No pain, no gain: Hollywood player could be a star in the making
Saturday 03 November 2007
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.
Diving in at the deep end is no excuse for shirking the style stakes
- 2 Why I'm on the brink of burning my Israeli passport
- 4 War is war: Why I stand with Israel
- 5 Blackest is the new black: Scientists have developed a material so dark that you can't see it...
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
Emergency data law: David Cameron plots to bring back snoopers’ charter
NUT strike: David Cameron announces crackdown on strike action ahead of mass industrial action
iJobs Money & Business
£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...
£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square