After a tough six months, is there now fresh hope for Hornby (LSE: HRN) shareholders?
No worse than expected
The model toy and train company announced its annual results this morning, alongside details of an rescue share placing. Hornby will raise 8m at 27p per share. Thats an impressively small 15% discount to Tuesdays closing price of 32p.
However, Hornby warned the market this morning that the companys future may be in doubt if shareholders dont approve the placing. A new 10m lending facility thats needed to refinance Hornbys net debt of 7.2m wont be approved if the placing doesnt go ahead.
Last years results were no worse than expected. Revenue fell by 4% to 55.8m and the firm made an underlying pre-tax loss of 5.7m. Hornby suffered badly with IT and supply chain problems last year, which the firm says contributed to poor sales.
Under the guidance of new chief executive Steve Cooke, Hornby now plans to cut its product range by 40% and focus on core brands and markets. The firm also plans to make significant cost savings and deal with a sizeable overhang of unsold stock from last year.
In my view, big gains are possible but significant risks remain.
Lower costs for key oil project
Shares in North Sea oil and gas producer Ithaca Energy (LSE: IAE) edged higher on Wednesday, after the firm said that operating costs for its flagship Greater Stella Area (GSA) project would be lower than expected.
The expected savings are the result of Ithaca being given an opportunity to use a pipeline connection thats been relinquished by another operator. First production from the Stella field is expected in late September 2016. Exporting oil by pipeline rather than tanker will save cash when the pipeline connection is completed in 2017.
Ithaca shares have risen by 132% so far this year and are no longer an obvious bargain. In particular, Im concerned about the firms $630m net debt. However, Ithaca has some hedging in place through to mid-2017.
The firm also expects operating costs to fall to $20/boe when Stella production starts. This should allow the firm to start repaying its debt by the end of this year. In my opinion, Ithaca could deliver further gains for shareholders.
Woodford is backing this stock
Unlike Hornby and Ithaca, Game Digital (LSE: GMD) is already profitable. However, this hasnt stopped the groups share price from falling by 70% over the last year. A profit warning just before Christmas did most of the damage, but Game Digital isnt a basket case.
Game is now expected to report earnings of 9.7p per share for the year ending 25 July. This puts the stock on a forecast P/E of 8.2, with a prospective dividend yield of 6.4%.
The firms big strength is that it has plenty of cash. Net cash was reported as being 120m at the start of January. Although this probably represents a seasonal high, the groups ability to generate free cash flow is significant. Results for the first half of this year suggest that the dividend should be comfortably covered by free cash flow.
Neil Woodfords funds own a slice of Game Digital, and I can see why. If trading stabilises, this company has the potential to generate a generous stream of cash for shareholders.
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The company concerned has strong insider ownership and is growing steadily through selective acquisitions.
Recent financial performance has been very encouraging. The shares look cheap to me.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
