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.
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