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 email@example.com, 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 firstname.lastname@example.org, confirming both your support & exact shareholding. I also encourage you to share this post & request with any other shareholders you might know online/offline.