Based on back of envelop calculation, it will take a payback period of approximately 2.5 years for key management shareholders to fund a MBO at an estimated price of 60 cents. This takes into account of current shareholding (c 26%), latest net cash of sgd115m and trailing FCF. Current net cash makes up 68% of market capitalisation.
Valuetronics has been churning out massive FCF for past 4 quarters, totalling hkd 229 million, and latest cash reserves have reached hkd 640 million.
Management, to its credit, has done well in transforming its business model and this has attracted the attention of analysts. Estimated buyout price at 60 cents, upside of 40% from current price, is based on consensus target price set by analysts.
TTF HOLDINGS
Proposed annual dividend of 8 cents (yielding > 20%) is an eye opener. On closer examination, the FCF generated by TTJ were massive, totalling sgd74 million over past 3 financial years. Current net cash accounts for 64% of market capitalisation. Trailing FCF made up about 8.6 cents per share.
Based on current major shareholder stake of 84% and a target price of 40 cents (post dividend of 8 cents), the payback period to fund MBO will take approximately 9 months to recoup.
Both these small caps have solid business model, cash generative business, strong balance sheet and progressive/stable management teams. In the current soft market conditions and given the alluring short payback period, this is a golden window of opportunity for key shareholders to initiate MBO.
I switched out of TTJ (problems with Solar customer) and moved to Best World about 2 months back. Glad I made the move as Best World has come up very well.
Still holding to Valuetronics. Hopefully a special dividend in the coming annual results.
NextInsight
a hub for serious investors
