Under activist pressure ELTA has been looking to wind itself up. It recently put itself and its constituent parts up for sale but 2 of its underlying operations did not attract bids that management saw as reasonable.
It has therefore decided to head towards a wind up, but be prepared in the near term to grow the remaining subsidiary businesses to allow the maximum realisation. There is some risk that this is a delaying tactic by management as they seek to feed on the carcass for as long as possible. However the ELTA team are generally well regarded and the shareholder register has adapted to reflect the wind up so I do discount that the realisation will be long (3+Yrs) delayed.
In November ELTA set out its expected situation following some sales that are in the process of completing (Photobox, Knight Square) as soon to be;
£149m TGI Friday; internal valuation
£50m Hotters; internal valuation
£15m Other Investments ; internal valuation
£189m Cash
£403m Total Asset Valuation
Against this the business has at the time of writing a market cap of £312m
This gives over a 20% Margin of Safety. As this is all related to TGI & Hotters, the margin on risk investments is even better as clearly cash is cash.
I also note that by setting out clearly the internal valuation ELTA has set out a price at which it would sell its investments. Management can hardly turn down an offer that reflects their valuation.
Now here is the interesting bit;
ELTA has announced that in December it will be paying from the available cash a dividend of £3.65 per share with an additional 54p per share dividend in Q1 2019.
Putting that through the calculator at a price of £8.16 per share.
If today you bought a share within 6 weeks you will get £3.65 back. Meaning that the share cost you £4.51. There are 38,282,763 shares in issue so the company will then have a market cap (all else being equal) of £173m
Against an asset base of £403 - £140 (the dividend) = £263m
At which point the Margin of Safety goes to 50%.
On top of this the company is looking to pay out a further 54p in Q1 2019.
This means that over the next 5 months your net purchase price would be 816p – 365p – 54p = 397p
For assets valued at £403m – 140m – 21m = £242m which is 632p per share. Which to my mind looks like a fairly safe deal.
Yes there are issues, not least the actual price TGI can realise and the speed with which it is sold. Also there are tax implications if you do not do this in a tax efficient manner. I am holding my shares in a SIPP and ISA’s.
But more than many things at this time it seems a effective allocation of capital with a good potential upside in the short to mid term.
As always DYOR. My work is not checked and I may have made a mistake.