Forum Archive Index - June 2000

["David Reid" <aspex@ix.net.nz>]

I believe it is actually first trading on 13th but record date is today 9th.

Further comment on Staveley (GPG 29%) from one UK commentator.

Reads:

I have a reputation as a bear raider, a gourmand and an inveterate gambler. But occasionally I actually buy stocks. I have indeed done so with Staveley Industries (SVY), which I like at 49p.

Genuinely cheap smaller traditional stocks are suffering a staggering malaise. As I have noted before, in recent times traditional valuation parameters have been chucked out of the window. Small cap stocks earn only minimal commissions for advisory brokers, who thus tend not to recommend them. There is simply no follow through in the market. The astute private investor can only buy and hope common sense will eventually filter back into investors' brains. Staveley is first and foremost an asset play. The company is sitting on cash of 50p per share and has no debt. Furthermore, flowing on from disposals of the salt and other businesses, Stavely is expected to distribute at least 45p, possibly 50p, to shareholders in cash within, say, four months once annoying legal formalities are satisfied.

Let us assume that 45p will be distributed. That means that if you buy the stock today you are effectively paying less than 5p.

What do you get for your money? First up is a large historic tax loss of the order of £79m, or 67p per share. That is, of course, only worth the tax that it can save, which is not easy to see from outside and frequently difficult to see from inside.

More important, one gains ownership of a number of vibrant businesses making (I expect) 3.1p per share before tax in the year ton April 2000 and 7.5p in 2001. The 2000 results will be posted shortly and will show a company emerging strongly from a painful period.

Thus, once cash distribution is recognised and allowed for, it would be surprising if the rump of the business were valued at less than 10 times fully taxed earnings of (say) 4p. That gives at least 85p of shareholder value just to start with.

Hence for those buying today there is immediate upside of 35p or 70%. It sounds like a dot.com or gold mining type return but this as an analysis based on fact and assets not on hype and promotion. Definitely one for the patient with ISA's on their minds.

For more investment ideas, David Reid