If you want to raise money in the City you can show all the business plans you like, but you may still be shown the exit.
Come to the negotiating table with a good track record behind you, however, and it’s far more likely that the financiers will pull out their cheque books before you have even opened your mouth.
There are plenty of smart people out there who can boast just such a track record; men who, having made good money for investors in the past, have now embarked upon new ventures.
I think of such men as Dana Petroleum (ticker: DNX) founder Kevin Burke – now at Deo Petroleum (ticker: DEO); Michael Jackson, who multiplied shareholders’ money at Computer Software Group and is now aiming to repeat the trick at Access Intelligence (ticker: ACC); and old Etonian Simon Beart, who made a great success of Revenue Assurance Services and is now at the helm of Managed Support Services (ticker: MSS).
- Shares in AIM-listed Faroe Petroleum (ticker: FPM) ‘gap up’ 20% to trade at a 2010 high of 165p after it announces an oil find in the Norwegian Sea. The shares are up 194% on the price 12 months ago.
- Faroe estimates gross recoverable volumes of oil in the range of 75 to 155 million barrels of oil with associated gas.
- The company is planning to drill three more exploration wells in the region ‘and will all be targeting substantial oil prospects.’
Another man who has walked the walk is Charles Skinner. He was responsible for the success of tool hire group Brandon Hire, which netted Red Hot Penny Shares readers a 93% gain back in 2007.
In an object lesson in the benefits of timing, Skinner sold Brandon Hire to Wolseley in the summer of 2007. He then had a dalliance with the disaster area otherwise known as Johnson Service Group (ticker: JSG), and is now chief executive of Mavinwood (ticker: MVW).
Why this businessman is a Red Hot investor’s best friend
Bright and self-confident, Skinner would be at home in the marble halls of the City or Whitehall, but instead has chosen to get his hands dirty in industry.
Skinner began the transformation of Mavinwood by shifting the office from smart St James Square to a cramped space behind Marble Arch. It was a move designed not only to save money, but also to make the troops sit up and take notice.
Having taken several other measures to rescue a business that ran up losses of £45m in the space of just two years, he is now enthusiastic about its prospects.
Eagle-eyed penny share watchers would have seen that both Skinner and Mavinwood’s chairman, Sir William Wells, bought over 3m shares in Mavinwood recently. While you may be tempted to join them, first hear a word of warning.
Claim your special FREE report: 10 simple rules for maximising your penny share profits
- Receive the stock market wisdom of a top-level penny share expert
- Your essential guide to playing the small caps market
Eighty-seven percent of the shares of this £8m company are owned by Geraldton, a vehicle of Conservative Party deputy chairman Michael Ashcroft. This arrangement has limited the trading liquidity of the shares. And note also that a forthcoming one-for-fifty share consolidation will turn today’s 0.6p share price to 30p, although that wouldn’t alter the value of a holding.
But back to the main business. Skinner enthuses about document handling and the opportunity presented by the explosion of data. Last year, the amount of data in the world doubled. And according to Hewlett Packard CEO Mark Hurd, “more data will be created in the next four years than in the history of the planet”.
How Mavinwood could profit from the data storage boom
So far, as it relates to the corporate sector, this data must be stored and indexed. It must also be readily retrievable and audit trails must be available for nosy regulators.
Mavinwood has two subsidiaries operating in this area. The first is called Restore. This business stores hard-copy documents in cardboard boxes in Surrey, Kent and Cornwall, as well as at a 70-acre former Portland stone quarry near Bath.
This great business reminds me of Vindon Healthcare (ticker: VDN), which stores pharmaceutical compounds for years in climate controlled conditions. Like Vindon, Mavinwood is paid just to put things in a place where they can be found, and to leave them there until the customer asks for them back. You cannot get a much simpler way of making money than that.
Mavinwood’s other subsidiary in this area is Peterborough-based Document Control Services. Its main function is the conversion of hard-copy documents into electronic data, a task undertaken either by typists in India or, preferably, through use of high-throughput optical scanners.
Although some of this business’s projects had to be deferred as a result of the recession, this is another area of robust demand. Allied to Restore, it means that Mavinwood is placed to help all organisations to cope with their growing volume of both paper and digital data.
On the basis of these and its one other subsidiary – the timber preservation specialist, Peter Cox – the broker Cenkos expects Mavinwood to make earnings per share of 0.2p this year, which would be more than enough to justify a higher a share price.
But I don’t expect the group to stand still. Skinner has proved himself to be an astute deal-maker, and the City will be expecting more of the same here. Mavinwood should look very different in a couple of years’ time. And I will be watching closely.
• This article was first published in Tom Bulford’s twice-weekly small-cap investment email
Claim your special FREE report: 10 simple rules for maximising your penny share profits