Fri 3 Aug 2012 - Morning Report

Good morning! A few large caps (e.g. RBS) and small caps that I've never heard of reporting today. Arcontech and Silanis both fall below my £10m mkt cap minimum.


Disaster-prone MBL Group (MUBL) puts out a trading update. At least bits of it are still trading, and it sounds like there could be some hope - they indicate that they have cash, don't need bank funding, and pay up-front for most product. Mkt cap now sub-£1m. Issues of trust, and Directors pay (still high despite being reduced 53%). Their original CD/DVD distribution business failed when it's main customer (a large supermarket) decided to start buying direct, so  an example of a small cap that relied too heavily on one major customer.


Athelney Trust (ATY) is a peculiar, tiny investment company, just £2.3m mkt cap! I don't normally cover these, but Athelney has always impressed me for (a) being able to maintain a Listing at a very low cost, and (b) having an interesting and outspoken narrative with its results. Results today follow the usual pattern. He comments that although the macro picture is worrying, he is continually impressed with UK Listed company results, increased divis, etc. Very much my opinion too. All around us is doom & gloom, especially in the media, yet most companies reporting are doing just fine. A strange situation.


Really boring results this morning, I'm tempted to go back to bed. But, soldiering on, minnow Newmark Security (NWT) puts out fairly poor results, but mainly due to one-offs. Mkt cap only £3m, so below my £10m minimum threshold.


A fairly flat open for the FTSE 100 is forecast by the futures.


Large caps reporting results today include RBS, Rentokil, Inmarsat, and Int Cont Airline Group.


Will be interesting to see if Trinity Mirror (TNI) can make it a third consecutive day of big rises. I'm still a buyer, even after a move from 26p to 37p, because yesterday's interim results were superb - profits actually up 11%, and the outlook was strong, indicated as out-performing market consensus.


Reducing net debt by £40m to £180m in just 6 months is astonishing, and illustrates the point I've been making for a while that TNI generates so much cash that it will pay off virtually all its net debt by June 2014, less than 2 years away. It will then be in a position to pay potentially enormous dividends (EPS should still be 20p+ by then). So despite the long term decline of the sector, in my view it clearly has many years of highly profitable operation to go, hence at 37p the shares are still ludicrously cheap - a PER of about 1.3, even after a roughly 40% rise in share price this week.


I'm not worried about the pension fund deficit, as overpayments of £10m p.a. are agreed, and in any case TNI holds freehold property of equivalent value. Therefore in June 2014 what I would do, if I were there CEO, would be to pay off the pension fund in full using the property assets, then pay out 100% of EPS in dividends. That would justify a share price of 100-200p, which in my opinion is fair value.


I've been saying for a while that the market has got it completely wrong with TNI, and it looks like my view is beginning to gain traction out there as people begin to look at the facts & figures, rather than pre-judging with the glib, "newspapers are finished" mantra. No they are not (not yet anyway)! Plenty of people out there still like to buy a newspaper, and that means many years of very profitable business for TNI. Plus if they can develop a decent digital business under a new CEO that is imminent, then it could become doubly interesting.


Finally, if you haven't yet joined ShareSoc then I strongly urge you to do so (it's free for basic membership). The people running it are volunteers, genuinely passionate about shareholder rights & democracy, tackling greedy and immoral Directors (sadly far too many of those all around us), and generally supporting the interests of private investors through other activities such as lobbying Govt.


Here is their website - www.sharesoc.org


ShareSoc played a big part in defeating the De-Listing attempt by Lighthouse recently. The Directors there should be sacked, for their arrogance and incompetence in not consulting shareholders properly before instigating value-destroying attempt to De-List.


I think ShareSoc's huge success in defeating this move will send a warning sign to all Directors that De-Listing is not an easy option, and woe betide Directors who try to go down that route of shareholder value destruction.


Have a good day, and an enjoyable weekend.