Volvere (LSE: VLE) is Latin for “to turn about,” so it is fitting that this human-capital turnaround specialist makes this trio of turnaround speciailust. The company is run and owned by brothers Jonathan and Nicholas Lander, the CEO and CFO/COO respectively. Combined, the brothers own 39% of the company.
The brothers have spent their lives working in people-driven sectors like Law. These sectors often get a bad rap from investors because any competitive advantage is tied to the members of staff, who can easily defect to a rival, become demotivated, or retire.
The Landers love these businesses precisely because everyone else hates them. Typically, Volvere is approached by banks or the management teams of struggling businesses, placing it in a strong negotiating position.
The sheer number of businesses on offer allows management to be choosy, typically only indulging in one or two deals a year. By buying distressed businesses and fixing them up, the company has compounded book value at 14.4% p.a since 2002 for a total increase of 513%.
How? The process goes a little like this. The Landers identify a single-digit P/E company, which is often penniless or nearly so, pays down debts, injects cash, incentivises staff, then hopefully reaps the rewards of a successful turnaround.
Right now, Volvere is valued pretty much at book value, which means the market is placing no value on the Landers’ proven ability to create shareholder value. This looks too cheap to me, so the shares could be worth a second look.
Judges Scientific
Like Volvere, Judges Scientific (LSE: JDG) makes its living acquiring whole businesses. Unlike Volvere, the company invests for the very long term, aiming to grow assets organically after acquisition.
As the name implies, the company specialises in scientific testing and measurement equipment and is very choosy in acquiring the very best firms in this category. Since 2003, it has transformed from a £4m investment vehicle to a £111.5m business.
The company has struggled in recent years due to low levels of governmental research spend and lumpy orders, but I believe now could be a good time to invest. The company managed to acquire three companies last year, for mid single-digit P/Es. As long as these companies continue to perform adequately, that’s a bargain price. If they excel, Judges may look very underpriced in hindsight.
Deep value vs debt
Gulf Marine Services (LSE: GMS) operates a fleet of “self-propelled, self-elevating accommodation jackup barges,” which are essentially offshore oil maintenance ships with on-board accommodation quarters that allow a team to live and work on a rig easily.
With customers like Shell, Total and Saudi Aramco, clearly Gulf Marine Services is doing something right. The maintenance and engineering services provided by GMS are necessary come rain or shine, so a certain amount of business is guaranteed, but the combination of the oil price crash and a reduction in capex by oil majors has hurt it.
The shares have fallen nearly 50% since January 2015 as aggressive expansion plan suddenly became underfunded. Debt has ballooned to near-crisis levels.
While the company’s fleet expansion was costly, the ships are highly profitable once operational. The company makes 50% operating margins, indicating cashflow could increase drastically, maybe even double, once this flurry of investment ceases.
I believe the company could easily re-rate 20%-30% higher if business continues to be smooth.
