Smartlink, which recently sold it’s Digilink unit to Schneider for Rs. 503 cr, declares a dividend of Rs. 32 per share in their board meeting today. I’ve refered to the stock earlier as one that’s interesting because it has 2x more cash than its market cap.
See full post: SmartLink: Cash 2x of MarketCap (Live)
From the BSE:
Smartlink Network Systems Ltd has informed BSE that the Board of Directors of the Company at its meeting held on May 23, 2011, inter alia, has recommended a Dividend of Rs. 2/- per equity share of face value of Rs. 2/- each (i.e. 100%) for the financial year 2010-11.
The Board of Director has also Declared a Special Interim Dividend of Rs. 30/- per equity share of face value of Rs. 2/- each (i.e. 1500%).
This is hugely interesting because the price of the share is Rs. 84 today. The price might shoot up by Rs. 32 tomorrow to 116, but let’s wait and see.
Stock Falls 12%
Interestingly, the stock fell 12% today. I wasn’t sure in the morning if it was a head fake. (that is, some people feed the wrong information by taking down the price big time, but in reality, it turns out like great news)
I’m kicking myself for not buying. But this is not going to stop here; it will go much much higher, I think.
And it seems one company – Asian Markets Securities Pvt. Ltd. – sold 195,000 shares on the BSE (and anoteher 190,000 shares on the NSE for around Rs. 86.
Selling nearly 400K shares at 86 is about 3.4 crores; the volumes in SmartLink were around 22 cr. (BSE+NSE). Of this the delivery volumes in Smartlink were 4 cr. on the NSE and 3.2 cr. on the BSE. That means this transaction was 15% of the total turnover, and more than 50% of the delivery turnover on the exchange. Obviously the stock will fall. I guess the seller may not be very happy on hearing this news.
Is it still interesting?
The stock’s at 84. Assume it doesn’t move at all. Then you get Rs. 32 as dividend, and the stock will fall to Rs. 52. With 3 cr. shares outstanding, that puts the company’s market cap at Rs. 156 cr.
Of the 503 cr. cash received, they’ll pay out about 20% in taxes – about 100 cr. With the 95 cr. or so that they have in the bank they’ll still have about 500 cr. in the books. They’ll pay out 90 cr. as dividend, and another 15 cr. as dividend taxes, so they’ll still be left with about 395 cr.
Then look at their current businesses. According to the results, the company has two sets of operations – the “discontinuing” operations (whatever’s been sold) and the “continuing” operations. They need to bifurcate results on release. The current release says that for FY2011, the continuing operations had
Revenues: 20.11 cr. (up from 18.05 cr. in FY10)
Loss: (4.94 cr.) versus (9.26 cr.) in FY10.
So they have lower losses and higher revenues. That is good and the cash they have can help turn the business into a profitable one.
Even if they did nothing with the cash they are likely to earn about 7% post-tax yield, which is at least 26 cr. – if they make another 5 cr. in losses, they’ll still have 21 cr. in profits. That’s Rs. 7 in EPS, for which, remember, the stock’s at Rs. 52 and the cash is still with the company. This is if nothing changes.
What if the stock goes up to 116?
Then it’ll fall to Rs. 84 post dividend (Jun 1). That’s a market cap of Rs. 250 cr. for a company that has 395 cr. in the bank. With the only risk of promoter siphoning out money (which I don’t think is happening in this case at the moment), this is still a screaming buy.
And you won’t get any competition from mutual funds or FIIs. They have no enthu for stocks that have only 250 cr. in market cap. For them buying even 10 cr. worth of shares will move the stock price tremendously, so they won’t even bother. But you and I, we don’t have 10 cr. to move this market. We can buy a few thousands to a few lakhs worth, and we’ll exhaust the 10% of our portfolio that we allocate to any one stock. When the funds and FIIs find out about this stock, it’ll be time to book profits.
Disclosure
Long the stock. I’m biased. Please help me by telling me why I’m being stupid.
