‘The Board of Directors of PowerFilm approved the share repurchase based on the view of the management of the Company that the shares of the Company are undervalued.’A move that was accretive to NAV per share. In fact, since I contacted the company asking (amongst other things) about share buybacks, they've restarted them:
PowerFilm, Inc. acquired 245,000 common shares in the Company at an average share price of US$.09 per share. Following this acquisition, these shares are being held in Treasury. The PowerFilm, Inc. Board of Directors approved the share repurchase based on the view of the management of the Company that the current trading prices of the shares of the Company (on the LSE AIM) were substantially below the inherent value of such shares.The amounts spent are small but to be fair to the company I can confirm, from experience, that buying stock in any significant quantity for this company is pretty hard. It's more the shareholder value orientation message I value.
Ok. So we bought a stock without a clue as to its future and got lucky. That’s one way of looking at it. But we prefer another. When you buy with a big enough margin of safety, you don’t need to predict the future.
"As shareholders are aware, we run a business with a very simple business model. We collect fees from our clients for our services, we pay our bills which are both forecastable and to a great extent fixed. We don't use leverage, nor off-balance sheet instruments, nor do we trade derivatives as principal (other than occasional low level hedging). There are no associated companies or minority interests within the Group. We do not use tax havens. We do not handle client monies. We have a significant amount of cash in the bank relative to our size and we basically stick to what we know.
With regard to remuneration we continue to distribute 30% of our profits as profit-share. Our staff, clients and shareholders understand this formulaic approach. It's a pity that this approach has not been embraced by the financial service industry generally. As it is, in many parts of the financial services industry it seems as if losses are not the responsibility of mangers rather it's the shareholders who take the rap. Whilst our formulaic approach seems out of keeping with many in our industry, at least our shareholders have an idea that our returns go up and down together with theirs
We have continued to manage our business very conservatively. We have continued to attempt to keep costs down. We do not spend shareholders' funds entertaining and we generally attempt to manage our business as if shareholders were present in our offices every day of the week. One reason I would suggest that expenses are kept down is because staff are either shareholders themselves or own shares via the CLIG ESOP. At present staff own (including ESOP ownership) 27.9% of CLIG shares, and 75 out of 82 of us are incentivised in this way (a handful of more recent recruits do not yet hold options).”
5.2 Clearly, it is entirely legitimate for one party to a contract to seek to ensure that the other party complies with the terms of that contract. However, the model of the tied public house has been part of the British pub industry since at least the 18th century and for the majority of that time modern flow monitoring equipment has not been available. It is therefore clearly possible to operate a tied estate and to enforce the tie without the use of flow monitoring equipment.
Whilst pubs may have operated successfully before the advent of beer line cooling, electronic point of sale and electric lights were invented, nobody is suggesting they should go back to warm beer, paper book-keeping and the use of gas lanterns and candles.
BRK’s UK business was fully integrated into Sprue over the last 3 years, with all itsA lot has changed since 2009 and Sprue have since developed their own line of products to obsolete the brands they inherited from BRK. Again from the defense document:
• staff transferred to Sprue
• customer contracts novated to Sprue
• IT systems upgraded onto Sprue’s IT platform
• warehouse and office facilities integrated into Sprue’s organisation
Due to changes in market demand, Sprue has already replaced a number of BRK’s products with Sprue’s own products and technologyMy view is that Jarden have realised that they are now in a weak bargaining position with Sprue given the DA is up for re-negotiation in 2015 and are trying to buy the company (and their superior products) at an opportunistic moment. It's especially interesting because the DA's terms masks the underlying true earnings power of the business as it stands:
• With new potential third party sourcing arrangements and market demand moving towards more sophisticated technology, the Independent Directors estimate that between 2012 and 2015, sales of BRK’s products are expected to substantially decline as a proportion of Sprue’s total revenue
• Save for a relatively low amount of sales through Mapa in France, Sprue is not contractually obliged to sell BRK’s brands anywhere in Europe
• Sprue is free to replace existing BRK products with its own products at any time
• Under the terms of the Distribution Agreement, Sprue pays BRK c.£4.2 million p.a. before other costsThe implication of this is that, if FY13 forecasts of £5.3m of PBT are made this year then the "Sprue Enterprise" as a whole will actually make £9.5m of PBT, except Jarden currently capture a fixed £4.2m of this through the fixed distribution fee (as well as creating other unnecessary servicing costs for Sprue). This highlights the impressive moat and pricing power that the business has given this implies that the real operating margins of the enterprise are above 20%. Given the obsolescence of the under-invested BRK brands and the expiration of the DA in 2015 this creates a near-term opportunity for Sprue shareholders to recapture some more of the earnings power of the enterprise as a whole. In the very long run, Sprue could even eat BRK's own lunch back in the North American market where BRK are already losing market share to competitors (A tasty line from the defense document: "CO sensor approval process underway in huge North American market" - clearly I'm not the only one anticipating this potential move!).
• As sales of BRK’s products are expected to decline, the distribution fee may not represent “value for money”
• Within 12 months we have the opportunity to serve notice not to renew the Distribution Agreement
• We have almost two years to replace BRK branded products with other brands and products
• Sprue has plenty of time to source its smoke products away from BRK to an alternative supplier at potentially lower cost
The Group is currently involved in negotiations with a major customer to continue the next phase of a significant Framework Agreement for its condition monitoring technology. The timing of the prospective contract extension indicates that potential major orders for the Group are expected in late 2013 or early 2014, assuming successful renewal. A further update will be provided in due course.So it sounds like profits might be subdued somewhat until these orders arrive. I'm happy to hold here in the mean time, although I'll need to re-evaluate when the full results come in. I still think Tracsis has great long-term growth opportunities and the fact that they entered the rail freight market has gone largely unnoticed by the market. When I spoke to the CEO at an investor presentation he confirmed that they were pursuing the (much, much larger) American freight market and Tracsis still seem to be the only company dominating their market niche of crew scheduling software. I'll pay up for companies (within reason) where I can see a) very strong long term growth tailwinds in their market niches b) an excellent record of capital allocation and c) owner-operator management with an eye on the long term. Currently only JDG and TRCS fill this 'GARP' niche in my portfolio (although I'd argue ALLG should be considered a long-term GARP share, even if it's more deep value at the moment!) mainly because I find it hard to find many companies who tick all the boxes, especially box b).