Friday, July 6, 2012

Fri 6 July 2012 - morning report

Good morning. Very little news this morning. Please see my report on Begbies Traynor analyst meeting from yesterday - a good company, now focussed on core activities. Looks cheap to me, on a PER of 5, and various reasons to expect a re-rating. In the meantime a 7.3% dividend yield keeps one more than amused.

Aga Rangemaster (AGA), the maker of expensive cookers, and operator of Fired Earth shops, reports a bit of a mixed bag in advance of its interim results for y/e 30 June 2012, due to be issued on 24 Aug 2012. Sales & profits are expected to be slightly down, but they confirm the outlook for the year as a whole (due to cost cutting & new products).

At first glance AGA looks like a great cyclical recovery share - hence looking forward to economic recovery could see the shares go substantially higher. However, the elephant in the room is their pension deficit, which looks to me to be sucking up pretty much all the profit & cashflow the company is likely to make in the next few years.

This big issue is rather glossed over in today's statement, which says that the pension fund was fully funded on an accounting basis as at 31 Dec 2011. However that is misleading, since there was a yawning gap on an actuarial basis requiring very large overpayments. I do wish accounting standards would be changed for pension funds, as there currently seem to be 2 completely different methods of calculating deficits, leading to widespread confusion.

All in all, my view on AGA is that it's potentially interesting, but the pension issue is so large relative to profits, that it makes the shares uninvestable in the short term.

A very unusual set of results from PSG Solutions (PGS) announced this morning. Profits at their specialist electronics division have shot up from £1.5m last year to £11.6m! However this seems to be on the back of one-off MoD contracts. Nevertheless, with net cash of £17.3m (despite tender offers for share buybacks), against a mkt cap of £27.8m, this one looks potentially interesting. Worth a look, but not easy to analyse, given the one-off nature of their MoD contracts. They also have some smaller operations in property services, and packaging. The former has moved from losses to profits.

I started to look at results from Coms plc (COMS), but gave up when I saw how tiny the numbers were, plus it's loss-making and seems to have almost run out of cash. It really is daft having such tiny, early stage companies Listed on, and clogging up any Stock Market. The rules need tightening up in terms of requiring more trading history before being eligible to List.

That's about it for this morning, a very slow day for announcements. By the way, I don't cover the resource sector here, as it's not a sector I understand, hence avoid. And plenty of other people cover that sector elsewhere.

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