dividend coverage, dividend payout ratio, dividend yield, Irish value investing, John Rockett, Pageant Holdings, Ross Conlon, shareholder activism, shareholder value, Zamano, ZMNO
Here’s a recent letter I sent the board of Zamano plc (ZMNO:ID, ZMNO:LN) – it proposes the company now commence paying an annual dividend. I’m also now actively seeking the support of my fellow shareholders:
FAO: John Rockett, Chairman
Ross Conlon, CEO
Cc: Pat Landy, NED
____- Colin Tucker, NED
______Fergal Scully, NED
16-20 South Cumberland St
Pursuant to my last Zamano post, I want to thank Ross for responding to the shareholders who contacted the company regarding my annual dividend proposal. A number of shareholders have also contacted me directly to confirm their support – I now speak for 13.1% of Zamano’s outstanding shares. Noting this support & the upcoming Mar-10th release of Zamano’s final results, this is a good opportunity to write to you more formally & reiterate my dividend proposal:
– Zamano’s been profitable for the past four years now. Since 2011, the company’s revenue has increased by 55% to a €23.3 million annual run-rate, annual EBITDA has averaged €2.6 million, while annual free cash flow has averaged €2.5 million (for FYs 2012-14). This has now resulted in net cash of €5.4 million on the balance sheet, versus €4.4 million of net debt in 2011, a near-€10 million swing in the company’s financial position.
– Despite the consistent record of operational & financial success, for which management is to be congratulated, shareholders have never received any return on their investment from the company. [And I’m sure they were disappointed by the failed bid for Zamano last year]. Shareholders have also seen no progress in the share price over the last two & a half years, which continues to fall well short of most reasonable estimates of underlying intrinsic value per share.
[NB: ZMNO currently trades at €0.146 per share – a 54% discount, for example, to my most recent fair value estimate of €0.318 per share].
– As owners of a financially strong & healthy company, shareholders now obviously deserve & expect Zamano to institute a dividend policy, and to declare a final dividend for FY-2015 (and future years, results permitting). Having taken a closer look at UK/European dividend ratios since the early 2000s, I’d now observe the longer-term range for dividend payout ratios has generally been more like 35-55% of earnings.
– Noting Zamano’s balance sheet strength & excess free cash flow generation (which has averaged 140% of net profit in the last three FYs, exc. a debt settlement gain), a dividend payout ratio at the higher end of this range is clearly justified – say, 50% of adjusted diluted earnings. [Notably, Bank of Ireland confirmed last week it now plans to recommence paying a dividend, ‘progressively building…towards a payout ratio of around 50%’]:
Therefore, I propose a final dividend of (at least*) 1.2 cents as prudent & sustainable.
– This level of dividend is based on Zamano’s current 2.4 cents adjusted diluted EPS annual run-rate (as of end Jun-2015). [*And a 34% yoy increase in Q3 EBITDA suggests a higher FY-2015 EPS & dividend is entirely possible]. And would total €1.2 million in aggregate, which would be covered 2.3 times by Last Twelve Months free cash flow, and 4.5 times by current net cash.
– As a result, shareholders would enjoy an 8.2% dividend yield, and might reasonably expect it to attract new investors & help close/narrow the existing gap between Zamano’s share price and its underlying intrinsic value per share. Of course, a final dividend requires distributable earnings & shareholder approval, though shareholders would clearly prefer not to wait ‘til August (or even later) for a FY-2015 dividend:
Therefore, I also propose management immediately initiate the corporate/legal process required to create distributable reserves & schedule the AGM to be held as early as (is prudently) possible.
Last November, Ross confirmed he had shared my prior email & dividend proposal to the board. I now ask you to circulate this letter to the board, and on behalf of my fellow shareholders I thank you in advance for your serious consideration of these dividend proposals ahead of the company’s upcoming final results.
Of course, I’d be delighted to discuss further, or answer any questions you might have – don’t hesitate to contact me at firstname.lastname@example.org, I’m available any time. And please note I intend to publish this letter on the blog shortly & seek the support of other Zamano shareholders.
Of course, this is also a great opportunity to seek your support:
If you’re a fellow Zamano shareholder (large or small), and support the payment of an annual dividend (and any other potential measures to enhance and/or realise shareholder value), I’d greatly appreciate your support – please send an email to email@example.com, confirming both your support & exact shareholding. I also encourage you to share this post & request with any other shareholders you might know online/offline.
Wexy – I’ve skimmed through the Annual Report and the tone of it and of past RNs is suggests no real hope or passion about the companies future. Plenty of talk of regulatory risks, using cash to make an acquisition, diversifying away from dependence on UK market…
It all just seems a bit limp. Do you think they know something we don’t… that Zamano’s market is drying up perhaps? Waddya think?
Still a holder, still a compelling valuation – just puzzled why the low valuation persists.
I certainly don’t want to understate the risk(s) here, but investors & even management have cried wolf re regulatory risk for the past decade…and yet we’ve never really seen any kind of significant damage/setbacks to the company’s figures/trajectory. [Zamano’s former existential crisis was due to an over-ambitious acquisition, plus the financial crisis, not regulatory issues]. However, it’s probably a moot point: While I still think most/all of the company’s cash would be better spent on share tender/buybacks, it certainly seems like investors will never revalue the underlying business as it stands – hence the need for acquisitions & diversification. Perhaps a combination of the two – acquisition(s) & a return of capital – would be even more compelling for new & existing investors, so I think the new management & board (once finalised) should specifically consider this strategy.
Beat NASDAQ said:
It is nice when a company pays dividend but better if they invest money which will let them to expand.
Beat Nasdaq – good arguments for both – so I think Zamano should do both: Return capital to shareholders & pursue attractive bolt-on acquisitions/diversification.
Hi, interesting action you have initiated on behalf of shareholders in order to bring about come changes. I am not familiar with Zamano but I just wanted to pick your brain on this type of shareholder activism. Have you tried something like it before and how well does it work in your experience? I am contemplating something like it regarding another company. Thanks.
Take a look at previous European Islamic Investment bank (now Rasmala) & Argo Group posts/letters on the blog. Difficult to answer your question: I certainly think I was successful in achieving my primary activist objectives in both instances, but despite this management’s otherwise remained relatively intransigent & inattentive to shareholders/shareholder value. However, I reckon any overall activist success has been basically swamped by an ongoing (& seemingly perpetual) bear market in small/micro-cap UK deep value shares – 50-80% discounts to NAV/intrinsic value are not that unusual these days, in some pockets of the market. So while I’d view/encourage all activist pressure as a positive/value-enhancing tailwind for shareholders, obviously the quality of the company/management & the overall market/macro environment remain as crucial as ever when evaluating any potential (activist, or passive) investment.
Would a share buyback be better
denis – absolutely! A dividend should obviously be in place already, by default…a return of a reasonable % of annual profits to shareholders, as we see with tens of thousands of other listed companies. In addition, share tender/buybacks are obviously a great way of returning Zamano’s surplus cash pile to shareholders in a value-enhancing manner. Regards, Wexboy
given Mr Wexboy view that Zamano it is at a deep discount to intrinsic value almost certainly so. Furthermore due to regulatory risk and a desire for acquisitions a dividend may not be sustainable and as we know stocks trading at high dividend yields are usually expressing such. A buy back via a tender process would be very attractive. Also given some shareholders are nursing deep capital losses they may not have a realizable gain on disposal. Furthermore, in Ireland CGT is lower than income tax if a shareholder is showing a gain. Finally a buy back by progressively lowering the share count will show fcf per share and earning per share growth which is what the stock needs to re-rate.
Bongo – yup…what you said!
Paul Sinnott said:
Wexboy, Many thanks for your continuing musings on both Zamano and many other investment opportunities. I currently own 370,500 Zamano shares, bought mainly as a punt on the proposed takeover, albeit with the back drop of owning a share of a pretty profitable business that was throwing off lots of cash. I agree that a dividend would be a very positive move for shareholders, although I suspect that any dividend might be shy of the 50% that you are proposing. Perhaps an interim and final dividend programme could be initiated so that they don’t have to clear Beecher’s Brook as their first fence. In any event I would be happy to vote my shares along with your own. Kind regards Paul
Your shareholding & support are noted.
Yes, breaking up an annual payout into an interim & final dividend would be perfectly welcome, but at this point the last thing Zamano’s shareholders want is to wait ’til Sep-2016 (when FY-16 interims are released) to discover whether a dividend’s actually being initiated by the board..! Hence, a proposed annual/final dividend for FY-2015 – and the board has had plenty of notice, per my prior dividend proposal in November (& noting I’ve raised the idea of a dividend earlier in 2015 also).
john furlong said:
while i admire your affords to have dividends paid by zamano the directors of irish companies treat shareholders like serfs who should be kept in the dark so you will be fobbed off .you only have to view the amount of information released by the directors of the companies plans and progress to shareholders to realize that the shareholders are only of use to provide money and to keep their mouths shut .the sitemaster affair brought home the fact that there is no protection for the ordinary shareholder when invested on the ISEQ
You didn’t sign it ‘Wexboy’ did you?
Barry – actually, yes… Didn’t you know, I’m the Madonna of investment blogging!? But they know who I am…