Investors chronicle article on SPARK
AIM: TECHNOLOGY INVESTMENT COMPANY
NEW MEDIA SPARK (NMS: 12.25P)
New Media Spark plc (NMS) made it into my 2003 Bargain portfolio and, although the shares have since risen a respectable 40 per cent in the past 3 years, I still believe there is significant untapped potential in the company's portfolio of technology investments.
Firstly, we are still able to buy NMS's shares below the last reported net asset value of 14p a share as of 30 September 2005. And this probably understates the true value of the investment book. For example, six weeks ago, NMS sold its stake in Footfall, a company that provides analysis of pedestrian traffic at retail outlets, for £5m – a 31 per cent premium to its March 2005 book value and 150 per cent premium to the original cost of the investment when it was made in 200. NMS's investment in Mergermarket, a mergers and acquisition intelligence software tool used by financial institutions, is looking shrewd, too. In the first 10 months of Mergermarket's current financial year, revenues are up 80 per cent, year on year, subscription revenues have risen 95 per cent and, given the operational gearing of the business, operating profits have more than trebled. Using the British Venture Capital Association's earnings-based valuation, NMS's stake in Mergermarket rose from £8m in March 2005 to £13m in September 2005.
NMS's portfolio also includes an investment in music publisher Kobalt, which increased in value from £2.2m to £2.9m in the six months to end September 2005, a 68 per cent stake worth £10.1m in semiconductor company Aspex, and a 47 per cent stake valued at £3.1m in IMI, a provider of content management and data services to India's largest mobile operators.
Another reason to be positive on NMS is the company's £24.9m cash pile, part of which is being used for share buy-backs. Of the issued share capital of 472m shares, almost 35m shares are now held in Treasury. Interestingly, the directors have recently stated that they will be 'pursuing a more aggressive buy-back policy'. This will not only enhance net asset value but, combined with the board's view that 'there will be more exits (of investments) above book value over the next 12 months' then we can realistically expect NMS's share price to continue to rise, as and when these exits are made. In the six months to end September 2005, the underlying value of the current portfolio rose by more than 15 per cent.
Given the chunky cash backing, the discount to what is probably a conservative net asset value, the likelihood of further profitable disposals above book value, and underpinned by an aggressive share buy-back programme, the shares still look undervalued.