What’s Next After Addvalue Technologies’ 149% Increase Today?

Addvalue Technologies (SGX: A31) sky-rocketed by 149% from S$0.063 to S$0.157 today.

The big jump occurred due to the company’s full sale of its wholly-owned subsidiary, Addvalue Communications (AVC), to 天成恒盛 (北京)科技有限公司 (an unrelated third party buyer – its name can be translated phonetically as “Tian Cheng Hang Sheng (Bei Jing) Ke Ji You Xian Gong Xi”) for S$330 million in cash; that’s a huge sum of money for Addvalue Technologies, given that its market capitalization as of yesterday was only S$74.4 million.

Addvalue Technologies was listed in 2000 and is a provider of digital, wireless, and broadband communications technology products such as satellite-based communication terminals. The company’s customers include major players in the satellite communication industry such as SingTel, Astrium, Satlink, and Globe Wireless.

Details of the offer

According to Addvalue Technologies’ announcement, the buyer’s business activities “relate to data security and related product development.” In addition, there’re no links that the buyer has with Addvalue Technologies “to the best of the knowledge of the Board.”

In any case, the buyer’s offer price represents a hefty premium to the net asset value (NAV) and net tangible asset value (NTAV) of AVC of about 1,883% and 27,419%, respectively. For Addvalue Technologies, the main reason for the sale’s to help unlock the value of AVC after the company had painstakingly established the subsidiary as a competent technology provider in the digital broadband communications space.

If the transaction goes through smoothly, Addvalue Technologies’ management might be considering paying out a special dividend to share the spoils with its shareholders.

The sale (which is still subjected to shareholder approval) would see Addvalue Technologies bring in net proceeds of some S$0.286 per share after deduction of S$15 million in related-expenses.

Financial impacts after disposal

Based on the number of issued shares as of 31 March 2013, the deal will result in Addvalue Technologies’ NTA per share increasing from US$0.0004 to US$0.203. Meanwhile, the company’s bottom-line would be improved from a loss of US$0.0001 per share to a profit of US$0.1991 per share.

Foolish Bottom-line

Apart from the proposed disposal which – if successful – would inflate the asset value of the firm, it is important to delve in deeper into the underlying fundamentals of the company for potential investors.

Addvalue Technologies’ business performance for the nine months ended 31 Dec 2013 was a stark improvement compared to a year ago with revenue jumping 64% year-on-year to US$10.4 million while profits stood at US$515,000, a big jump from the loss of US$352,000 previously. However, AVC’s a “key subsidiary” of Addvalue Technologies and accounted for some 38.9% of the company’s pre-tax profits. As such, investors looking for a long-term holding in Addvalue Technologies must have confidence in the company’s ability to sustain its turnaround even after the sale of its subsidiary.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.