Good morning!

 

 

PuriCore (LON:PURI)

I was rubbing my hands with glee at this morning's announcement from this PuriCore, which is apparently the world leader in disinfecting systems for fresh produce & cut flowers.

The company has sold its non-core UK endoscopy disinfecting business for $25.3m (net of costs), which equates to £15.1m cash. That's highly material to the company's valuation, with the market cap of £25m at 50p per share.

I was expecting a large move upwards in share price on this news, but surprisingly the initial spike has already scrubbed off by sellers, and it's now only up about 2% on the day at 49p bid/ 51p offer. Given how much this transaction de-risks the company by making it cash rich, and opens up the prospect of a possible return of cash to shareholders, then this has in my opinion made the shares a much better investment proposition on a risk/reward basis.

The sale price achieved for the endoscopy business of $26.9m looks a decent multiple of its $2.1m profit before tax, although of course that means that group profitability will be reduced by that amount going forwards. I prefer a more focused group, as it puts pressure on management to make their core business really work - I much prefer small caps that focus totally on one core area - it's better to be really good at one thing, rather than dabbling at lots of things & doing nothing really well.

A strategic review is underway for the best use of the proceeds, which might involve a return of cash to shareholders. I favour about £ 10m of the cash (two thirds) being returned to shareholders by a special dividend. That would be about 20p per share. It's a very good discipline for management to return surplus cash to shareholders, instead of squandering it on acquisitions or cash burn.

This deal is probably why the share price has been so buoyant in the last week - insider dealing seems to be alive & well, despite being illegal - there's no other explanation for why the share price shot up from roughly a 32p low (after a clumsy seller at 25p trashed the price) to last night's 49p. Someone who knew about the disposal must have tipped off a mate, to push the price up so…

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