Saturday, December 29, 2012

2012 Year-End Review

Well that's almost it for 2012, apart from a half day's trading on Monday 31st December, so I thought this would be a good time to review the share selections from my Blog, in its first year.

Little did I know, when starting this Blog in June 2012 that it would prove popular - with over 151,000 pageviews to date! On average there are around 1,200 readers per day, which is growing steadily.

Whilst that's good, and enough to make it worthwhile me writing here, surely that must only be the tip of the iceberg of people interested in small caps? So hopefully word will spread in 2013 a bit wider? I make a tiny income (£50-100 a month) from the Google ads, so thank you to people who have taken an interest.

Please bear in mind that my morning reports are published at variable times, but I always announce them via a Tweet. So follow me on Twitter @paulypilot to get notifications of every post here on your timeline. If you don't use Twitter, then you're missing out - it's an excellent tool for investors, if you take the time to use it properly & customise it to your needs.

I suspect that a lot of private investors/traders focus on the resources sector (which I don't cover at all here), since there have been rich rewards in that sector for quite a few years now, although that seemed to flip around in 2012, with conventional smaller caps generating an excellent year - e.g. the FTSE Small Caps Index is up a whopping 24.3% in 2012.

Therefore, whilst many small cap investors think that they have out-performed the market in 2012, actually most haven't, because they have erroneously compared their performance with the FTSE 100, or the AIM Index (which has been weighed down by under-performing resource sector shares).

So a big thank you to everyone who has taken an interest in my Blog this year, and also a hat tip to my overseas readers, mainly the USA, but also France, Germany, Ireland, Japan, Russia, Spain & Switzerland (in descending order of readership numbers). We even have reader(s) in Cambodia!

I've got interesting ideas for possible developments in 2013 for this Blog, including;

1) Re-design, and migrate the site over to WordPress at some point, to make it a proper website, instead of a Blog & add useful new features.
2) Expand the site to include guest writers, so that we can extend the coverage & make reports more frequent, with it no longer relying on me doing everything (although in order to pay guest writers, I might have to consider introducing a modest subscription).
3) I want to spend more time in the City, meeting company managements, and doing more in-depth company analysis & reports here. This rather hinges on point 2 above though.

So, bearing in mind that's it's been a good year for small caps generally, how have my main stock picks here fared? Pretty well actually!

Let the figures do the talking! 63% average gain over 8 stocks - RESULT!!!
What is even more remarkable, is that this is over 6 months, not even a year!

OK, I got lucky with the timing, and I also got lucky with some great stock picks (!!!). But also I only bought things that were cheap.

Here is a table of all my main articles here this year, and the average % gain (excludes dividends, but also excludes bid/offer spread & dealing costs);

Here is a review of my "main write-ups" articles here from this year.

On 18 June I wrote about Quintain Estates (QED), with the shares at 38p, after attending a meeting with management. My conclusion was that the shares had good upside potential, targeting 60p. It proved to be a well-timed trade, although I more recently went cool on the shares, and banked the profits.

I am neutral on QED at the moment, because the NAV keeps going down, and it's difficult to see how shareholder value will be outed, unless there is a takeover. It's beginning to look rather too much like a company that exists mainly for the benefit of its staff and Directors, rather than its shareholders (similar to quite a few other property companies, e.g. Inland).

Shortly afterwards, on 21 June I reviewed results from Norcros (NXR) and saw good upside. They were 11p then, they are 13.25p now, a 20% increase, plus they pay a decent divi. Although the quoted Bid/Offer spread can be particularly bad with NXR, so essential to get inside the spread using a proper telephone broker.

Norcros is a SETSmm stock, so a good broker can work a buy order for you at the BID price (and when you want to exit, work a sell order at the Offer price).

I cannot emphasise enough that getting a proper telephone broker is absolutely essential with small caps (if you are typically dealing in trades of say £3k+), the savings can be spectacular.

For example today the market spread on NXR was 12.75p Bid, 13.75p Offer. I rang my broker to see what prices are available, and the RSP machines (the things that discount online brokers use for small trades) were offering small amounts of stock at 13.4p, a useful saving. However, my telephone broker is able to go on the Bid on the SETS order book, at 12.75p with a Buy order. Or he could leapfrog the existing buyer sitting on the Bid at 12.75p, and put in a Buy order at 13p, which is fairly likely to be filled, if you're patient (it might take a couple of days).

So a buy at 13p would save 5.4% from the quoted market price, and if I got lucky and was filled at 12.75p, then that would save me 7.3% on the quoted market spread!
So paying 0.5% commission (or even less) to a proper telephone broker is a complete no-brainer compared with the false economy of a discount online broker (which are better suited to liquid stocks, and small transactions).

If you would like a recommendation/introduction to my broker, then let me know, as I have a special deal on commissions & service. This is restricted to investors who trade in reasonable size/frequency (trading at least 3 times per month, and whose typical trade size is at/above £5-10k).

One of my ideas for 2013 is that myself & an investing friend are trying to build a group of investors with my broker, so that we can act together on certain stocks, e.g. to pool our orders and take out a line of cheap Institutional stock, to participate in Placings, to cross stock between ourselves at the mid-price, etc, and generally create an internal market to benefit us all (e.g. if one of us wants to sell some NXR, but another member of our group wants to buy, then we'll arrange the deal between ourselves & our mutual broker will just cross the stock at the mid-price). There is only room for 20-30 people in this group, as I don't want to get bogged down.

If you tend to invest in similar stocks to myself, and this might be of interest to you, then please feel free to contact me through paulypilot AT gmail DOT com to discuss further. I'm thinking in particular here of people I already know through Motley Fool, etc. But like-minded newcomers would be considered too.

My big success story of 2012 has of course been Trinity Mirror (TNI), where my in-depth analysis here has proved bang on the money, when the shares were just 25p.
They are now 92p, so a spectacular 268% rise from when I wrote about them, although as mentioned at the time, I sold my shares at 64p when the phone-hacking scandal seemed to be kicking off again.

I'm kicking myself for having sold out too soon, although I remain of the view that the phone-hacking issue moved up a gear this year, and is now a potentially dangerous & unquantified liability that is not on the balance sheet.
Combined with the declining nature of newspapers, the debt, and pension deficit (minus the freehold property), then in my opinion a share price just shy of 100p is probably about right, even though it's still only a PER of under 4.

There could be more speculative upside, and often these things become momentum plays, but for me the easy, safe money has been made, so it's no longer of interest to me at 92p. There might be a chance to revisit TNI more cheaply in June 2013, when the phone hacking cases are expected to come to Court. So I suspect it's not the last that we'll hear of that story, and of course there might be political pressure to crucify Piers Morgan (I do hope so!), in order to take the heat off Andy Coulson. It could get messy again for TNI, so I feel safe being out of the shares, with the profit banked.

My in-depth analysis of Home Retail Group (HOME) also proved correct, with 3 detailed articles (I also went to Milton Keynes for their AGM) published here between 19 June to 4 July. I remember spending 3 hours on the beach at Hove, going through their Annual Report with a fine toothcomb!

The shares were 83p then, they are 126p now, a rise of 52%. Although as with TNI, personally I sold too early at 105p (my Achilles Heel unfortunately, too quick to hit the sell button).

Whilst it looks fully valued to me for the moment, at 126p, it should be said that HOME is a vastly safer retail recovery play than Dixons Retail, in my opinion, due to the ultra-strong balance sheet at HOME, and the ropey one at Dixons. So if anyone is likely to be last man standing, it's HOME rather than Dixons. I think a pairs trade (long HOME at 126p and short DXNS at 28p) would be a very interesting side bet, taking a long-term (2 years+) view.

As always, these are just opinions, and some will be right, and some wrong. So as usual, please always do your own research.

On 5 July (and again in Dec) I met the management of Begbies Traynor (BEG), the market's only Listed insolvency practitioner. It was 30p when I wrote about it here in July, and is 35p now, plus is paying a stonking 7% dividend yield, so that one's another pleasing work in progress.

I remain bullish on BEG, and think the shares have good upside once the chickens finally come home to roost for the many thousands of zombie companies that need restructuring through an Administration process, but which is being deferred by Banks and Govt policies. In the meantime it churns out a big dividend whilst business is slow.

On 14 July I had a speculative flutter with Snoozebox (ZZZ), love the ticker!, but got bored with that one, and became increasingly uneasy with the lofty rating for a start-up that has not yet turned in a profit. Although the shares are still 58p, 10% up on the price I mentioned them here. This was not a main pick, so is not in my table below.

18 July saw me catch the exact bottom with Mecom (MEC), for a rapid profit, at 51p. It seemed a similar situation to TNI, so thought I would have a bit of the action here too. Although on publication of their next set of results, I was not so sure, banked the profits and moved on. I do not plan to revisit Mecom.

This is beginning to sound a bit boastful, but please allow me this indulgence, as I've had a lousy couple of years, off the boil completely, but 2012 seemed the year I finally refocussed & got my act together.

A lot of it is emotional actually. It took me a good 4 years to recover emotionally from the devastating blows that the credit crunch dealt me.

Anyway, I've got my confidence back, and instead of flailing around looking for a strategy to get back my lost millions quickly, I've refocussed on a value/growth strategy that made the money in the first place, but without the high risk of excessive gearing & huge positions in illiquid stocks (which is what killed me in 2007-8).

For readers who don't know me, I lost pretty much everything (over £6m) in 2007-8, and am rebuilding - with some very valuable lessons under my belt, learned the hard way.

Also I've learned some really great life lessons - that money isn't everything (it helps, but no more than that, once you're beyond basic needs), and that the treadmill of earning more, paying more tax, seeking incrementally better material possessions, repeat until dead - is ridiculous & pointless.

Also, that the self-importance & selfishness that rapid & considerable financial success tends to create, can often isolate you from the people who really matter - your friends & family. Or rather, the pursuit of material things just leads you to distance yourself from the people you love. Although in my own defence, I was very generous in the good times, and shared my success with everyone around me - I've never been tight, and there are a lot of happy memories from good things achieved in the good times, pre-crash.

OK just 2 more stocks to go, before this introspective gets too nauseating!

On 4 Sep I reported positively on a meeting with Directors of Staffline (STAF) at 226p. Nothing much happened for a while, but the shares have shot up recently. I've banked some profits around 300p, as top-slicing gainers is always a good strategy & frees up cash for the next big idea.

I still really like STAF, and remain a shareholder, but would like to see more up-to-date figures before increasing my position again. The Govt welfare to work programmes are good, but may consume a considerable amount of working capital in the short term.

Finally, on 10 Oct I reported on May Gurney (MAYG) at 138p, with a very low PER and high divi yield (a typical PP value share), and am pleased to say it has risen to 180p since.

I cannot see why a price of under 250p (10 times EPS) should not be achieved in the medium term, so I remain a holder. DYOR as usual.

I am sorry this sounds like a brag-fest, but it's been a cracking year, and the results above are ALL the results from the main write-ups here, not a carefully selected list of edited highlights (with losers quietly ignored).

I cannot guarantee any results for 2013, it's all unknown, but for the moment am enjoying basking in the results from a cracking inaugural year here.

But I'll do my best to keep trawling the markets for you on an (almost) daily basis, and above all ANALYSING company results. There are plenty of free & paid-for sites where you can get news, but there aren't many places to get proper analysis from people who understand business, and have run companies themselves.

Hopefully that is the point of difference here, something that I intend building on in 2013.

So, what about my favourite shares for 2013?

No contest, its Vianet (VNET) at 101p, and IndigoVision (IND) at 367p.

Why? Vianet is a cracking growth story, about to unfold, which is paying a 5.5% dividend before the growth takes off. And a fwd PER as low as 6. Negligible debt. Sound mgt. I'm very keen. Once the overhang from New Solera is cleared, it should start moving up.

IndigoVision - yes I know that it's been a long haul, but I met the new CEO (former FD, Marcus Kneen) a couple of months ago, and it's difficult to think of a more focussed & ambitious CEO, making lots of very positive changes. If IND are going to make their big breakthrough, 2013-14 will be the time.

Also, our sister site (set up & run by me),  will be up & running again shortly - unfortunately there was an IT disaster on Boxing Day, and my hosting company have not yet restored the backup.

It's a perfect companion site to this one, as it focuses on a proven stock filtering method, based on Performance Analysis Scores, developed over 30 years by leading UK academics. It's only been soft-launched so far, as I've got problems with IP, licences, etc, but hope to resolve them soon & do a big launch in 2013.

There are other projects in the pipeline too, so a busy year ahead!

Above all, I hope you & your loved ones are all happy and healthy in 2013 - that's what really matters. If we all make a few quid too, then that's a bonus.

Best Wishes for 2013,

Tuesday, December 18, 2012

Tue 18 Dec - UNG, DLC, IPEL, QPP

Several interesting small cap RNSs today. Universe Group (UNG) is a £7.5m (at 4p/share) payment and loyalty systems group. It's hovered on my radar for years, and management impressed at a FinnCap/Mello Central event earlier this year.

Their pre-close trading update today looks good - profits will be ahead of market expectations. They are also confident about the outlook for 2013. I have an indirect shareholding in Universe, through Vianet (VNET), which holds 13.2m shares (7%) in Universe. The hideous bid/offer spread puts me off, although a good telephone broker can usually solve that problem by ringing round the various market makers to find shares priced well within the spread.

Anyone interested in a broker recommendation is welcome to email me privately, as I have a special arrangement with a proper broker which is priced very competitively, but only available to investors who trade in reasonable size/frequency (say £10k+ deals, several per month).

CAD/CAM software group, Delcam (DLC) continues its excellent performance, with a trading statement indicating profits will be ahead of current market expectations of £4.3m. Sales have reached a new high of £46m for the year.

Very good to see Delcam actually state what market expectations are, which few companies do. So often one is left scrabbling around trying to find out what figure a company thinks it is likely to beat! So let's hope more companies adopt this very helpful approach of specifying the market expectations figure which you are expecting to beat. It's surprising how often market expectations vary from one informational website to another.

On a PER of 17, and with a yield of just under 1%, Delcam doesn't exactly look a bargain, but high quality companies rarely do.

Specialist publisher of car repair manuals, Haynes (HYNS) puts out a trading update with somewhat mixed messages, but seems to overall be saying that conditions remain tough. This is another company which is struggling to find a direction to take in the move to digital. Although one would imagine that car repair manuals are one area where sticking with a hard-backed paper product makes a lot more sense than trying to go digital - I rebuilt a MkI Vauxhall Cavalier in my student days using a Haynes manual, and the idea of fiddling with an iPad whilst loosening bolts underneath the chassis, covered from head to toe in oil & grit, just doesn't make sense!

Beware of the published mkt cap with Haynes - I seem to recall that it has 2 types of shares in issue, so the apparently cheap £11.3m mkt cap shown on some websites is incorrect! The PER is about 10, which doesn't appeal to me, I'd want an entry price of half that for a company with an uncertain strategy & future.

A share which looks potentially interesting is recruitment company Impellam (IPEL). Their trading statement this morning confused me, as I mis-read it as saying that operating profit is going to be £3m lower at £5.5m. But if you look closer, it's actually saying that exceptional charges are going to be £5.5m, and that operating profit will be £3m lower than last year.
So I now have to look up what last year's profit was, which was around £24m, so it seems to be saying that profit this year should be £21m. Could they not have simply said so in the first place?! So Delcam wins this morning's clear RNS award, and Impellam gets the most confusing RNS of the day award. Please just keep it simple - we have to read so many of these things, clarity is everything.

They are proposing a £15m special dividend, which together with a PER which looks low, makes this one an interesting potential buy. Sadly the ludicrous bid/offer spread of 305p/325p rules it out - absolutely crazy for a £140m mkt cap company.

Yet buys seems to be going through at 317p, a full 8p within the quoted spread! Market Makers - why do you keep doing this?! i.e. publishing a ridiculously wide spread, then actually transacting at much tighter prices? Since most private investors use online brokers, not telephone brokers, this just puts people off from dealing at all. So the liquidity dries up, so you then make the quoted spread even wider still!

We all want to see more liquidity in smaller caps, and that will only happen if the Market Makers tighten the quoted spread to the minimum level they are prepared to transact at. Not an artificially wide spread which seems to be set wide, in order to deter anyone from dealing at all! Just quote the price we can actually deal at! Jesus, it's not rocket science, is it?!!!

Quindell Portfolio (QPP) puts out another positive trading update. I don't like this company one bit, it reminds me too much of all those dodgy car hire companies that never got paid by the insurance companies (Helphire, Accident Exchange, etc) - reporting bigger & bigger profits, and longer & longer debtors, until eventually it all implodes. Quindell may be completely different, but it set off alarm bells when I looked at it a while back, and it usually pays to listen to your instincts. I lost a lot of money on Accident Exchange, hence am not going anywhere near anything in an even vaguely similar area ever again.

Wednesday, December 12, 2012

Wed 12 Dec - Begbies Traynor interims

Begbies Traynor (BEG) is a favourite value share of mine, and I reported on it originally here in early July. At the outset, in the interests of full disclosure, I hold shares in this company.

Today I went along for their interim results presentation, given by the CEO and 29.5% shareholder, Ric Traynor, and FD Nick Taylor. Begbies website is here.
They are the market leader insolvency practitioners for small to medium corporate insolvencies, and have 7% of the overall insolvency market. They are the only pure play insolvency practitioners Listed in the UK, most competitors are partnerships, operating much like firms of lawyers, with the international Big 4 dominating the larger corporate insolvency market (Price Waterhouse Coopers (the firm I trained with), KPMG, Deloittes, and Ernst & Young).

You might expect the insolvency market to be buoyant, but it isn't - because Banks and HMRC are under political pressure to keep unemployment down, hence with low interest rates, many "zombie" companies are continuing to trade, whereas in previous Recessions they would have been put into Administration.

So the point is that, at some point, Begbies are likely to see a long-term surge in business once the zombie companies are eventually broken up. The trade body called R3, estimates that there are 160,000 UK zombie companies, so this is a big issue.

Interims today were pretty soft - turnover down just over 10% to £26.1m for the 6 months, but continued staff reductions mean that adjusted profit before tax was £3.2m (cf. £4.1m last year H1). H2 is the seasonally stronger period, so it looks to me as if full year EPS is likely to come in around 5-6p.

Bear in mind that the shares are only 32p, and you can see that they look cheap, on a current year PER in the 5-6 range.

Dividends are a key attraction here - the interim divi is maintained at 0.6p, and when I asked them about sustainability of divis, mgt were emphatic that it is their intention to maintain the current progressive dividend policy, so that should mean about 2.2p for the full year, giving a cracking yield around 7%!

Debt is not a problem, as it's unsecured, and is expected to be renewed in 2014. Note that net debt has reduced substantially from £27.3m this time last year, to £18.3m this year. Bear in mind that with the very long debtor book inherent with this type of insolvency work, the debt is required to support the >£40m debtor book of unpaid work in progress. So it's revolving debtor financing, not structural debt used for acquisitions. Key difference.

Whilst the insolvency market remains tough, and competitive, there are 2 interesting reasons to be cheerful.
Firstly, management are back on the acquisition trail. They say price expectations have moderated to a PER of 5-6, and that less is expected up-front, so earn-outs for more than half the price are now possible. So expect growth through small, reasonably priced acquisitions from 2013 onwards.

Secondly, Begbies believe that the market is now so competitive that the Big 4 are not making their required returns from small to medium insolvency work, and dislike the reputational impact which is inevitable with this work (there is always someone aggrieved). So long-term, it is possible that the Big 4 may even withdraw from the smaller end of the market, leaving the field to Begbies.

So overall my view is pretty sanguine about Begbies. Yes their market is tough at the moment, but there are reasons to expect a stronger outlook long term. Given that they are only on a PER of 5-6 in tough times, then the shares could end up looking amazingly cheap in a few years' time with some growth under their belts. Meanwhile we are paid 7% p.a. in divis to be patient.

I asked about the Caledonian overhang. Mgt said it will take time to clear, but they are not sellers at any price. Of course today's overhang is tomorrow's surge. And it allows people who want cheap stock to buy in size without chasing the price up, much like Vianet. Hence for patient investors like me, it's an opportunity not a problem, indeed I bought some more BEG this morning.

Their outlook statement says the full year (to 30 April 2013) should be broadly in line with last year, and the impression given is that no further significant softening of the market is likely, but also no big upside in the short term either.

A lot more detail was covered in the meeting, but these are the salient points as I see them. To me, this seems a well-managed business, making decent margins in a tough market, with the upside in for free, and a great, sustainable divi whilst we wait.

As usual, this is NOT any kind of recommendation, but is merely my personal opinion for general interest. As always, please do your own research, take professional advice, etc.

Tue 12 Dec - BEG, SRG, STAF

A shorter report today, as I have to dash to the Begbies Traynor (BEG) results presentation at the offices of MHP Communications, just behind Oxford Circus, so am bracing myself for the rush hour tube journey.

Begbies interim results are fairly subdued, as I was expecting given the very low PER. Turnover is down about 10% to £26.1m, and adj profit is down from £4.1m to £3.2m for the 6 months. However, the outlook statement is OK, saying,
"We anticipate an improvement in activity in the second half of the financial year during the traditionally busier winter months. Given this, we currently anticipate that the group's performance for the year as a whole will be broadly in line with last year."

So we're probably looking at expections being trimmed from about 6p to about 5.5p for the full year, which means the shares remain good value in my opinion at 32p, off a penny so far today. PER is about 6, and the divi has been maintained at 0.6p, so no reason to expect any change in the full year divi of 2.2p, giving a very pleasing yield of almost 7%.

Net debt has fallen a bit to £18.3m, which sounds a lot, but it's fine. The nature of insolvency practitioners is that they run a very long debtor book, since fees are accumulated until authorised by the creditors meeting after asset disposals have been made. So they are paid in one lump, often a long time after the work was started. BEG has a £44m debtor book, so more than double its net debt, which I'm relaxed about. So are the banks, as the bank debt is unsecured, a very unusual situation. Remember that insolvency practitioners effectively work for the banks, so debt here is not an issue. I hold shares in BEG.

As planned, Security Research (SRG) announces a 1 in 5 Tender offer at 225p, a big premium to the current price which was 125p last night, and is 10%  this morning to 136p. I hold.

Another share in my portfolio, which has been doing well of late, is Staffline (STAF). They announce another bolt-on acquisition this morning, financed from existing facilities.

Right, gotta dash. I shall report back on Begbies this afternoon hopefully.

Regards, Paul.

Tuesday, December 11, 2012

11 Dec 2012 - Interesting growth company - Zytronic (ZYT)

Zytronic (ZYT)

318p (at CoB 11 Dec 2012) * 14.9m shares in issue = £47.4m Mkt Cap

Invitations to meet company management often hit my inbox these days, as more brokers and PR companies recognise the useful role I can play as a conduit between the City and private investors, a role I'm very happy to play for quality companies only!

I've held shares in Zytronic before (but not currently), so was pleased to meet their CEO and FD today at Buchanan's offices, for a results presentation and lunch. Many thanks to Buchanan for their excellent hospitality!

As an aside I must also mention my astonishment when at the end of the meeting, whilst I was chatting to Zytronic's FD, another attendee at the meeting  chucked two ten pound notes across the table at me, and just said, "for your running fund!", smiled and disappeared. I was so taken aback, I didn't properly thank him! So if you're reading this, thank you so much for your generosity, and I have paid it across to the charity on your behalf through JustGiving.

What do Zytronic do? They are a specialist manufacturer of rugged, larger, touch screens, typically for ATMs, vending machines, betting terminals at casinos, etc. About two thirds of their touch screens are 15-20" (across the diagonal), with the trend being towards larger sizes still. They are based in the North East of England, and manufacture everything themselves in clean rooms in 3 factories.

Their results issued today for y/e 30 Sep 2012 can be found here.

I'm very pleased to see that the results presentation given at the meeting today is also on their website here. That's very shareholder-friendly, hence gets a big thumbs up from me.

Looking briefly at their results, turnover was flat at £20.4m, but operating profit rose a respectable amount from £3.7m to £4.3m, due to high achieved gross margins. Margins are expected to continue rising, and the company is targeting an increase from mid-30%'s to low-40%'s. You can do the maths, but that makes it look to me as if it probably won't be long before profits pass the £5m p.a. level.

EPS moved up a useful 21% to 22.2p. So at the current share price of 318p that works out at a PER of 14.3 - which in my opinion looks about right for a solid growth company in a nicely profitable niche.

So it all boils down to the outlook. The reason the shares dropped sharply this morning, and then partially recovered intra-day, is because the results said, "current trading is behind the equivalent period last year ...".

As I pointed out to the CEO, the mistake was not quantifying this. So the market will take a knee-jerk reaction, assuming the worst. Whereas it would have been better to say that sales are down x%, and whether that trend is likely to improve & if so how much. It's all about managing expectations. Uncertainty breeds fear!

Face to face, management were explicit in saying that the outlook is "very positive", with new projects in the pipeline. Their sales tend to be project-based, but once a component has started to be supplied to a customer (say, a new ATM machine screen), then that contract will tend to run for several years, giving good visibility to sales.

The latest house broker is forecasting 23.5p EPS this year, but my instincts tell me that management are looking to out-perform that figure, so perhaps 25-26p EPS might be more realistic for the current year, if new projects happen as planned. They talked about growth coming in waves, with a wave of new products on the way now, but timing always uncertain as out of their hands.

Turning to dividends, there has been another useful rise to 8.5p total divis for y/e 30 Sep 2012. So that is a yield of about 2.7%, and the divis have risen very nicely from 3p in 2007. Similarly, EPS has a great track record of rising a decent % each year from 2007. So if you look at ZYT as a long-term investment, it makes a lot of sense, assuming that growth continues. Given that such growth has been achieved against the background of the worst financial crisis in living memory, then it is actually pretty impressive. Imagine what additional growth they could achieve once Western economies are recovering?

Worth noting that the tax charge should gradually reduce as a percentage in coming years, due to enhanced R&D allowances, and the "Patent Box" scheme recently set up by the Govt, which sounds very interesting & allows companies to pay just 10% tax on profits from specific UK Patents.

There are also more efficiencies to be had, in particular they noted that their current manufacturing facilities could handle 3-times the current volume output if needed, so continued growth will mean higher margins as they become more efficient utilising surplus capacity.

Net cash has risen to £2.3m, and the company is very comfortable about its financing generally - as I discussed with their FD, they are able to take long-term decisions in the best interests of the business, without having to worry about cashflow issues.

Conclusion? Really nice growth company. I like the management, who seem serious & focussed. It has a strong  track record of steady growth with no mishaps. Rising dividends. Niche products with 20% operating profit margin (indicating pricing power). It's the sort of long-term growth stock that I would be happy to put into a SIPP or other long-term portfolio, with the intention of holding for 5 years or more. Being an AIM stock it also has IHT exemption as well - useful for wealthy elderly investors.

I don't see any immediate big upside on the share price, so won't be buying any just yet, but it's certainly a stock that will be high on my watch list, and if I could get in around 200-250p then I'd load up with them. The time to buy might well be when the next set of interims come out, as they will be up against a strong H1 last year, which might trigger a short-term fall in price perhaps?

So, a quality company, price is probably about right at the moment at 318p, but I'll be looking to buy on any big dips!

P.S. Out of interest, I've had a quick look at the 2011 Annual Report for Zytronic, to see what level of Director remuneration they pay, as that is a big issue to me & many other investors.
What a refreshing change to see Directors that pay themselves sensible, reasonable, real-world salaries. The CEO is paid a basic of £108k, and his total including bonuses & BIK is £144k. The FD's total is £123k.
Remember this is for performing well - with a growth company, that is creating shareholder value, paying divis, and has a rising share price.

Compare Zytronic with the delusional, arrogant Directors of Inland (INL), who pay themselves multiples of these amounts, despite presiding over 5 years of share price weakness (still 60% down on their IPO), and only one derisory dividend!

I am really warming to the idea of investing in companies in the North East. As with Vianet, Zytronic seems a sound growth company, run by people who respect shareholders, and only ask a reasonable return for their work. This is a serious point actually, as they also have much lower overheads (rent, rates, and staff all a lot cheaper than in the South East), and the culture genuinely seems different - people who are prepared to work hard, and only ask for a fair salary. As opposed to the rampant greed we so often see from South East/London companies.

Tue 11 Dec - ZYT, CPR, ASC, IGR, BEG

Prelims from Zytronic (ZYT) are released today. They are a maker of touch sensors, with a mkt cap of £51m at 347p/share. Their results look pretty good, with PBT up 17% from £3.6m to £4.2m, and EPS up 21% to 22.2p.
That puts the shares on a fairly warm PER of 15.6, although they do have net cash of £2.3m, and the divis are up 10% to 8.5p (a yield of 2.4%).

The short term outlook looks a bit wobbly - with current trading below the equivalent buoyant period last year, as expected they say. The interesting bit is that there are some "very interesting & substantial projects for major customers under development".

I've been invited to meet management later today, so am looking forward to hearing more about the company's growth plans.
Their 20% operating profit margin indicates that they have pricing power, something that appeals to me. If decent growth is in the pipeline too, then could be interesting.

I see that ZYT shares have sold off 11% in early trading, so the results must have disappointed some holders.

Carpetright (CPR) shares have maintained an impressive feat of levitation for many years now, nobody seems to have any idea why the company has such a stratospheric valuation. Shorters have attacked it again & again, and every time it rebounds.

At 666p (a sign? lol!) it's valued at £470m. Their H1 performance in the UK was improved a bit, from breakeven last year's H1, to a £5.2m operating profit this year. Europe (a much smaller part of the group) went the other way, with operating profit falling from £2.9m to breakeven. There is no dividend.

It does own a property portfolio worth £82.6m. The average net debt in H1 was £27m, down from £79.6m in the previous H1), a large reduction, driven by the sale & leaseback of freehold shops.

The valuation remains completely unfathomable, one assumes because investors are looking back to 2006-7 when it made £40m+ profit p.a.. Someone ought to point out to them that those figures were on the back of an unsustainable consumer credit boom that is not going to be repeated.
At some point the bubble here will burst, and the shares will come down to fair value, which I reckon is probably 200-300p/share, if that.

ASOS (ASC) really is a remarkable business, and for me very much "the one that got away" - I sold my half million shares in it for the princely price of 9p each, pleased at having more than doubled my money quite a few years ago. They are now 2446p per share. Hmmmmm.

Their Q1 trading statement today shows sales up 30% overall, with the UK still strong at 24%, but International now 63% of total retail sales, and up 34%. So they seem to be doing what so many UK retailers fail at - namely expansion abroad. The valuation still looks absurdly high at £2bn, but it is a very special business. I cannot help think though, at some point, there will be a sharp correction.

Had a quick look at results for International Greetings (IGR), but the extremely high level of debt puts me off, even allowing for the fact that it's a seasonal peak (stocking up for Xmas).

Tomorrow I am up in London again to see the Directors of Begbies Traynor (BEG), presenting their interims to 31 Oct. This is one of my favourite value shares, with a low PER and high divi yield. Business is likely to remain somewhat depressed, due to the lenience of Banks & HMRC, under political pressure not to push zombie companies into insolvency. But that is a temporary factor, which will unwind once the economy begins improving. So that could bring a multi-year boom in business for BEG. Given that the shares are cheap in a quiet period, then they might look ultra-cheap once business is improving.

I don't normally like ambulance-chasing businesses, but insolvency practitioners are a necessary part of the process for orderly and legal resolution of insolvent companies, however harrowing the process might be for the people involved.

That's it for today. Tomorrow's report might be in the afternoon, as I have to get across London to the Begbies meeting for 10am.

Regards, Paul.

Monday, December 10, 2012

Mon 10 Dec - AMO, INL, AND, HDD, AN., TET

A fairly light morning for news so far. The only share in my portfolio putting out an RNS today is more good news from Amino Technologies (AMO). They've won a contract with a European telecoms company for their innovative set-top boxes which stream TV to devices around the house. It's put a couple of percent on the share price. This is on top of last week's in line trading statement, and news of a progressive dividend policy that sees the yield over 5%, and rising 15% p.a. for 2 years. So a good incentive for me to sit tight/buy more on any dips.

I note that Inland (INL), the brownfield regeneration minnow, is starting to move up this morning, a delayed reaction to the granting of planning permission on it's site in Poole. Their mishandling of Directors remuneration has certainly put a dampener on things, together with the bizarre reaction of the CEO at widespread criticism from shareholders at their AGM. But let's hope this year will finally show the company actually generate some shareholder value? Although the shares are still 60% down on the IPO price. There is "hidden" NAV though, so the true underlying NAV is probably now around 32-35p, hence why despite my reservations about management, I bought a few more after their AGM.

Results from specialist camera maker, Andor Technology (AND) look reasonably good, with adj profit before tax edging up from £9.7m to £10.0m. Adj EPS comes in at 27.5p, so the shares aren't exactly cheap on a PER of 14.4. However, when you consider they have £17.1m in net cash (compared with a mkt cap of £114m at 395p/share) and are still managing to grow in a lousy economy, then it might be an interesting company.

Their inaugural dividend of just 2p seems unnecessarily cautious given the strength of both profits and the balance sheet, they could have paid much more, 5-10p would have made a bolder statement, and would be easily affordable.

Results for y/e 30 Sep 2012 from minnow metal hardening engineer, Hardide (HDD) look encouraging. It has swung from losses into a £378k profit on turnover up 49% to £2.9m (still tiny, but a good profit margin which indicates lean overheads & pricing power).

The £8.4m mkt cap (at 1.1p/share) doesn't exactly make it look cheap on those figures, but if this becomes an exponential growth story, then it could be a tremendous bargain. Might be worth doing some digging to find out what the growth potential is?

Telecoms company, Alternative Networks (AN.) results look pretty good, although as always in these reports I only ever have a quick glance, so it's essential to DYOR.

Adj EPS is up 10% to 25.3p, although it looks like there are quite a lot of share options in existence, as the diluted adj EPS figure is a fair bit lower, at 22.4p.
Using the latter figure, that puts the PER at 11.6 (at 259p/share). Given that it also has net cash, a positive outlook statement, a strong balance sheet, and a decent dividend of 11.5p (for a 4.4% yield), and stated intention to raise divis by 10% p.a. over the next 2 years, this looks like an interesting situation.

The 2 things to watch out for with this type of company, are that they're not inflating profits by capitalising costs into intangibles. There are £26.3m of intangibles on AN.'s balance sheet, so that needs a further look.

Secondly, the risk is that net cash can be up-front payments by customers, hence always worth checking what the deferred income creditor is, and deducting that from net cash to arrive at a true net cash owned by the company itself.

But at first glance, I like the look of Alternative Networks.

Have had a quick glance at results from Treatt (TET) the supplier of organic & fair trade ingredients for food & cosmetics - likely to be a good growth sector one would imagine.

Looks like they've been under margin pressure, with profit before tax down 20% to £5.1m, on turnover flat at £74m.
Dividends are healthy, at 15.5p for the year, a yield of 4.2%.
Debt is a little higher than I would like, although the Balance Sheet overall looks OK - the debt seems to be mainly supporting fairly high stock levels, and low trade creditors.

I can't invest in the face of falling earnings though, unless the PER was much lower. Another fly in the ointment is the absurdly generous 2-year notice period in the former CEO's contract, resulting in a £0.6m pay-off. This is yet another area where shareholders need to put their foot down & demand improvements in conduct - yet another area where Directors "take the proverbial".

Why on earth should anyone have a 12-month notice period in their contract? (let alone 24?!). 6-months is plenty, and 3-months would be adequate for most Directors. They rarely actually work out their notice periods anyway. Nobody is indispensable, and in truth long notice periods for Directors are just yet another example of a managerial class finding ways to dip their hands into the till at every opportunity, even when they're leaving. So people who under-perform & leave, are given a 12-month pay-off, it's ridiculous! They should leave with 30-days pay at best, if they under-perform. Or nothing.

So this situation at Treatt where the outgoing CEO got a 2-year pay-off needs to be investigated, and if I were a shareholder then I would be asking the head of the Remuneration Committee why this has happened, and to make sure that in future Directors are only given 6-month notice periods at the maximum. Anything more is pure greed. It's difficult to think of any examples of Directors who have given their notice, and then continued working for more than 6 months. Usually they leave within about 3-months, by mutual agreement, as they are anxious to take on their new position. But they are always paid 12-months. This has got to stop. Time for a new shareholder spring in 2013 I think, to challenge & reduce excessive rewards for failure, including long notice periods.

You can't beat a good rant to get the blood pumping! It's a glorious day here in Hove, so I'm going for a jog along the seafront now, as only 2 months away from my Half Marathon - thank you so much to everyone who has already sponsored my 2 charities, and if you're feeling generous then please feel free to contribute here at JustGiving. We're already up to 47% of my target, but it would be great to get over 50% before Xmas!

Regards, Paul.

Friday, December 7, 2012


Good morning, am back from Paris now, and full of praise for the Eurostar service. I'll definitely be using it more often for short breaks. It's so quick & convenient, and my return fare only cost £69! Combined with a great quality hotel deal on Expedia, and eating out cheaply from sandwich shops, and with decent champagne only £9 a bottle from Carrefour (yes that was the reason there was no blog update yesterday!) you can't go wrong really. Plus of course any visit to Paris reminds you that customer service in the UK really is marvellous in comparison!

Long-suffering shareholders in brownfield regeneration company Inland (INL) finally have some good news today - as expeted, planning permission has been granted on the old Pilkington Tiles site in Hamworthy, Poole for a mainly residential development. Whilst house prices in the poshest parts of Poole can be astronomical (e.g. Sandbanks), Hamworthy is a dump. However, since the site is right next to Poole Harbour then Inland's development might begin the gentrification of the area?

I bought a few more Inland shares yesterday, on a small dip. Underlying NTAV is probably now at least 32p a share, so buying at 19.5p seems good value, especially as the Banks are now beginning to lend again in this sector, as reported at Inland's last eventful AGM, where many of us went along to protest at excessive Board Room pay, and unjustified bonuses.

Results from Artilium (ARTA), a telecoms software group, look pretty awful, and their financial situation precarious. So that's going on my bargepole list, as it looks moribund without another fund-raising.

Talking of which, someone told me something interesting the other day. I've often wondered why some fund managers continue supporting companies which are obviously rubbish, with repeated fund raisings (Earthport springs to mind). The answer I'm told is because it's to save their own careers - i.e. by supporting a rescue fund-raising, they can pretend that the company will deliver on its business model, so it kicks the can down the road for a year or two. Whereas if the fund manager admits it's been a rubbish investment, and writes it off, then his own job is on the line.

Makes sense now doesn't it?! I've always thought that people make much bettter decisions with their own money, than with other people's money.

Belgravium (BVM) puts out a profits warning, so expect a sharp drop there today. The maker of rugged portable computers says that orders have been delayed, impacting on sales & profits for y/e 31 Dec 2012. Although dividends are expected to be maintained at the same level as last year, so not all bad. That means at 0.1p the yield is 2%. If it's a fundamentally sound company, then warnings like this can provide a cheap entry point. Although share prices usually take quite a few months to recover from profits warnings. The mkt cap at Belgravium is too low for me, at £5m.

Several readers emailed me yesterday to point out that I'd got the ticker wrong for Silverdell, which is actually SID, so I have corrected Weds blog entry. If you ever do spot any mistakes here, then please let me know, it's very helpful. I try my best to be 100% accurate, but being human, the occasional error will slip through.

Also, someone pointed out that broker forecasts for SID are much more appealing than the historic figures, due to having a full year of their acquired business. So might be worth me revisiting the numbers there, and thank you to the reader who kindly emailed me the Edison research note on SID.
I like the mgt at Silverdell who we met at a FinnCap/Mello Central evening last year. They seem honest, straight-forward, hard working people, which is what you want.

A very quick glance at Photo-Me (PHTM) results looks impressive - profits up, and tons of cash. Might be worth a further look when time permits? However, bear in mind that it's a seasonal business, with H1 the much stronger half, so don't make the mistake of assuming that you can double interim profits to estimate the full year! (as that would generate a falsely optimistic result).

I note that Berkeley Group has put out very strong results, which gives hope that activity in the house building sector might increase, which we certainly need, given the scarcity of housing, especially in the South East, caused by factors such as an ageing population, increasing number of single person households, and of course unrestricted immigration for the last 15 years. 

Funnily enough, if you let in 10 million people, and don't build any new houses, then you end up with a housing crisis! An intelligent 10 year old could have predicted that, but sadly not our last Government!

On that scathing note, I shall sign off & bid you a good day, and a pleasant weekend.

Regards, Paul.

Wednesday, December 5, 2012


Good morning from le gai Paris! Apologies for missing yesterday morning's report, but I was swishing under the English Channel on a Eurostar. What a convenient & pleasant service, and so nice to be able to walk to your hotel on arrival, with no hanging around waiting for bags, passport control (done efficiently at St Pancras).

There were several important announcements yesterday for shares in my personal, and portfolios (which heavily overlap), so I will cover those first.

May Gurney (MAYG) is an out-sourcing company for the public & regulated sectors, providing largely recession-proof services such as road maintenance, refuse collection, etc. Specific problems with several contracts have trashed the shares, but gave me the opportunity to buy in cheaply at 138p, as detailed here in my article a few months ago.

That proved a shrewd purchase, as they are now around 174p to buy. The interim results yesterday provide no surprises, with underlying EPS and full year outlook all in line with expectations. They should generate around 25p adj EPS this year, so clearly the PER is still attractively low at 7 times.

The interim divi has been maintained at 2.79p, so 8.4p for the full year looks sustainable, giving a yield of around 5%, very nice! Cash generation & order book both look fine, as does the balance sheet, where all bar £3m of the net debt is underwritten by customer contracts (£74m in finance leases for vehicles & plant). So a nice situation where I'm happy to hold. In time I believe the PER should rise to at least 10, which implies a share price of 250p+.

Vianet (VNET) also reported interims yesterday, which were solid. Turnover was slightly down, as expected since they exited some low margin cellar audit business last year. My preferred measure of performance is adjusted (i.e. pre-exceptional & amortisation) EPS, which rose strongly to 5.3p. However it should be noted that the utilisation of tax losses resulted in no tax charge for this 6 month period, hence that figure is correspondingly flattered. Underlying profits are pretty much flat against last year.

There is an extremely informative video results presentation here, which if you have time is well worth a listen. I went through it last night, and am very excited about Vianet's prospects in the next year or two. It sounds like they are running a little behind plan this year, so I have mentally trimmed my expectations from 13.2p EPS to around 12p for this year.

Next year's 16.4p looks achievable though, and management comments about expansion into the USA for their core iDraught product sound tremendously exciting, and mean this company should get a re-rating to a growth company PER at some point in 2013. At present investors are worried that their core product (the beer monitoring Brulines product, which is primarily used to monitor adherence to the "tie" in UK tenanted pubs) is in a declining market due to the conntinued pub closures in the UK.

However, the rate of pub closures has slowed, and the launch of the iDraught product in the USA in 2013 is expected to initially be for national bar operators with 2,000 sites. So that launch will increase the company's total installed base by over 10% in one fell swoop! Trials have been underway in Colorado for 2 years, and they are now ready to launch nationally, using a large US distribution partner called Micro Matic.

The plan for the USA is a 3-year growth to 5,000 installations, yielding $12m p.a. in recurring revenue! That's serious growth, and would only be scratching the surface of the US market which is reckoned to be 300,000 bars.

Vending solutions is the other part of Vianet that really excites me. As I understand it, this is a fairly cheap (about £120, and then around £10 a month) after-market product which links vending machines to wireless networks, and enables the owner to monitor all aspects of the machine's performance remotely via the internet. Machine owners have seen big increases in profitability from using this product. There is also a contactless payment product too, enabling machines to become cashless, which was trialled successfully by Coca-Cola & VISA at the London Olympics.
A large contract win is "imminent" according to the results presentation video, so some excitement there too.

I really like Vianet's products, as they give clients such obvious advantages in profitability, hence should be relatively easy to sell, and generate good growth.

Interestingly, management say in the results presentation that iDraught launching in the USA "will step change the group's earnings", and they also use the same phrase about vending, saying it is "on the verge of major contract wins". Pretty exciting stuff, so I'm very happy to hold here, especially as we're being paid over 5% dividend yield whilst we wait. The interim divi was raised slightly to 1.7p. The CEO certainly believes his own story, as he spent his divis on buying more shares - £317k spent in the last year in fact, a serious vote of confidence there! He holds 15% of the company, just right.

I am hoping to speak with management on my return from France shortly, and continue to believe that this is one of the most interesting, undervalued growth stocks out there. The market has not yet latched onto the seriously good growth prospects developing here, and is pricing it as a mature business. There are no guarantees of course, but it looks attractive to me.

As I suspected, it looks like there is an overhang of stock in Vianet, with a recent RNS showing that an HSBC Nominee account has sold over a million shares, and now has just over 3m shares (11%) remaining. Hence it seems likely that the share price might mark time until that is cleared, assuming that they intend selling all, which they may or may not. In any case, I see that as an advantage, as it's allowing us to buy as many as we want without chasing the price up.

Things always seem to happen in threes, and the third trading announcement from yesterday in my portfolio was from internet TV set-top box maker, Amino Technologies (AMO). They indicated in line trading, which puts them on a PER of 12, based on fc EPS just above 5p.

However, the most interesting thing about Amino is its balance sheet stuffed full of cash, which has now reached £17m (bear in mind the mkt cap is only £31m). They made a very bullish statement about dividends, as follows;

In line with guidance at the full year results for 2011 when the Company announced its maiden dividend, the Board now intends to introduce a progressive dividend policy. The Board is pleased to be recommending a full year dividend of 3p for the year ended 30 November 2012, a 50 per cent increase year on year, with an expectation to provide both an interim and full year dividend moving forward. Furthermore, the Board expects this dividend to grow by no less than 15 per cent per annum for each of the next two years.  

That suggests that AMO shareholders will do very nicely from divis over the next few years, although as they don't indicate the quantum of the interim divis, it's difficult to know what the yield will be. But based on the final divi, it's going to be at least 5%, so an attractive situation. I may buy more if they slip back a bit after yesterday's rise.

Looking at today's RNS, I see that Silverdell (SID) has issued finals for the y/e 30 Sep 2012. I like the management here (have met them at a FinnCap meeting), but what put me off investing was the cash-hungry nature of the business, in that they have to pay wages to contractors promptly, but then customers wait 60 days to pay Silverdell. So they function almost like a bank for their customers!

Revenue & profits are up strongly, due to the acquisition of EDS, although the increased number of shares from their equity fundraising means that EPS is only up marginally to 1.5p. So the shares are on a PER of 9 at 13.5p, which is maybe slightly low, perhaps a fairer range would be a PER of 10-12, indicating small upside to the 15-18p range. However I can't see any reason for a premium PER, so not enough upside on the share price to get me excited.

Maiden dividend of 0.175p is payable in Mar 2013, and is good news. 2 years' dividends should cover the bid/offer spread!
The outlook statement sounds positive.

A cleverly worded trading statement from K3 Business Technology (KBT) could be read as bullish or potentially bearish, saying that they need to close "a number of key deals" to underpin expectations for this year's trading. So by implication if they don't close those deals then...
I held these shares briefly, but decided I don't like the treatment of intangibles, so sold out.

Both Home Retail Group (HOME) and Trinity Mirror (TNI) have continued to rise after I sold out too early in both cases. Can't see any company specific news other than a new Non-Exec being appointed for HOME to justify their near-10% rise so far today. Anyway, in both cases I banked a terrific profit & moved on, so can't complain. There's still a huge short position in HOME, so perhaps there is a continued squeeze there? And the hacking story has gone quiet again at TNI, although it's bound to rear its ugly head again at some point, and with trials expected in June 2013 I think that's a story that's not likely to go away. I was prepared to gamble on it when the shares were 25p and on a PER of 1, but not now they are almost 90p. What a staggering recovery though, and just goes to show that sometimes the stock market does throw free money at you. Not too often though, sadly!

Right that's me done. Time for some croissants & sight-seeing!

Regards, Paul.

Monday, December 3, 2012

Mon 3 Dec - SIM, VNET, MAYG, TCN

Here we go again, Monday morning! Not much in the way of results within my remit, but will glance at a couple.

Simigon (SIM) is not something I've looked at before. They are a £7m mkt cap (at 15p/share) Israeli company, which makes flight simulators for civilian and air forces. Their trading statement this morning looks strong, and most of the mkt cap seems to be supported by net cash (NB their accounts are in US dollars though).

Personally I don't invest in overseas companies on the AIM market any more, as it seems to me the motivation to List your shares in one of the world's least regulated small cap markets abroad is likely to be questionable in some cases.

Also I have bad memories of losing a hefty wad on an Israeli company called Vigilant Technologies, where I held about 3% of the company, but when things went wrong it proved impossible to speak to anyone in Israel. All of a sudden calls & messages were ignored, and everybody simultaneously lost the ability to speak English. Whereas had they been in the UK, I could have got in the car and paid them a visit.

Tomorrow should be an interesting day. Interim results are due from Vianet (VNET), one of my largest holdings, and the joint largest position in the model portfolio of my SmallCapValue website. They issued an in line trading statement on 30 Oct, with lots of positive-sounding details (such as previously loss-making subsidiaries moving to breakeven or profit).

Vianet is a classic low PER, high divi yield value situation, but with good growth prospects thrown in for free as well, hence why I am so keen on it. The company has disappointed before, so perhaps that explains the low rating for the moment. There is also a persistent seller in the market, feeding stock out at the end of the day to balance up the market makers. Still, that gives me the opportunity to load up with cheap shares, so it's an opportunity rather than a problem. Hopefully.

May Gurney (MAYG) is also reporting tomorrow, another low PER, high divi yield favourite of mine, which I wrote about here.
The crux with MAYG will be whether they are able to draw a line under various problems in the past, which they have stated are now ring-fenced. So I am hoping no more bad news, if so then the re-rating should continue there.

I'm going to Paris tomorrow morning for a short break on the Eurostar, so if Vianet or May Gurney results are bad, then I could end up getting a margin call whilst underneath the sea, which would be a first!
Updates here might therefore be a little erratic for the rest of the week, but I'll have laptop with me & wifi, so will do what I can.

I'm continually amazed at the number of really tiny companies on AIM. It cannot possibly make commercial sense for companies with negligible turnover and mkt caps of sub-£5m to have a stock market listing. Yet so many do.

Tricorn (TCN) publishes interim results, which look pretty solid, with a higher operating margin more than compensating for a fall in turnover. Adjusted EPS is up nicely from 1.66p to 2.07p for the 6 months.
The outlook statement indicates a weaker H2, with the full year expected to be similar to last year, which was 3.78p adj EPS.

That means that at 16.9p the shares are on a PER of only 4.5!
Also, they have net cash of £1.1m, which is for a company with a mkt cap of only £5.6m. Strip out the cash, and you're on a PER below 4, which looks great value to me.

Divi yield looks stingy though, at just over 1%.

Tricorn calls itself a "tube manipulation specialist", whatever that means. They are opening a facility in China, which one imagines should improve margins, providing they navigate the operational minefield of overseas operations alright.

It's too small for consideration in my portfolio, but looks worthy of a further look for people who do look at micro caps below £10m mkt cap.
I'm wondering if there are any "nasties" lurking, which I've not spotted, as the valuation looks too cheap here. Can't see a pension fund deficit. I do note however that the company has borrowings of about £2m, and associated interest cost of £82k last year in the P&L. This seems odd. Why have debt, and more than that amount in cash, thus wasting £82k p.a. in unnecessary interest costs? Makes you wonder if the y/end figures have been window dressed? Although there is a healthy surplus of working capital overall.

(EDIT: a friend has just emailed me to say that the reason why Tricorn looks cheap is because they are losing their lucrative aerospace contracts, which might be difficult to replace. So that's the area to research for this share).

Right, that's it for today.

Best wishes,
Paul Scott.