One of my favourite small cap companies, Beyond International (ASX: BYI) has announced a joint venture with Seven Network, owned by Seven West Media (ASX: SWM). Beyond Productions will join forces with Seven to create new programs for the North American market.The JV will be called 7Beyond and is based in Los Angeles.
Seven currently produces more than 700 hours of content per year, and has consistently produced better ratings than the other free-to-air networks, the Nine Entertainment Company and Ten Network Holdings (ASX: TEN).
Beyond International currently has four business segments:
Mea Culpa: In the past, I have had concerns that the company’s foray into digital marketing represented a loss of focus on the most profitable activities. Not for the first time, I was overly pessimistic.
7Beyond is a combination of two TV production companies that excel in reality television (think Mythbusters, Selling Houses Australia, Border Patrol and My Kitchen Rules). The content will be co-produced, with profits shared, but it will be distributed in the US Beyond Distribution. Beyond has refocused on its core competencies, and I have made a fool of myself. One doesn't need a crystal ball to back experienced and honest management with a substantial stake in the company. This is one of the main criteria I look for, and I'm aghast at myself for being overly concerned with the Digital Media side project.
Beyond International has achieved an average ROI of well over 15% since 2005, and has never dropped below 10%. At $2 it trades at a PE of about 13. However, now that 7Beyond is in the works, it seems highly likely that profits will grow over the coming years. As well as a share of the profits of production, the additional content will strengthen Beyond Distribution, adding to revenues but also expanding the company's offerings to customers. This may well mean that content licensees pay more attention to the Beyond Distribution network.
Mikael Borglund and the team qualify as honest and competent management. Borglund has been selling shares on market recently, but he retains a major holding. In comparison, the chairman, Ian Ingram has continued to make large on-market purchases.
I wrote this article for the Motley Fool a few days ago when shares in Beyond were trading at about $1.80. I did so because they pay me, which I appreciate. Now shares are above $2. I believe that they still represent good value, although I generally don't think share purchases should be rushed. If you would like to be notified when I write an article for them that is relevant to a company you follow, please let me know.
I'm working on a new valuation of Beyond International shares, and will update this article immediately before I send the next newsletter. Suffice it to say (for now), I think history has shown that I was previously undervaluing this company.
The Author has no financial interest in Beyond International. Nothing on this website is advice, ever. This post is for entertainment (and for my own reference!)
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Hi Claude,
LinkFirst of all - just wanted to say it is refreshing reading about ethical investing (and it does appear to be the correct way of investing rather than chasing mining companies)
So I have a few questions if I may
- I am curious as to why Greencross Vets has not been included as an ethical investment - as a shareholder/customer of both Greencross Vets & Petbarn, I personally think they are a great company - they look after my dog well at least..
- I have purchased 1300 Smiles around the same time as your portfolio, but I am struggling to understand why their share price has decreased. For me, they seem to be paying sensible price for new acquisitions and it is an industry that is in demand with recurring revenue streams. The only I do not like is the money they spent on marketing - ie naming a stadium. I would have thought they would take that money and expand into other states.
- Now lastly to BYI, I have purchased BYI, and looking at a pretty big book loss (-20%) at the moment. Following their profit guidance, do you have any opinion on the future of the company? I have looked into BYI again, and the 7 partnership does not seem to take off and mythbusters cannot run forever (as can be seen with the downsizing)
Any thoughts are appreciated.
Thanks
Tony
Hi Tony, thanks for your comment. I can't give you any advice about what to do, but I can reflect on my own decisions.
LinkI made a mistake adding 1300 Smiles to the hypothetical portfolio at $6.50 My average entry price (real life portfolio) is lower than the price in the hypothetical ethical portfolio, but I'm not ready to concede defeat about the call, even at $6.50. For me, 1300 Smiles is one of the highest conviction picks I have, even though it is underperforming in the hypothetical ethical portfolio. In my own portfolio, I've done a bit better by following my own advice from the hidden report that was made available to subscribers prior to the most recent brief dip into the mid $5 - $6 range. Here's the link for now, but I'll delete it in a few days http://ethicalequities.com.au/2014/02/17/hidden1300smilesreport/
As for BYI, as I detail on this website, I sold my shares in Beyond because the CEO refused to admit the decision to purchase the failing digital business was a bad one - he valued it, I didn't. I'm generally not a fan of management that don't admit mistakes, though I believe Beyond management have decent integrity, which is the most important thing. Also, I might be wrong and maybe it isn't a big mistake, though I doubt it. At any rate, in the blog above I suggested readers let me know if they were interested in Beyond. Although I did have a little interest, I simply never got around to revaluing the company, as there always seemed to be another company with better prospects to study. It remains on my watchlist, and I respect the strong dividend they pay, but essentially I'm looking for some indication that management won't just spend cash on the next purchase. If I still had shares, I know there's a few questions I'd be asking the CEO. As a shareholder, I didn't feel right about the company overpaying the underperforming Beyond Digital employees nor about management's willingness to do so.
In any case, I've repeatedly overestimated the company, so it seems at least, though it nonetheless has its merits. Luckily, I've actually made money out of it, and if you ask me, it's a good example of how luck does play a role.
The info on this website gets dated pretty quickly, and many readers email me personally for updates on my views - you're welcome to do the same. I do my best to share my thoughts when I have something that may help ethical investors, or even non-ethical investors who are good people (as most visitors to my site tend to be).
I do think that Beyond management is very good at the core production business, but shareholders would be better off if they hadn't wasted money on acquisitions of businesses that fall outside their circle of competence. The production business was always going to be lumpy as (I think) I've said in the past. Either way, if management doesn't show a willingness to immediately rectify mistakes once identified, I tend not to remain invested.
To return to 1300 smiles, i respectfully disagree with y