AscentPharma (APH) - A steal at 40c a share

Further to my earlier post regarding the Strides announcement just a few weeks back (Dec 1),  APH this morning  released details of the Strides scheme of implementation agreement.  Strides have increased their offer from the original 35c to 40c, valuing APH at $100m.  At the same time APH have indicated that their FY2010 NPAT is likely to be in the range of $11.5-$12m.

APH have appointed KPMG to provide the independent expert's report on whether the offer is in the best interests of shareholders.  While I'm happy with the increased offer, a price tag of $100m values APH on a P/E of 8-9 - extraordinarily cheap for a generics business exhibiting the sort of growth that APH has done over the past few years.   Strides itself trades at a P/E of 15.  

Were there any semblance of competitive tension in this process, APH should be selling for at least $120m+ but given Strides' dominant 60% stake it is unlikely that anyone will gatecrash this little party.  All the figures being quoted of premium to VWAP and last traded price are indicators of mis-pricing, not of true value.  APH at 40c a share is a bargain and Strides knows it.  

Valad Property Group (VPG) - An inside view

It's always interesting when directors or management provide real indications of where they think a business is headed.  Commentary in annual reports and investor presentations varies in its level of usefulness but it's a different story when management signal their intentions with skin in the game. 

Valad Property Group came to my attention earlier this morning, with an ASX announcement stating that the board had received a proposal for acquisition of the European business by certain Valad management personnel.    

Valad recently undertook a share consolidation of 20:1.  At the recently traded price of $1.20, the pre-consolidation share price works out at $0.06 a share, against the NTA from the most recent annual report of $0.13 a share ($2.60 post-consolidation).  The MBO proposal may be an indicator that there is some value to be gained at current prices. 

Disclosure: VPG (Long - as of this morning)

AscentPharma (APH) - Strides ahead

In March 2010, AscentPharma issued a release indicating that they had received an indicative offer from their majority shareholder, Strides ArcoLab, for the remainder of equity at 35c a share.  Punters hoping to make a quick return on the deal will have been disappointed.  Eight months later and  progress since the initial announcement has been limited, though there have been signs that Strides is still interested.  

In August, Strides picked up 3% in an offmarket trade at 35c (taking them to over 60%).  Then in September, Strides completed an institutional placement to raise US$100m, which they announced they were earmarking for overseas acquisitions.  The most recent update from APH in November indicated that any eventual deal would need to be completed in 2011. 

In the interim, APH released their HY10 results, which suggest that Strides will be getting a good deal, if it can get the rest of APH at 35c a share.  That would value APH at a PE of c.8x trailing 12m earnings.  As at time of writing Strides was trading on the Bombay exchange at a PE of c.14x.  

At yesterday's 29c close, APH looks good value for a 20% return in the next 12 months if the offer for 35c comes through.  Given the bargain basement offer, if the independent directors can wrangle a little more out of Strides, it could be even better.  

Disclosure: APH (Long)

Gale Pacific (GAP) - A healthy storm brewing?

Noted US investor Seth Klarman is known to have named one of his racing horses "Read the Footnotes". While that may seem obvious, I would also encourage those with the time and inclination to read through the announcements relating to the current AGM season.  While that may seem like a lot of hard work for little relative gain, it's worth remembering that the hunt for value is never easy and that the potential for an information advantage over less-savvy retail investors is nothing to be sneezed at.  The recent announcement relating to Gale Pacific's Chairman and CEO addresses at their AGM serves as a case in point.  


"...over recent months, the Board has received approaches from a number of parties who have expressed interest in entering into discussions with Gale in respect of its strategic options.


Accordingly, Gale is undertaking a shareholder value realisation review in order to evaluate strategies to maximise shareholder value. In order to assist in this process, the Board has appointed the Investment Banking Division of Investec as its financial adviser."


Granted, there have been countless occasions where such statements amounted to nothing.  But the possibility that other parties may be sniffing to buy Gale out (pure speculation on my part) may warrant further investigation.  On the other hand, it may be possible that Gale is considering an acquisition, which would be distinctly less appealing, although the statement did say "value realisation" as opposed to "value destruction".  Of course, good intentions etc etc.


But going with the speculative train of thought and presuming that parties might be interested in buying Gale - at the current price, what would they be getting? 


Gale appears to be another company making a good fist of its turnaround.  Having lost $12m in 2009, the restructured business (less its loss-making European division and an impairment writedown) turned a $6m profit in 2010.  Of more interest however are the FCF figures - conservatively, GAP seems capable of throwing off at least $10m a year.  At its market cap yesterday of $61.5m, a cash flow yield of 16%+ seems remarkably cheap.  Small wonder there may be parties interested in helping GAP with its strategic options to realise more value - for themselves perhaps. 


Disclosure: GAP (Long)  


p.s.  I will write about a stock I don't own at some point.  

Legend (LGD) - Profit Upgrade

Earlier today, Legend announced an expected NPAT figure of c.$3.8m for the half year to December 2010, an increase of 19% on the corresponding period last year. 

At a market cap of $57m, Legend trades at a forward PE of 15x on the half year result; on a full year basis, it may be good value. 

Disclosure: LGD (Long)

Paperlinx - Waiting for the turnaround

"Our results for the year reflect the significant impact of negative movements in key external factors".  


Words to this effect were just as applicable to Paperlinx in 2009 and 2010, as they were when the comments were originally made in reference to the 2006 results.  In that particular year, Paperlinx saw its NPAT drop to $65m from $90m the year prior.  In the annual report, board and management commented on global factors beyond their control and the imminent restructuring they would undertake to enable the company to better weather future storms.  However, fast forward a few years later, and global factors again played their part as Paperlinx lost nearly $800m in 2009 and then backed it up with a $225m loss in 2010.  


From its 2006 high of $4.40, PPX was yesterday (2 Nov 10) trading at 44c.  Now may be the time for Paperlinx to turn things around.  They've divested the paper manufacturing business, reduced debt by $1.2b since December 2008 (for perspective, current market cap is $265m) and look in much better shape to take advantage of any rebound in paper demand.  


Comments from the Chairman at the recent AGM - "Our September 2010 quarter results are at the levels we expected and our operating earnings and earnings after tax are both meaningfully ahead of the depressed results for the corresponding period last year.” (emphasis added)  These comments can be corroborated with Q3 results from US paper companies and associated overseas commentary that both pricing and volumes have improved in North America and Europe. 


Post the commentary above, the market appears to be slow in reacting to any potential turnaround. Currency risk is a factor - Paperlinx derives most of its revenues from overseas c.70% Europe, 20% US and 10% Aus/NZ.  


Further investigation into the industry structure is also warranted to get a sense of Paperlinx's position in the paper value chain. It may be that integrated manufacturers/merchants will erode Paperlinx's distributor role over time.  Although for paper manufacturers without a merchant arm, Paperlinx (and other distributors) will be their route to market, suggesting that a tenable long-term position exists.  These are longer-term considerations; in the short term, the immediate analysis suggests that a positive half yearly report may be on the cards, at which point the Australian market may take more notice than it has done to date about a prospective turnaround in the paper industry and PPX's operating performance. 


PPX currently trades at a price-to-book ratio of 0.5, and a price-to-sales ratio of 0.05 (12m trailing).  Looking forward (and referring to historic merchanting performance), a return to more "normal" demand may suggest a normalised earnings range of between $30-50m pa.  Applying a conservative PE multiple of 10x, suggests a valuation in the range of $300-500m.  At yesterday's market cap of $265m, my analysis suggests that PPX may be relatively undervalued. 


Taking note of a few names on the register, Maple-Brown Abbott is the top shareholder with over 12%, who seemingly haven't done much with the holding since 2006 when they held a similar percentage.  Orbis Investment Management (12%) are also on the list and seem to have a habit of cropping up on substantial shareholder notices when securities appear to be trading at low valuations. 


Disclosure: PPX (Long)


About Paperlinx (from finance.google.com)
Paperlinx (ASX:PPX) "is engaged in distributing paper, sign and display, graphics solutions and industrial packaging. Its customers are located in Australia, New Zealand, Asia, Europe and North America. It is a global merchant of paper and communication materials. The Company merchants and distributes products across 26 countries of around three million tons of paper per annually. Its European network of merchants across 17 countries provides over two million tons of paper products to its 80,000 customers. The customer base consists of printers, publishers, sign makers and advertisers. It also serves resellers, retailers, offices and businesses with paper and packaging material. During the fiscal year ended June 2010 (fiscal 2010, it closed the Tasmanian mills and sold its Australian manufacturing business, Australian Paper, to Nippon Paper Group, which included the Wesley Vale Mill and Burnie Mill in Tasmania."