I bought a position in late 2018/early 2019 for an average of £7.61 and since then have received dividends of £4.19. As I have used an ISA and a SIPP to do this there is no tax on the dividends. Making my average buy in £3.42 (£7.61-£4.19) and the price today is circa £3.75. So on a ROCE calculation the situation so far is moderately positive.
In reality you could get into a reasonable DCF calculation, though future projections will be a little unknown.
2018 had been a disappointing year for ELTA. The plan to wind down was in progress but residual businesses were proving hard to sell and operating theses residual businesses was also proving difficult.
In 2019 to move things forward ELTA has decided to invest in the residual businesses to make them more attractive at a fuller valuation to potential buyers, to wind down much of the head office ELTA operation and to clearly align the incentives of the residual ELTA management with the disposal programme.
Per the 2019 results this has gone well with;
the TGI valuation being increased £16m with £1m additional investment to £142m.
the Hotter Shoes valuation being increased £18M after an £8m additional investment to £33m
Sentinel Performance losing a £1m of valuation to £3m
And shortly after YE SPC and 2 other small units being sold for £12m. (This as a group was £1m over valuation. During the year SPC had added £2m to its valuation so almost a £3m gain over the year)
So at YE 30/09/19 you have a portfolio of £193m of assets, £1m of cash and £17m of investments. With no debt, whilst making money. And management incentivised to turn this fully into cash and return to shareholders.
The accounts make it clear that the intention is to fully realise within three years and whilst it is not guaranteed it is the focus.
So circa £210m to be returned to shareholders (mainly via dividends, the £12m sales that occurred shortly after YE are being paid out in January 2020,) and a current market cap of £145m. So an extra £1.69 per share over the current valuation in the next three years. What’s not to like?
The significant downside is of course that the biggest investment is TGI Fridays and restaurants in the UK are finding business tough, though TGI’s profits were up, hence the valuation increase and of course disposals at the level management feel are correct may take longer than expected. At the end if TGI becomes the residual it could be floated and the market can decide the valuation.
So there now seems to be a genuine limitation on the time this will go on for. Which is extended would make a significant difference to an annualised ROCE. As well as a clearer feel as to final valuations. Assuming these are 15% too high and the £193m is only £164m the total valuation is still well clear of the Mkt Cap and the discount should narrow as we move closer to fianl disposal/realisation.
I have held ELTA since 2018 and continue to add given the success of management in driving the residual business forward and the relatively short finalisation timescale.