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Minoan: Godawful tip starting to come right big time

By Tom Winnifrith | Wednesday 17 October 2012

Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I need little reminding that I tipped AIM listed Minoan (MIN) at 87p back in January 2007. The shares are now 10.5p (even after some interesting news today). This has been a stinker but is now starting to come right and the shares really are very cheap indeed. And here is why.

Minoan was, in 2007, a one trick pony. It was trying to develop a site in Crete called Cave Sidero into a series of luxury villages and hotels. I have visited the area and it is stunning. Sadly Greece being Greece the project has been enmeshed in planning delays since 1992. Heck what does Greece need with successful job creating businesses? At last that point seems to be getting through.

Greece has officially stated that this scheme is one that it wants to go ahead. Minoan is in what is termed a Fast Track (nothing in Greece is fast) planning process which will see it gain final approvals by March. A Monaco based fund (Candia) has already invested £2 million in Cave Sidero in return for a 10% stake and when FastTrack goes through it will stick in another £12.5 million for an additional 25% stake. Do your maths that would leave Minoan with £12.5 million net cash (it has modest net cash right now) plus 65% of an asset valued at £50 million (i.e. £32.5 million).

I chatted to Minoan chairman Christopher Egleton this morning and all is on schedule at Cave Sidero. But I admit Greece is Greece so I guess this has to be somewhat risk weighted.

But in the past two years Minoan has also, having recruited travel business guru Duncan Wilson as its CEO, built up via acquisition a network of Travel & Leisure businesses based in Scotland (the Greece of the North). This part of the business will deliver an operating profit of c£700,000 this year and perhaps £8-900,000 next year. But if Cave Sidero throws off some cash Wilson can spend it bolting on new units paying multiples of 2-4.

It is this part of the business which made an announcement today. Which reads:

Minoan Group Plc, the AIM listed travel and leisure company, is pleased to announce that it has signed an exclusive agreement with the National Federation of Sub Postmasters ("NFSP") to install computerised travel agency kiosks across the UK's network of more than 9,000 sub post offices. The purpose of the agreement is to create a national leader in the provision of easily accessible, online travel agency services, combining the technology and trusted brand of Minoan's Stewart Travel subsidiary, with one of the country's most extensive footprints of largely owner managed retail premises, all operating under the trusted Post Office brand.

Minoan will operate the kiosks under the brand name Postcard Travel, operated by its Stewart Travel division, and is aiming to set up a minimum of 1,000 kiosks over the next five years. An initial three month pilot phase will see up to 50 kiosks installed across local, largely market town based sub post offices, with a further 50 then being added every three months.

The combination of in-store access to the best choice of holidays available via the web provides new, excellent opportunities for, and will bring immediate benefit to, Minoan, sub post office shop owners and the general public. The current footfall across the sub post office network is more than 10 million customers per week. Most sub postmasters run their Post Office business under the same roof as another retail business. In urban areas this is often a newsagent or stationery business and in rural areas it is, typically, a village shop. Each unmanned kiosk will comprise two computer screens, displaying a range of the latest holiday offers and a simple keyboard and touch screen facility allowing customers to browse the market and choose their holiday with just four touches.  

Chatting to Egleton, I think I understand the maths.

Firstly the kiosks cost £2,000-3,000 but Minoan will fund rollout (200 a year) entirely via lease finance.  Secondly the assumption is that each kiosk will generate revenues of £120,000 per annum of which Mr postie gets £6,000 and Minoan £6,000. The first 50 kiosks will be live in January.

If these assumptions are correct then Minoan is onto a winner and it could transform the T&L division. But this is an unproven concept. I am a bit sceptical that folks will book holidays online in the Post Office but what do I know? If it flops it is embarrassing for Minoan but not a lot has been risked. If it takes off then it is a game changer.

So what is Minoan worth?  Let’s ignore Postman Pat and treat this as a potential bonus. But the core T&L business must be worth 10 times profits – call it £8 million. Meanwhile CS is worth not a lot if the Greeks cock it up again on planning permission but they really have no choice. They have been told by their new rulers (the EU/IMF/Angela Merkel) that if they want more bailouts they have to allow private sector schemes that create jobs etc to go ahead. The Candia option values Minoan’s current 90% holding at £45 million.

Okay, apply a 50% risk weighting for Greek incompetence but that still gives a sum of the parts valuation of £30.5 million At 10.5p the current market cap is £15.3 million. As such my initial target price (which will be revised sharply higher once Fast Track is given) is 20.5p and at 10.5p the shares are a buy.


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