indeed,
Emmett

Brilliant Leader

FREng, my thinking was very similar to yours, although my average sale price was only 64p (selling via 3 different brokers). Have you reinvested yet?

I spread my windfall across six high conviction holdings (in order of weighting) Zytronic (LON:ZYT), Bioventix (LON:BVXP), Brainjuicer (LON:BJU), £D4T4, Revolution Bars (LON:RBG) and Woodford Patient Capital Trust (LON:WPCT). Zytronic and Brainjuicer could both be potential takeover candidates from a US predator, although that is not my reason for holding. Time will tell if my decision to cash in early and reinvest immediately, proves to be a good move.

Can I also add that it has been great to see so many non-holders of Avesco (LON:AVS) offering their congratulations. Classy!

A good weekend everyone...

Rusty2

Hi Crazycoops, I think you must mean 634p?

I thought SRT Marine Systems (LON:SRT) was one of your top holdings is that no longer the case, I do have a small holding but thinking of selling soon.

I also hold Bioventix (LON:BVXP), did you see the directors sales today?

Hi Herbie

Yes, apologies for the typo, I meant 634p. Still hold SRT Marine Systems (LON:SRT) but sold two thirds on the way down as stop,losses were breached. Will stick with my current holding but will not add until momentum turns which will require another project win or improved results in H2. And yes, I saw the director sales at Bioventix (LON:BVXP) which on balance, seem reasonable and do not alarm me. What are your thoughts?

xxx

19th Nov '16

Very insightful comments re: Avesco from Paul. Well done and to those sensible enough to follow through.

dominic higgins

Hi Paul
The content of your Mello presentation sounds very interesting and what I've been investing in since Brexit and currently looking for more ideas.
Is the Mello presentation recorded and posted anywhere?
If not, do you plan to provide an overview via your SCVR blog, that would be fantastic if so and very much appreciated by me and, I'm sure, by many others here.
I'm still on a high after the briliant Avesco result!!!
Have a great weekend
Dom

AlanJenkins2

Thanks for the Avesco advice,Paul.The reason why I kept my position comparatively small is that the shares were illiquid.Perhaps IG were mindful of that.

LittonOwl

Another one who would just like to thank Paul for his insightful comments here, which were the initial catalyst for further research and me buying Avesco in June @ 207p.

Hi Crazycoops,
Re Bioventix (LON:BVXP) I'm not overly concerned but just a bit surprised that they sold at 1300p when the price had been higher a few weeks ago, maybe they could not sell then? I sold half my holding at 1560p and I'm looking to buy back if the price falls to around 1200p, be interesting to see how the market reacts next week.
SRT Marine Systems (LON:SRT) seems to be too much jam tomorrow type share for me.

Of your other holdings, I do hold Zytronic (LON:ZYT) and £D4t4. Brainjuicer (LON:BJU) and Revolution Bars (LON:RBG) are on my watchlist, not convinced yet, if we do go into a recession they are not ones I would want to be holding. I may be going more larger high dividend companies next. Like you I still have quite a bit in cash until things become a bit clearer re Brexit and USA.

OneEyedMan

21st Nov '16

I too did well out of Avesco!

ridavies

Hi Paul
I may have missed it, but any idea when the interview with £STAFF will come out?

WhaleHQ

http://qualitysmallcaps.co.uk/

Thanks for that jamaker

Small Cap Value Report (18 Nov 2016) - AVS, EYE

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Paul Scott

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