Fair prospects at Ambrian
Golden Prospect is not what it was. It began life as an investment company taking stakes in promising 'junior' mining ventures.
It was quite successful, but it was rated, like an investment trust, at a discount to the value of its assets. Then, three years ago, it bought Ambrian Partners, a fledgling stockbroker run by an American, Tom Gaffney.
He set about turning it into a group with its own pool of earnings, from broking, trading and advice on mergers and fundraisings. Most of the exploration stakes were sold to mining minnow Palladex in return for a 39.8% share stake.
Golden Prospect was renamed Ambrian Capital and began building up its investment banking operations. It has also grown its profits, by 34% to £12.4m pretax in the year to March. The shares, which were sluggish for a long time, closed at 65¼p on Friday, valuing the group at £71m.
The reshaped group has four operations. Ambrian Partners, the broking business, advises 35 companies, including five it floated last year. The commodities arm is the smallest member of the London Metals Exchange, but has strengthened its team and expanded from trading in copper to precious metals, coffee, sugar and carbon credits.
Ambrian Asset Management launched a Guernsey-based precious metals fund last year. One of its next projects is an imaginative energy fund. Gaffney hopes this division's fund management fees will be a new source of profits. The fourth arm is private equity, grooming companies for flotation.
Old Golden Prospect investors may be struggling to keep up with the changes - even Palladex is now changing its name to Minerva Resources. But the result is that GP shares, tipped here two years ago at 49p, have shown a one third gain. The group has effectively reinvented itself - though traces of the past remain. It launched the Golden Prospect Precious Metals Fund in November and Ambrian still has a 9.4% stake in Jubilee Platinum in South Africa, which is currently worth £9.6m.
What now for Ambrian shares? The group will report first-half profits in September. They will be confusing, as it moves from UK GAAP accounting to the new International Financial Reporting Standards (IFRS).
These require capital gains to be reported as earnings. So if Ambrian's Jubilee stake has risen (and so far this year it is up some £3.5m), the rise will go into profits. If it then falls in the second half of the year, this will count as a loss.
That may tell you more about accounting standards than it does about underlying profits, but hopefully Gaffney will be able to distinguish between one-off gains and recurrent earnings. Either way, the full-year 2007 should see a worthwhile rise on last year's earnings per share of 8p. If the underlying figure is 10p, that will put Ambrian on a very modest rating of 6.5 times earnings.
It paid its first dividend of 1.25p two years ago, moving up to 1.75p in 2006. That puts the shares on a modest 2.7% yield. But if the growth strategy succeeds, dividends should grow.
The summer shake-out has hit smaller mining stocks and may slow the stockbroking and asset management side. Ambrian has spread its risks by moving into new areas, some of which, like alternative energy and carbon trading, are likely to show rapid growth.
This is not the time to be putting your entire nest egg into shares like Ambrian; set a stop loss at 55p. But Gaffney has a good chance of building a valuable business.
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