Zamano – Time For A Dividend & Your Support…

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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:

‘27-Feb-2016

FAO:   John Rockett, Chairman
            Ross Conlon, CEO

Cc:      Pat Landy, NED
____- Colin Tucker, NED
______Fergal Scully, NED

zamano plc
3rd Floor
Hospitality House
16-20 South Cumberland St
Dublin 2

Gentlemen,

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.

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Zamano…So, What Now?!

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Irish shares, Irish value investing, mobile content, mobile payment, Pageant Holdings, Ross Conlon, shareholder activism, takeover offer, Zamano, ZMNO

It’s 18 months since my original Zamano (ZMNO:ID, or ZMNO:LN) write-up:

‘Zoom, Zoom…Zamano!’

Maybe I should kick off with an update…but if you’re a current (or potential) shareholder, how can we avoid the elephant in the room? Yeah, I’m talking about the early-Aug announcement of a possible EUR 0.20 per share offer for Zamano. The one where investors were subsequently left in the dark for nearly three months, only to learn in late-Oct bid discussions had actually been terminated (no further details were provided). I’m sure plenty of shareholders have been experiencing the five stages of grief since, and who can blame ’em really…it must feel a lot like getting jilted at the altar!

So, What Now..?!

Well, less than a fortnight later, the company released news of the Chairman’s upcoming resignation, plus a 9 month trading update which (while excellent) consisted of a single sentence… This appears to draw a line under the failed bid, and signals it’s business as usual, which I really don’t find acceptable. Shareholders deserve better. Whatever the merits/likelihood of the bid, it’s a frustrating reminder of the obvious value gap between ZMNO’s share price & its intrinsic value. I’m quite sure a majority of the company’s shareholders (i.e. its bloody owners!) now feel like they’re owed at least a strategic review, laying out in detail how the board intends to close the current value gap & grow shareholder value. Let’s map out the available strategies (and forgive a more jaundiced view):

Organic Growth

My last post relied on FY-2013 figures – since then, the company’s enjoyed consistent revenue momentum of +24% in FY-2014, +19% yoy in H1-2015 & an accelerated +37% yoy in Q3-2015, while net cash increased over 150% to €5.4 million. The recent trading update now pegs the revenue run-rate at €23.3 million, a 45% increase in less than two years! Maybe ZMNO finally deserves a growth stock re-rating?! Let’s hope so… Here’s updated financials to end-June 2015, focusing (again) on cash flow:

It’s encouraging to note recent (& historical) growth clearly doesn’t require increased cash investment. But let’s not fool ourselves, management’s enjoyed some attractive tail winds here. With 80% of the business now coming from the UK, sterling strength is a significant top-line contributor. The EUR/GBP rate averaged 0.8491 in 2013, and now it’s 0.7046 – that probably accounts for 25-30% of the post FY-2013 revenue increase. And with the UK & Ireland being two of the best economies in Europe (in terms of GDP growth/recovery & declining unemployment), increased consumer spending is another substantial tailwind. Plus, there’s a renewed emphasis on B2B – and while that delivers a more stable/durable revenue stream, it also means lower margins & a lagging EBITDA (which increased 19%, to €3.1 million) over the same period.

One Fifty One? No, It’s Worth Far More…

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Alan Walsh, hazardous waste, IAWS, metals recycling, NTR plc, One Fifty One plc, One51, Pageant Holdings, Philip Lynch, plastics, Straight plc, Sum-of-the-Parts Analysis

A One Fifty One plc investment write-up has long been outstanding from me now, as certain readers have reminded me! It’s high time now I rectify this – especially since I’ve already highlighted One51 & its CEO, Alan Walsh, play an integral role in the unfolding NTR plc story. Of course, One51’s also another classic example of Celtic Tiger hubris & near-collapse – but its future definitely looks far more promising…

Let’s rewind:  In 2005, members of the Irish Agricultural Wholesale Society Ltd. approved the creation of One51. In bygone years, it would probably have remained just a sub. of the Society, conservatively managing its investment properties & portfolio. But the Celtic Tiger demanded something more ambitious, so it became a stand-alone company: a) When Society members became direct shareholders in One51, via a Feb-2007 share exchange, and b) grey market trading commenced in One51’s shares at the end of Oct-2007.

[NB: Irish grey market shares are unlisted – akin to unlisted UK shares (which trade via matched bargain), or US OTC/Pink Sheet stocks (but without the benefit necessarily of market-makers). One51 now has a quarter billion dollar market cap, and its standards of reporting, corporate governance & investor relations equal any of its listed peers, but it’s still a grey market share…so be aware of the usual investor health warnings. But if you’re still interested, you can discuss and/or trade One51 with these brokers.]

This independence was something of an illusion though, as One51’s board and management was populated mostly with continuing (& former) directors and management of the Society & IAWS Group plc. [IAWS Group was a listed sub. of the Society, which has now become Aryzta (YZA:ID) & Origin Enterprises (OGN:ID)]. The company’s shareholder base also overlapped with those of the private & public IAWS entities. But those were heady times – brokers & punters weren’t too worried about potential grey market illiquidity, or governance issues. All they really cared for was the mesmerising strategic vision painted by Philip Lynch, One51’s CEO. [Who was still CEO of the Society, and a former CEO & Chairman of IAWS Group]. Unlike everybody else at the time, Lynch wasn’t actually focused on property investment & development…instead, his real ambition was to become a genuine mover & shaker in the Irish (& even the UK) corporate world.

Unfortunately, looking back, his vision doesn’t look so compelling (or even that strategic). During 2006-08, operating & financial acquisitions were occurring at the frantic pace of almost one a month – and well over EUR 500 million (gross) was actually spent during this period. As a result, the balance sheet almost quadrupled within a two year period (peaking at EUR 900 million+ by end-2007), funded by an easy combo. of bank debt & fresh equity. [Plus EUR 168 million of Convertible Loan Note (CLN) issuance, most of which was quickly converted to equity also.]

Buoyant business & investment confidence, optimistic growth expectations, and the intoxicating availability of cheap funding, all conspired to jack up prices paid (& goodwill recorded) at the time. And management’s lack of financial discipline was clearly evident in the minimal (low single-digit) net profits & return on equity recorded in 2006-07. But judging by One51’s opening share price, investors didn’t much care – they were too focused on their prospective gains, and the touted ‘integration and synergies’ to be extracted from the company’s sprawling portfolio.

NTR plc – Breezin’ Right Along…

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activist investors, Alan Walsh, Chris Hunt, NTR plc, One Fifty One plc, Pageant Holdings, Pattern Energy Group, Riverstone, Tom Roche, Wind Capital Group, wind energy

Judging by the emails/comments I’m getting, there’s plenty of current & potential investors out there delighted to see Monday’s announcement from NTR plc, confirming the sale of its US wind farms. [i.e. NTR’s 201 MW Post Rock, KS & 150 MW Lost Creek, MO wind farms – both approx. 3 years old, with 20 yr investment-grade PPAs in place]. Like many corporate releases though, it raises just as many questions as it answers…including the most obvious question:

So, what are the implications now for NTR’s NAV & share price?!

Far be it for me to predict a near-term share price trajectory – let’s see what the next few weeks’ trading brings – but I’m obviously keen to arrive at a fresh NAV estimate, based on this key value-realisation event. First, let’s take a breath & revisit my original NTR investment write-up (from Aug-2014). I won’t recap it here…because I’d suggest (re-)reading that piece is probably essential prep for the rest of this post (it definitely was for me!).

Picking up where I left off, I wrapped up that post with this speculation: ‘…it will be interesting to see if there’s any fireworks at the [September AGM] meeting’ – little did I know how fortuitous, yet prescient, this would prove to be! Preceded by a number of critical press articles (which prompted this pre-AGM response), there were indeed fireworks at the AGM itself…I think it’s fair to say management looked a tad defensive & beleaguered by all the questions and attention!

However, the real AGM highlight was confirmation the board had already requested management (in April-2014, which of course ‘preceded and was entirely independent from any…shareholder discussions’) to consider the strategic options for NTR’s US wind assets. It was also acknowledged (as I’d already argued in my prior post) ‘there could be strong interest in the US wind assets given their quality and operational performance’, and that ‘a successful sale could result in an opportunity for an additional liquidity event for all our shareholders.’ This was capped off with a commitment to appoint expert advisers, and (subject to their report) to potentially move ahead with a sale process.

Shortly after the AGM, the company then confirmed its three main shareholders (representing 71.5% of NTR’s issued share capital) had reached agreement, and had ‘put a proposal to the Board that it initiate a process to sell the NTR US wind assets as soon as possible and that NTR implement a tender offer as soon as possible thereafter for NTR’s issued shares.’ Depending upon the tender price per share, One Fifty One plc & Pageant Holdings informed the board they intended to accept such a tender offer for all their shares, while Woodford Capital (family investment vehicle of Chairman Tom Roche) stated its intention not to sell any shares in such a tender offer. This obviously allayed any lingering investor concerns management wouldn’t follow through on a value-realisation strategy…as evidenced two months later by the appointment of Marathon Capital to formally launch a sale process for the US wind farms.

NTR plc…Wind of Change?

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activist investors, Alan Walsh, grey market share, National Toll Roads, Nick Furlong, NTR plc, One Fifty One plc, Pageant Holdings, Rosheen McGuckian, Tom Roche, Wind Capital Group, wind energy, Yieldcos

NTR is a strange beast, neither fish nor fowl. Of course, regular readers will recognise that tends to intrigue me – the best opportunities often arise from misunderstanding & neglect. And NTR’s balance sheet intrigues me even more… But whoa Nellie, we’re getting ahead of ourselves here! Let’s back up:

We should begin with the Roche family dynasty – here’s a good potted history. Tom Roche Senior founded National Toll Roads – its first venture, the East-Link toll bridge, opened in 1984. The company slowly expanded, completing the West-Link bridge in 1990 & adding a second span in 2003. With the advent of the Celtic Tiger in the late ’90s & the completion of the M50, traffic volumes & revenues exploded, and the company became a goldmine. The government, in its wisdom, then decided to buy the West-Link in mid-2007 – just ahead of the credit crisis! NTR subsequently monetised the NRA’s index-linked payments of EUR 50 million pa (from Aug-2008 to Mar-2020) for an up-front consideration of EUR 0.5 billion. This was a great deal (followed shortly thereafter by an even larger sale of its Airtricity stake), but unfortunately the company was also in full Celtic Tiger mode at this point. With Tom Roche Junior taking the helm after his father passed away in 1999, NTR had ambitiously transformed itself into a developer & operator in renewable energy (solar, wind & corn-based ethanol) and sustainable waste management – in Ireland, the UK & across the US.

By Mar-2007, in just 3 years, the balance sheet more than quintupled to EUR 2.0 billion (funded by 1.5 billion of total liabilities)! Accompanied by a share price which managed much the same feat – I specifically recall the brokers hailing NTR as a new Irish blue chip to every last punter with a pulse & a wallet. [When I mention the company’s listing ‘status’, you’ll realise this pitch was even more dangerous than it sounds…] But investors eventually started getting cold feet – the shares peaked at EUR 7.00 in Jan-2007, well ahead of the crisis. Because of the West-Link & Airtricity sales, the company was sitting on a large cash pile as it entered 2008 – but it was also burning close to EUR 0.7 billion pa of free cash flow at the time. And despite the financial crisis, the spending never stopped… In Apr-2008, management actually embarked on a brand new investment folly (solar energy) with an initial USD 100 million deal to purchase a controlling interest in Stirling Energy Systems. Well, you know what came next…

I’ll spare you most of the blood & guts, let me just highlight total equity (exc. NCI) bottomed this year at EUR 117 million, down nearly 90% from a Mar-2008 peak of EUR 1.1 billion. [NTR’s real annus horribilis came in FY-2011, with a loss of EUR 381 million – one of the largest non-banking losses in Irish corporate history]. And the share price suffered even more horribly – reaching a EUR 0.25 low in Aug-2012, down 96% from its peak:

Zoom, Zoom…Zamano!

Tags

activist investor, Irish shares, Irish value investing, mobile content, mobile marketing, mobile payment, Pageant Holdings, Ross Conlon, Zamano, ZMNO

Zamano plc (ZMNO:ID, ZMNO:LN) is a leading Irish/UK provider of games, videos, music, apps & other digital content to mobile users (D2C, Direct-To-Consumer), and mobile messaging/marketing solutions for businesses (B2B, Business-To-Business). It’s also terribly misunderstood & neglected – the share price is down 25% in the past six months (vs. the ISEQ up 4%). So, loath as I am, we should first tackle some:

Risks & Misconceptions

i) ‘They just sell ringtones?!’:   No, they sell all kinds of digital content. Especially to Millennials, whose attention span’s as fleeting as Lee Evans between twitches – which means they’re a perfect target for the cheap impulse buys Zamano offers.

ii) ‘Oh, and porn!’:   No. No. No, they bloody well don’t…

iii) ‘What about smartphones?’:   Zamano primarily interacts with users via SMS (plus MMS, WAP, etc.), so smartphones must be killing them, right? Er no, as Portio Research points out: ‘SMS is not dead. SMS is still the king…’. For Zamano, smartphones represent more opportunity than threat:

– The SMS share of the pie may shrink, but the pie keeps growing. More & more people are forgetting their laptops & and are now living online 24/7 via phones (& tablets) – they’re all a potential target market for Zamano. And smartphones have allowed the company to upgrade & customize its D2C content, and to migrate its advertising online, thereby enabling more effective customer acquisition. Like so many tech companies, ZMNO’s really a sales & marketing company – so management’s ultimately agnostic, they’ll embrace whatever technology(s) deliver the best revenue/profit opportunities.

– If that’s via apps, that’s OK too… Because people have to get paid eventually, free/dollar apps won’t hack it, especially when it comes to regularly updated content. Maybe in-game/app purchases & advertising become the norm, but I suspect we’ll see an inevitable migration (back) to a subscription model – a far more stable/valuable revenue stream for companies. Just look at the evolution of online music: Downloading’s dead now, streaming’s where it’s at…maybe even Apple’s finally got the message!

– As for Zamano’s B2B business, SMS will be an attractive marketing tool for years to come. I mean, when did you last read your spam email? But we all still love that little dopamine fix when a new text message pings…we can’t help reading it! For companies, SMS is a simple, immediate & compelling medium for reaching out & marketing to customers. Combine it with geolocation and/or mobile payment technologies, and it offers intriguing new opportunities.

iv) ‘Don’t they have a crap reputation?’:   Sure…if you want to believe the trolls. Yes, how dare they charge for that sub. you forgot about? Why don’t you complain about the skinny jeans you bought last week too, or the hangover you spent good money on last night? I blame the chattering classes – they tut-tut over the hoi polloi buying such chavtastic tat. Then we have nanny regulators like Comreg, who act like they’re waging a holy war to atone for the sins of the Irish banking regulator… Yes, Zamano has to compete with some dodgy rivals, but it also has a fiduciary duty to its investors. Shady practices might appear tempting, but when you consider the risks for a listed company…it’s never worth it. And because ZMNO’s listed (& highly visible), the regulator inevitably targets them first. I’m confident we can rely on management to maintain standards & compliance accordingly.

2013 – The Great Irish Share Valuation Project (Part IX)

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Allied Irish Banks, Bank of Ireland, Biogen Idec, Dalradian Resources, Datalex, Elan Corp, ELG Scheme, Fastnet Oil & Gas, FBD Holdings, IIU, Irish shares, Irish value investing, Pageant Holdings, Permanent TSB Group Holdings, Prime Active Capital, Royalty Pharma, TGISVP, The Great Irish Share Valuation Project, US Oil & Gas

Continued from here. [If you’re new to the series, I recommend you re-visit my first 2013 TGISVP post].

Company:   Elan Corp

Prior Post:   Here

Ticker:   ELN:US

Price:   $11.61

Last year, I had Elan pegged for a significant fall – which definitely appeared to be on the cards with the share price falling 25%+ to sub-$10 levels in Dec & Feb. In the past 2 months, however, they’ve certainly pulled a rabbit from the hat with their recent Biogen Idec (BIIB:US) deal. This hands full control of Tysabri back to Biogen, but in return Elan receives $3.25 billion of cash, and a 12-25% royalty on future global net sales. Post-restructuring, Elan was almost entirely dependent on Tysabri – so this deal transforms the company into a highly attractive pot of cash, and a low cost/high margin royalty stream.

Unfortunately, management didn’t quite grasp this was shareholder’s money – they acted like all their bloody Xmases had come at once! They’ve promised a share buyback, but their main plan is to use the majority of the proceeds & royalties to acquire a brand new portfolio & pipeline. This is coupled with a projected reduction in annual operating expenses to (only?) $180 million per year! This has lured Royalty Pharma out of shadows, to offer shareholders an interesting alternative: An $11.00 per share bid.

2013 – The Great Irish Share Valuation Project (Part IV)

Tags

Conroy Gold & Natural Resources, DCC, FBD Holdings, Irish shares, Irish value investing, Kingspan, New Ireland Fund, Paddy Power, Pageant Holdings, Papua Mining, TGISVP, The Great Irish Share Valuation Project, Zamano

Continued from here. If you’re only joining the series now, I recommend you first read my first TGISVP post this year. And so, without further ado, let’s dive straight into my next (random) bunch of Irish stocks:

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Company:   New Ireland Fund

Prior Post:   Here

Ticker:   IRL:US

Price:   USD 9.919

The New Ireland Fund is the only closed-end fund now investing in Irish shares. [Hopefully, when general Irish sentiment is sufficiently improved, Gervais Williams might see fit to launch a new Irish investment trust]. The share’s made decent progress in the past year, slightly exceeding my price target. This was really due to NAV appreciation, however, as the NAV discount remained steady around 12%. With Phillip Goldstein, of Bulldog Investors, selling much of his 13% stake in the past year, that’s a pretty creditable performance.

The Great Irish Share Valuation Project V

Tags

Better Capital, Dart Group, FL Partners, Irish Continental, Jon Moulton, Marketspreads, Paddy Power, Pageant Holdings, Petroneft Resources, Ryanair, Siteserv, Smurfit Kappa, TGISVP, Total Produce, Tullow Oil, TVC Holdings, United Drug, UTV Media, Worldspreads, Zamano

Continued from here:

Before tackling the next batch of stocks, some readers may want to revisit my first TGISVP post. This project’s not about doing a detailed writeup/valuation on each stock. Sure, I spend ample time on each stock (on a best efforts basis)**, but less than if I were making an investment and/or doing a detailed writeup. That’s why I label these rough and ready valuations! On average, yes I’d expect detailed and rough & ready valuations to be similar, but ‘average‘ is key here..! Take a closer look at any company, and my new valuation could be (possibly significantly) higher, lower or unchanged vs. my original valuation.

What this project is designed to do: i) Illustrate the wide variety of valuation assumptions/approaches that can be applied depending on each individual company/situation, and ii) provide a cheatsheet to highlight the potentially best (and worst!) Irish stocks, on an absolute (or relative) basis, that may merit further research and potential purchase/sale.