Coincidently while thinking about writing my next article, I came across a piece written by Charlie Munger. It is a work of fiction that explains how companies destroy wealth. Here is the bit that caught my eye :“A wiser board would then have bought in Quant Tech’s stock very aggressively, using up all cash on hand and also borrowing funds to use in the same way”. This reminded me of Deallogic (LON:DL.) which I covered in my last investment case. As per 21st June announcement, it has delisted at a price of 330 pence per share. I am a bit disappointed as the company was cash generative and the shareholder returns were good.
The reasons for delisting can be found here and look very reasonable. I believe that the Company directors made a sensible decision which is in the interests of owners. I also hope fellow investors benefited from the research.
What’s Next?
So moving along, here is another company which I feel is highly profitable but is currently ignored by the markets for the reasons discussed below. (To avoid reader’s bias I will disclose the company’s name and business later so first the numbers). The sales, pre-tax and EPS are declining with a static dividend as shown in table below (from Digitallook)
Year Ending | Revenue (£m) | YoY Decline | Pre-tax (£m) | Pre Tax growth | EPS | EPS Growth | P/E | Div | Yield | Op Margin | ROCE |
31-Mar-08 | 66.15 | 40.39 | 12.7 | 6.8 | 2.61p | 3.10% | 59.36% | 211.69% | |||
31-Mar-09 | 46.8 | -29% | 26.77 | -34% | 8.73 | -31% | 7.6 | 4.59p | 7.00% | 55.25% | 95.09% |
31-Mar-10 | 33.42 | -29% | 16.61 | -38% | 5.39 | -38% | 11 | 4.59p | 7.70% | 49.04% | 65.14% |
31-Mar-11 | 28.2 | -16% | 12.54 |