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.
- 1 Should Apple buy Greece?
- 2 Michael Douglas regrets 'embarrassing' Catherine Zeta-Jones with oral sex comments
- 3 Drummer Lee Rigby's family reject 'extremist' groups using Woolwich murder for political gain
- 4 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Extend Right To Buy to tenants of private landlords, Labour's Jeremy Corbyn says
David Cameron struck double blow in his hopes to win Britain a new EU deal
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
iJobs Money & Business
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...
Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.