No pain, no gain: Hollywood player could be a star in the making

Showbiz has proved a notoriously difficult area for many small investors. Cash has far too frequently been absorbed with little, if any, reward for those enduring the financial strain. But it would appear that attitudes have changed – at least at the cinema. The film business is now much more cost conscious than in bygone days and with more outlets it is reaping rewards that old-style Hollywood moguls would never have envisaged.

It would be foolish to pretend that film production is no longer a tricky undertaking. But with overheads more strictly controlled – and fiendishly clever financing cushioning exposure – much of the risk has been removed. And cinemas are now only part of the distribution circuit with the proliferation of TV channels, plus the growth of the DVD industry, adding extra sales dimensions.

Seven Arts Pictures is one of the smaller players in this superficially glamorous world. Its shares are traded on Plus at 25.5p, capitalising the producer and distributor at around £6.2m. In the year ended in March, SAP made pre-tax profits of £1.5m. For the current 12 months more than £2m seems likely.

Unlike many more famous names the group does not splash out eye-watering amounts on the films it makes. Around £3m (after tax-breaks) seems to be a typical budget. Yet with tight controls the movies it produces can be profitable fairly quickly and if they should flop at the cinema there is the DVD world and mushrooming TV channels to help the income stream.

SAP also believes in sharing risk. Much of the cash for its productions is provided by third party investors; some in the industry (like distributors) or more remote players including hedge funds and institutions. And, of course, tax shelters (Hungary currently offers the best concessions in Europe) are an important element in any financing exercise.

The group likes to make between two and four films a year; it also distributes output from rival makers, collecting a commission on sales.

Whereas years ago old pictures were discarded – many black and white classics have been lost – nowadays film libraries, providing a flow of films for TV and other outlets, are an increasingly lucrative part of the industry. SAP has a collection of more than 30 pictures and is looking to develop a library of at least 75 in the next few years.

Chairman Peter Hoffman, an experienced Hollywood executive who is happy to leave much of the creativity involved to others while embracing the nuts and bolts of the industry, started the group 13 years ago. It arrived on the stock market in 2004, reversing into an AIM cash shell called Cabouchon. The AIM presence came to an abrupt end earlier this year when, for reasons largely outside its responsibility, it was forced to decamp to Plus.

But it seems underwhelmed by the Plus experience and hopes to return to AIM soon. A cash raising exercise as well as a placing of some 25 per cent of the capital will probably accompany the switch. A number of investors, including a hedge fund, have enjoyed their stay but are now looking to cash in. I understand that the placing is already arranged.

Hoffman and his family are major shareholders with a direct interest in 33 per cent of the capital and probably some influence over another 14 per cent or so. The family is also partly responsible for a £4.4m loan to the company. At 25.5p, the shares are selling at less than four times prospective earnings. Although some investors may regard film companies as unfashionable, such a rating, even allowing for the signalled placing, is exceedingly low. SQC Research reckons the shares should hit 50p within a year and observes: "These shares have been overlooked and offer significant upside".

SAP is worth keeping an eye on. A few months ago, I alighted, with some trepidation, on my first exploration share, an area I had avoided. But Nighthawk Energy is in the money and shows signs of becoming a valuable member of the No Pain, No Gain portfolio. Who knows? I could be tempted into another of my taboo industries and recruit SAP. Certainly the shares hold a fascinating appeal and after joining the oil and gas explorers there is a chance that the portfolio could go to the pictures.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Austen Lloyd: Law Costs HOD - Southampton

    £50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

    SThree: Recruitment Resourcer

    £20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn