Thursday, 4 February 2010

Fare thee well, Health Fitness

It has been a lucky month. One holding, Health Fitness, acquired by a third party; another, Overhill Farms, proving today (or so it appears) that sound cash management counts for something after all; no major portfolio blowups; and a handy performance in the last 10 days of January to beat the SPX.

Best of all, a bullet was dodged by avoiding Art Technology Group (mentioned here before as a potential holding). Hitherto a promising outfit for admirers of cash generation, management have decided - to my profound disappointment - to dilute shareholders by circa 20% with a massive cash call.

Clearly they are bent on buying something. But it is hard not to wonder about the cost of $240m odd of equity capital. The new bill for it all will settle around $10m-$12m annually (or between 30% and 40% of free cash flow). Course, you have to accept that equity actually has a cost in order to assign any weight to those numbers.

But there are other fish in the sea. Final decisions on the proceeds of the Health Fitness win to come post-Rasteau (the 'Excellent Value' tip of the moment and permit me to suggest Chapoutier's product).


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