Stocks with backbone
4th February 2021 |
Just a few weeks ago I wrote an update for subscribers to my premium investment advisory, Revolutionary Tech Investor.
Here’s what I said,
Typically I don’t like it when a stock gets acquired. It usually means that investors get short-changed as a big conglomerate comes in over the top and offers what might appear to be a good deal but often is a bargain for them and an average deal (at best) for the individual shareholder.
We’ve seen a few takeovers and mergers in Revolutionary Tech Investor. One of the earliest ones being the Intel takeover of Mobileye, which banked a decent little win, but nowhere near the full potential of the company.
Well, it’s time for another takeover – this time, it again appears like a good deal, but I think it is really a bargain for the purchasing company, and a so-so deal for individual shareholders.
That takeover was the Teledyne Technologies takeover of FLIR System. I can tell you the stock because we’re now out of it. The point was it was another example of the best deal getting done for the buying company and big shareholders – not people like you.
In my experience, takeovers usually don’t really do much for individual shareholders. While it’s an inevitable part of business – it’s also highly frustrating when a company sells out.
However, sometimes you come across a company that has a backbone. A company that actually follows through when it says it acts in the best interests of shareholders.
That company looks exactly like Marston’s PLC (LSE:MARS).
On Monday the Marston’s board showed it is exactly the kind of management I wish all companies had.
It rejected the private equity bid to buy out the company.
The board said, “The proposal represents a 19% discount to the Company’s share price at the start of 2020, pre-COVID-19…”
The board goes on to note that since then it’s set up the huge joint venture with Carlsberg and also an agreement to operate 156 pubs within the SA Brain group in South and West Wales.
In short, Marston’s is more valuable now than where it was about a year ago. At the end of December 2019, Marston’s traded at just over 130 GBp. My take is it’s worth at least that much, if not more.
The private equity offer at 105 GBp wasn’t enough. There were also two other offers in December 2020 at 88 GBp and 95 GBp which were also both rejected.
I love that.
I love the board knows what it’s worth and is prepared to back itself in for it. I love it has outright rejected three offers now. Also, it might not receive another offer – that’s fine as well, because as we move into a post-Covid-19 world, I see there being blue sky ahead for Marston’s.
For now these offers have made the market take notice of the whole pub sector. And we’re seeing gains across all three of our pub stocks – Marston’s now at a 152% gain, Mitchells & Butlers at a 49% gain and City Pub Group at a 23% gain.
As I noted in the Mitchells & Butlers and City Pub Group recommendation,
I’m expecting consolidation within the pub industry, as smaller independents that have been pushed to the brink in 2020, will look to either exit the industry or fish for larger groups.
That also includes the existing bigger players in the sights of even bigger conglomerates or private equity. It’s a sector that’s starting to really gather momentum. As vaccines roll out, as the realisation we will be going back to the pub this year sets in, it’s a great time to have some quality pub stocks in your portfolio to see just how far they can run.
What I will add however is that considering Marston’s is trading at such a strong return already, it would be prudent to protect our backsides on this one. While it does appear this year will see us return to the pub once again, that doesn’t rule out the unpredictability of the virus and worse, the unpredictability of government.
Hence, I’m recommending you place a trailing stop on Marston’s set 50% below its current price.
That way if unpredictability and volatility sets in now, we’ll still come out on top.
Stock Focus
City Pub Group – on the subject of the pubs, City Pub Group released a trade update last week. In short, as bad as the last year has been (a 57% decline in revenues), the company is in a good position. Reduced cash burn, liquidity well into 2022 and ready to hit the ground running when the industry is open once again.
Frontier Developments – Frontier released Interim results yesterday for its first half-year 2021. Across the board the company improved on its year-on-year comparative period. That means compared to H1 2020, it has increased revenues, operating profit, operating margin, earnings per share and net cash. While there have been operational challenges, this is testament to the company, its staff and the opportunity the gaming industry presents.
Gfinity – Gfinity also released a trading update this week. If you’re keen to hear from the CEO on it all (I suggest you do) then head here to hear him talk about the company and the opportunity in front of them. The company was profitable in the last quarter of 2020, and like Frontier, it is part of a strong, growing opportunity in the gaming market.
MelodyVR – MelodyVR is going to send out some information to shareholders about changing its name to Napster Group PLC. I like it. It’s a throwback to another era, but I think it will give MelodyVR (Napster) a decent boost in the awareness of the company. This coincides with the launch of a Napster-based platform and a period which could be a real opportunity for growth for the company. In addition to this, the company recently renewed contracts as part of Napster’s business with SONOS, Panasonic and Telefonica Germany. This will add $16 million of revenues over the next two years.
The Frontier Tech Investor Top Three
Finally, something else new I’m implementing this year.
Sometimes I get feedback that it’s hard to decide on which stocks to invest in from our buy list. We currently have 23 stocks and one cryptocurrency in our buy list. That’s a lot to choose from.
We do have buy limits I recommend on our stocks. This should help you filter down what current open stocks to look at. This changes from week to week as some stocks trade over their buy limits and become a HOLD recommendation and some remain under or trade under their buy limits, which are then active BUY recommendations.
Of course, if at any time I think you should sell a position or take action, I’ll let you know. But we also get new subscribers to Frontier Tech Investor, and it can be tricky to see what’s best to buy if you’re really only looking to buy a small number of stocks.
That’s why we’re implementing a “Top Three” section that will be at the end of each weekly update. These are the three stocks in open BUY positions in our buy list that if you’re trying to figure out what to invest in next, are the three I think are a great place to start.
This doesn’t mean our other stocks are no good, it’s just a guide to help you out in your decision-making process. Also, it might change from week to week depending on the position of our companies, their trading price and new recommendations that might come in.
But for now here is our inaugural Frontier Tech Investor “Top Three” stocks.
MelodyVR – Melody VR is a part of the global music streaming industry. Primarily, its MelodyVR app is virtual reality (VR) music streaming. This includes live concerts. I call it the Spotify of VR. The potential is huge. And having recently acquired Napster, a good old throwback to yesteryear, looking to rename and grow their offering, I think there’s great potential in this still relatively unknown company.
Smart Space – it’s not the sexiest industry. But virtual and digital office management is something that will be crucial to our post-Covid world, where management and flow of people through offices and buildings will be a necessary part of how we live and exist day to day. Its platform is primed for when we all can go back to the office in a safe and healthy way.
Velocys – there’s no doubt that governments are going to continue to push their “green agenda”. This means doing what they can to support industry that will help enable carbon neutral economies. Velocys is a big part of this, developing sustainable fuels for transport and logistics (in particular aviation) with pioneering technology. If you’re looking for a great “green energy” play, Velocys is a great place to start.
Regards,
Sam Volkering
Editor, Frontier Tech Investor
