Monday, August 6, 2012


Hello. Yes, we've had a revamp over the weekend! I hope you like the new layout. I've added some bells & whistles, and hopefully made it easier to see where everything is, and what it's for.

Plastics Capital (PLA) is a niche plastics product group which myself & David Stredder met for our first "Mellocast" interview a few weeks ago (see link to the video on the right hand column of this Blog). They have announced 2 new contract wins totalling £0.5m p.a. Whilst this is welcome news, it doesn't seem material in the context of £32m annual turnover, so I'm scratching my head a bit as to why they decided to RNS it?

Another day, another De-Listing. This is now a serious problem on AIM, and the latest to announce an intention to de-list is 3D Diagnostic Imaging (3DD). The mkt cap has fallen to less than £1m, so it is difficult to see what the point is in maintaining a listing. But the reason it has fallen so much is that results have been rubbish! As part of a package of measures, Directors and all staff are taking substantial pay cuts, so they are sharing investors' pain.

But surely they owe it to shareholder to turn the business around first, and let shareholders properly see the upside with their shares Listed, and hence easily tradeable? People have bought those shares on the basis that they are Listed. Taking away that facility greatly reduces the appeal of holding the shares for many/most investors.

It seems to me the crux with de-listings is twofold. Firstly, it must be recognised as a major risk in any company with a mkt cap of less than about £10m, which is why I tend to avoid such companies shares altogether.

Secondly, it all hinges on who the major shareholders are, and what percentages they hold. With Lighthouse, where a de-listing attempt was defeated, shareholdings were fairly fragmented. However, with 3DD shareholdings are more concentrated, with 2 holders owning over 50%. So this is a much riskier situation. Something to bear in mind when looking at micro-caps - approach with extreme caution if a small number of shareholders have a controlling stake.

PuriCore (PURI), a £13m mkt cap healthcare company, announces interims to 30 June. The balance sheet looks stretched, with loan repayments deferred, but the sales are up 35% and a strong turnaround has moved it from $4.4m EBITDA loss last interims, to $0.7m positive EBITDA this year. Gross margins are low, at 33%, so not a great deal of operational gearing. But might be worth a look, if you think the products have more growth potential?

Another Director is leaving the sinking ship at HMV Group (HMV), this time the FD David Wolffe. Never a good sign. Like JJB Sports, this looks like a zombie company in terminal decline, hence I am not interested in looking at the shares.

Epistem Holdings (EHP) puts out a broadly in-line (i.e. slightly below!) trading statement. But the £36m mkt cap looks very warm for such a small company with only £6m turnover and around breakeven. Must have lots of blue sky potential to justify that. It also announces a supply deal with Becton Dickinson for its Genedrive product.

Escher Group (ESCH) is a software company to the postal industry. It puts out an in line trading update, and has won its largest ever contract from the USPS. The £41m mkt cap looks warm on the historic figures, but if broker forecast of a doubling of profit in 2013 is met, then the PER drops to 6.6. Might be worth a look, but personally I don't like paying up-front for success which may or may not happen.

Interesting RNS from Fiberweb (FWEB) whose results were last week. It has received £16m cash from a loan note, adding to its £8m net cash at 30 June 2012. So net cash now becoming material cf. its £121m mkt cap.

Good, that's it! All other results are from companies I don't cover (i.e. resource sector, sub-£10m mkt caps, large caps, financials, and overseas companies with a secondary UK listing).

Futures are flat, for a quiet open. As usual, the Eurozone crisis will be centre-stage, hopefully we seem to be inching towards some sort of end-game, one way or another. I don't really see how any country can leave the Euro, since if they do so, the population will reject the new currency and continue using Euros but in a cash-only transactions economy. Hence the entire economy will move outside the scope of taxation, public services will collapse, and the end result will probably be a revolution and authoritarian Government, perhaps preceded by a civil war.

It's difficult to think of a historical parallel where a strong currency has been replaced with a weak currency. It's always the other way around. So trying to replace the Euro with the New Drachma simply won't work, as nobody will use it! Also, the Greek Govt has failed to balance its budget with a strong currency, so there's no chance it will do so with a weak currency. They will just print constantly to pay civil servants, who will immediately convert their wages into Euros to spend in the black economy. Therefore the New Drachma will be worthless within a year or two, think Weimar Germany or Zimbabwe all over again. So I cannot see how leaving the Euro is the apparently easy fix that some are suggesting.

The only answer is for the Eurozone countries to essentially become a single country, with transfer payments from North to South, in return for discipline and restructuring imposed by the North. But that's what the EU fanatics have wanted all along - a single country - so let them get on with it. This dangerous cult of the EU now has no option but to proceed to federalism, or to collapse entirely. Sitting on a fence that is disintegrating is not the answer either way.


  1. Plastics Capital: "Whilst this is welcome news, it doesn't seem material in the context of £32m annual turnover, so I'm scratching my head a bit as to why they decided to RNS it?"

    To get a para in your blog!

  2. 1. Like the new layout
    2. Interesting to see what you hold. I particularly find it interesting that you hold JD. but I've never seen you mention it previously.
    3. How long does it take you to put these morning reports together? I don't read them every day, but appreciate them nonetheless.
    4. I was interested by the FT article you linked to on delisting recently. The tone of the article (if I may use marriage as an analogy) was that rather than being a gold-digger bride trying to snare unsuspecting suitors and take them to the cleaners, the companies were naive maidens rushing into marriage without thinking it through and ending up in a messy divorce, where both parties (directors and shareholders) are trying to grab what they can of what's left in the joint account. Did you find that?

    1. Hi Jeffrey,
      Thanks for your feedback, always good to know what people think of my efforts! In reply, in the same order;
      1. Great!
      2. JD. - only bought last week, after reading good post on it on another Blog & checking figures for myself. Looks cheap to me on an EV/EBITDA basis.
      3. My morning reports take an hour, between 7-8am, I always try to publish by 8am, so they are useful for early bird investors. Great discipline for me too, as it gets me out of bed & working at 7am every day! Also I'm building up a database of my analysis, which within a year will cover the whole market! (or the bit of it I cover anyway, small caps £10-200m mkt cap, non-resource sector, non financials). Should then be a great reference resource that I could maybe share online?
      4. De-Listing is now a major risk factor for small cap investors. It is understandable for tiny mkt cap failing companies, but inexcusable for profitable companies like Lighthouse.
      Cheers, Paul.