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There can be no doubt that AIM listed Minoan Group (LSE:MIN) was one of my worst tips for my 12 years at t1ps.com. 241 tips over 12 years delivered an average gain of 42.7% but some tips were not that good and Minoan was in that category. For that I can but apologise. But following a trading statement yesterday and a long chat with the company I would suggest that now is a good time to average down – the market capitalisation is £11.3 million. So why is now a good time to buy?
Let’s start with that trading statement. It covers the two core businesses in detail plus a new start up third leg. And it covers the year to 31st October – full year numbers will be out in March. I start with the travel and leisure business – a niche tour operator. Minoan says:
Travel posted a robust performance with revenues in excess of £37 million and operating profits of circa. £400,000 for the year. This is after costs of integrating the businesses acquired as a result of the Group’s buy-and-build strategy and building the technical platform to handle further expansion. The good performance from the travel business helped to reduce losses at the Group level, which are expected to be lower than in the previous period despite the continuing costs of developing the Crete project, central costs and the share based payments charge.
As previously indicated, cash flows within the travel industry as a whole are under pressure. In particular, the Group’s cash balances have been affected by less advantageous terms from major suppliers, the requirements of merchant card acquiring arrangements and the application of the Civil Aviation Authority’s new ATOL regulations (Flight Plus) but, notwithstanding, remain healthy.
Trading since the financial year end has been very positive with commission up in excess of 20% across the travel business as a whole compared with the same period last year. The full year figures for 2013 are expected to show a substantial improvement compared to those for 2012.
I have noted before (see here) that this year T&L could chip in £700,000. The unit is run by a capable proven team. Chatting with the company it does seem that the entire industry is having a good time. I do not understand why this should be given the chill macro climate but it is happening across the board. This year the unit will chip in a profit of at least £750,000.
The start up computerised travel booking kiosks for Post Offices has now rolled out 50 units. Since they have been in place for only a couple of weeks it is hard to judge what their impact will be. I have suggested before that they could generate an operating profit each of £6,000 per annum when bedded in. But they could flop. We will learn more in March.
Finally there is Cave Sidero, the Cretan luxury resort where Minoan has struggled to get planning permission finalised for eons. But tectonic plates are shifting in Greece (out of necessity). The company says:
The announcement last September that Minoan’s planning application for its Crete Project has been granted Fast Track status by the Greek Government was officially registered in the Government Gazette in December, which finally confirms it in law. Currently we are completing the necessary Environmental Assessment to secure what would be the equivalent in the UK of outline planning permission for the development. Minoan’s experienced team are finalising this assessment, which we hope to submit in the near future.
Over the past year the Greek Government has been undertaking a comprehensive review and reform of its tourism investment regime and its planning procedures, with the aim of liberalising the overall framework to actively encourage such investment in Greece. A number of new planning and tourism laws are currently being debated, which we believe should have a beneficial effect on the Crete project, if implemented.
The project has benefited from the measures already passed in law with the award of Fast Track status and on the planning process it has gained from the greater clarity and certainty offered to developers by the new regime.
So maybe we will get the green light by midyear. A reminder of the maths here. Monaco based Candia Investment Corporation has already taken a 10% stake in Cave Sidero for £2 million (so meaning that Minoan has no cash concerns). Once Fast Track is approved it can, and I believe will, take a further 25% stake for £12.5 million. So right now Minoan’s 90% stake is valued at £18 million. When Candia goes ahead it will have £12.5 million in the kitty and a 67.5% stake valued at £33.75 million.
So why does this make Minoan a buy now? Well T&L is clearly delivering. On a multiple of even 10 it is worth £7 million. Given its rate of growth it could easily deliver £1m+ profits next year and would then be worth what?
Cave Sidero you can see the maths on.
The Post Office kiosk business I value at nothing pro tem. But you see its potential.
I concede Minoan’s management has not delivered historically. Its habit of issuing shares far too often has lost the company friends. But it is now generating almost enough cash to cover its PLC costs and if/when it gets Fast Track approval then it will be sitting on net cash in excess of the current market cap.
It requires a leap of faith but Minoan is a buy.
Tom Winnifrith writes for 10 UK and US websites. Links to all of his writings as well as a stack of exclusive content can be found at www.TomWinnifrith.com and you can follow Tom on twitter @tomwinnifrith
But what about the 45 day fast track process of which progress we hear little of?