Tuesday, July 24, 2012

Tue 24 July 2012 - Supplementary Report

Hello again. Quite a lot of trading statements today, so I'll do a quick recap of those in a moment.

However before that, let me tell you about the first "MelloCast" video interview which I co-hosted with renowned small caps investor, David Stredder.
David came up with the idea to run a series of video interviews with interesting small cap CEOs. He asked me to get involved, so David and I recently did our first video interview, with the Executive Chairman of Plastics Capital plc (PLA), a £20m mkt cap plastics group.

The idea is that MelloCasts are in-depth investment interviews by investors, for investors. Even the cameraman & video editing chap is a successful private investor! We did pretty much the whole thing in one take, with no script, and no rehearsals, and mgt were not informed in advance of the questions. So it's reality TV - a fly on the wall discussion between real investors and a company Chairman. We're not trying to be Paxman - so the style is friendly, and we're more interested in teasing information out of the interviewee, rather than grilling them! But above all, it gives investors an idea of the people behind the company. Also, crucially we only interview companies that we like, and where we think the shares are attractive. So we definitely won't be interviewing any dodgy blue sky or resource sector companies!

I hope you like our first video, which can be found here;

Source Bioscience (SBS) announces double digit turnover growth, and confirms that overall performance is in line with expectations. That implies a PER of 17 for this year, falling to 11 next year, not wildly exciting.

Kofax (KFX) is up 4% this morning on an in-line trading update. Looks quite good value, with a fwd PER of about 10, and $81m of net cash.

If you like micro caps, then it might be worth having a look at Hangar8 plc (HGR8). This £6m mkt cap minnow charters privately owned jets to third parties (nice business model). Showing good growth, and today indicates that turnover for y/e 30 June 2012 will be about £20m, and profit in line with market expectations.

The only forecast seems to be from Daniel Stewart, for EPS of 15.3p, so that gives a bargain PER of 5.8. Downsides are that there's no divi, and the CEO seems to own 63% of the company, way too high for comfort.

Looks an interesting company though, and they indicate "great confidence" in the future.

Vertu Motors (VTU) says they are trading in line with market expectations. That puts the shares on a PER of about 9, which is probably about right. I don't like car dealerships, as the operating margins are so thin, about 1% in this case, leaving no room for downside surprises.

Have a look at Globo (GBO). I've never really understood what they do, it's something to do with computers & mobile. But the shares are on a very cheap forward PER, perhaps because of fears about Greece (since Globo is a Greek company). But international growth now means that the group is not so reliant on Greece, with 68% of revenues international.

The company's track record of growth is very impressive, and they today indicate that revenues are up 29% in H1 of 2012, ahead of expectations, and with profits "substantially higher" than for the same period last year.

That puts them on a fwd PER of 6.4 times this year's earnings, and just 4.2 times next year. Apparently very cheap for a company delivering strong growth, so worth a look. Shares are up 10% today. I've just bought a few.

Scapa Group (SCPA), who make bonding systems, announces a solid AGM statement - Q1 in line with expectations, Board confident about the outlook.
Fwd PER is 11.3, but divi yield is minimal.
I seem to recall they had some issue with asbestos claims years ago, so not sure of the current status there. Seems a fairly low PER for a company which has just announced a confident outlook.

Ubisense (UBI) shares are down 8% after a less than inspiring trading update, saying that results for y/e 31 Dec 2012 are now likely to be at the lower end of market expectations. That looks close to breakeven as far as I can see, so £43m mkt cap looks distinctly toppy. If I held, I'd be selling today.

The market also dislikes an update from Titan Europe (TSW), with their shares down 14% at the moment. They point to problems related to an earthquake in Northern Italy, and "very depressed trading conditions" in China.  Furthermore, weakening of the Euro means that trading profit will be "materially below current market expectations".

It seems to be quite highly indebted, with £124m net debt at last year-end, so this looks a pretty risky situation to me, best avoided.

That's it for now.

Mecom (MEC) results in the morning, already confirmed as in-line, and the company is in play. Up nicely from when I published an article about it here a few days ago.

HOME also looking outstanding value, as now barely higher than before the recent in line trading update. Mkt cap now below the value of the group's own average net cash balance + it's in house storecard debtor book. It has no debt, so you get Argos and Homebase in for free. I suspect a trade or PE buyer will spot the value & bid for it at some point. Also a huge short interest, so hopeful of a big short squeeze too.

I am also perplexed as to why the market soared, but then fell back again from the astonishingly bullish update recently from Tethys Petroleum (TPL). It's either a speculative ramp, or amazingly cheap, so naturally I've had a small punt, hoping for the latter.

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