Monday, September 10, 2012


Good morning! Plastics Capital (PLA) has put out a trading statement today, confirming that they are trading "broadly in line with market expectations", which I always presume to actually mean slightly below! The rest of the RNS gives encouraging information about new contracts, but that this is essentially replacing lost or reduced business from existing clients. Therefore PLA appear to be holding their own in difficult markets, but no more than that.

In my opinion that's an OK situation - a business that can hold its own in difficult macro conditions should be able to do well once growth returns. Myself and David Stredder did our first "Mellocast" interview with the Executive Chairman of this company, who explained the company very thoroughly and eloquently I thought in our videos here.

The numbers for PLA look pretty good - it's on a current year PER of just 5.3, although bear in mind there's a fair bit of net debt - although that dropped significantly last year to around £10m, so could well come down to about £7m this year - manageable at around 2 times profits (roughly). I think the key outer to a higher share price here is probably growth resuming, and/or a bigger dividend (currently only 1.5% fc yield). But if you take a long-term view, then I could see PLA being a useful share to put in a SIPP, but as always DYOR!

Incidentally, David & I are hoping to do some more Mellocast videos in the coming months, when time permits, as the PLA one was so well received - a really good format for remotely meeting the management. Also the key differences with the Mellocast videos is that they are conducted by investors for investors - as opposed to some commercial presenter who hasn't got a clue about shares or investing just asking pre-prepared questions. Ours instead was a real meeting between investors and management, with no prior consultation on what questions we'd ask, and a lot of it was done on the fly in response to what the Chairman said. So a real meeting, as opposed to marketing fluff - totally unique, nobody else is doing this.

David & I are only interested in interviewing companies that we think offer excellent or very good value as investments for our own portfolios (although they are not recommendations to anyone else). So we're being highly selective in who we are prepared to interview! It's a don't call us, we'll call you approach!
I'd love to interview Staffline's CEO, and we're talking to them about that possibility later this week - that's my no.1 choice for the next Mellocast interview, so hopefully we can persuade them to say yes!

£14m mkt cap marketing company, SpaceandPeople (SAL) puts out interims to 30 June which are well ahead of last year in % terms, but so tiny it's probably best not to draw too many conclusions, with £437k operating profit on £5.1m turnover. However, they are an H2-biased business, but do give an in line outlook statement, which would put them on a PER of 8.9 and a divi yield of 4.2%, which looks reasonable. Although I tend to look for a PER of 6 or under when getting down to companies this small, as they are more accident-prone, often due to being reliant on a smaller number of customers than larger companies.

Small cap (£23m) recruitment company Hydrogen (HYDG) delivers interims that are a whisker ahead of the prior year H1, and an in line outlook statement. That  makes them look good value on a forecast PER of 7.4, with a useful 4.6% divi yield. The balance sheet looks pretty solid too, with a bit of debt, but well covered by debtors.

This is a competitive, low margin sector, but since the PER is low at this stage of the cycle (macro activity depressed), then it strikes me that there should be good upside in a recovering economy. Therefore I like cheap recruitment companies for their cheapness now, and upside in a cyclical recovery. Staffline remains my favourite in the sector, as it has better upside due to new Govt contracts, whilst being one of the cheapest on existing earnings PER basis.

Encouraging interims are announced by Christie Group (CTG) with a 67% increase in H1 operating profit to £1.0m, although it should be noted that on turnover of £30.2m (up 11%) that's a thin margin. Could be interesting if they also manage to deliver a good H2. Might be worth a closer look, as I note that they delivered much higher profit figures pre-credit crunch. So if a return to anything like those figures is on the cards, then the shares could look cheap. A small interim divi is restored.

Interesting announcement from DQ Entertainment (DQE) the Indian animation company, have done a deal with Burger King to use the Jungle Book characters in their marketing. I've always been a bit suspicious of DQE, and rejected it a while ago as a potential investment due to concerns over cashflow & credibility of the profits. Might revisit their figures, although usually I don't touch smaller foreign companies listed on AIM, as so many seem to fail, and after some bad experiences, once bitten & all that.

Impressive results for Murgitroyd (MUR), the European Patents company. Basic EPS up 19% to 36.4p for y/e 31 May 2012. Shares have bounced up 8% to 420p, but if that sort of growth can be maintained, then it could be interesting.


  1. I actually prefer the idea of prepared questions. I think I'd rather hear of management's considered responses. I think spontaneous questions might run the danger of being too "tricksy". And remember, we're not trying to find out if management has slick communication skills under pressure, but whether it's a good investment.

    Just my 2c, of course.

  2. Hi mcturra, interesting comment - thanks for that.
    I'd be happy with telling mgt in advance the rough areas we'd want to ask questions on, but as you say we're not trying to catch them out - just having a discussion about the company & the figures.
    Also, I prefer a friendly questioning style, as the more relaxed they are, the more likely we are to have a good interview with interesting information.
    Can't wait to do the next one, they're a lot of fun to do!

  3. Also, I'm itching to do a JV with a research company, who would put out an introductory note on the company, with an email link for people to submit questions to be asked in a subsequent video shortly afterwards, hence making the process interactive - which I think investors would really like (in fact it was someone on TMF who suggested that idea, which we have followed up & is in the pipeline!)