Shares in jewellery manufacturer may still have some sparkle

Early last month, I had decided to take a close look at upmarket jeweller Theo Fennell, shares then 10.5p. However, that was put on hold as the shares duly spiked up on the company’s revelation of a possible bid approach from private equity group EME Capital. But, despite the shares surging to 17p, they have recently lost their lustre and have now fallen back to a current 11.5p.

One could be forgiven for assuming that the intended bid had been withdrawn, thus putting the stock back to where it was prior to the excitement.

In reality, what has actually happened here is that EME has been granted an extension to the date by which it needs to make a formal offer, or walk away. Given that the Theo Fennell board had earlier stated that there can be no certainty of an offer being forthcoming, then it would appear that market watchers are anticipating EME’s withdrawal.

However, from an investment perspective, I feel the shares may be worth a speculative punt from two angles, with the first being a firm offer actually being made. It must surely be the case here that with a last stated net asset value of 25p per share, any offer acceptance from shareholders would be at a decent premium to the current share price.

The other side of the coin is that Theo Fennell soldiers on alone and the investment case is one of recovery.

Based in the City of London, the company is probably best described as a designer and manufacturer of upmarket jewellery.

This includes the likes of watches, silver giftware, along with hand crafted 18ct gold rings and other unique offerings. While that sounds all well and good, it is fair to say that Theo Fennell has for the best part of recent times failed to shine. In fact the shares, which around 18 months ago were trading at 65p, had been bumping along at 10p for quite a while prior to the recent news. With a market cap of just ￡2.6m, it is perhaps surprising to find what is a pretty impressive shareholder list here.

Apart from Theo Fennell himself, who incidentally holds 16% of the company, Henderson Global sits on 6.7% followed by Rupert and JO Hambro, who collectively hold around 12%. Additionally, there are other shrewd and respected players holding shares bought at higher levels which suggests they are worthy of a look in their own right.

As for the business, sales, like the share price, have endured something of a rough ride, falling from ￡28m four years back to the most recently reported ￡12.3m.

Likewise, profits over the same period have been equally disappointing, dropping from a pre-tax figure of ￡1.4m to a current loss of ￡1.7m.

Little wonder then that the shares have been unloved.

But, there are reasons why someone may wish to acquire the business, not least the potentially hidden value. And with the business serving the upper end of the market, there are already signs of recovery.