Weds 19 Sept (Part 2) - FCCN again, INS, SWL, PTD, ANP

Hello again, thought I'd come back with some more comments & a few more sets of results to look at, now the initial excitement of the spike down in French Connection (FCCN) shares this morning. Let's try a 2-day chart for FCCN to show the spike down this morning (apologies if this takes several attempts to get the chart to work!);

French Connection 2-day chart

Just shows how irrational the market in small caps can be sometimes, because the results which FCCN announced were precisely in line with the trading statement of 9 August. But evidently the sellers this morning hadn't read that trading statement or understood it, which provided a glaring buying opportunity first thing, as indeed I tweeted at 8:14am today, when the shares were 19.5p!

(If you wish, please follow me on Twitter @paulypilot)

Managed to top myself back up to a full sized position in FCCN this morning on that spike down, so feeling rather pleased with myself!

What next, OK some more results. Shares in software company (for drug development industry), Instem (INS) have been in a steady downtrend this year, and I would say the mkt cap of £17m (at 143p/share) is still looking stretched, given turnover flat at £10m for the last 3 years, and declining profitability.

H1 turnover is again flat at £4.9m, but adjusted operating profit has halved to only £0.3m. They say that they are in line, but that's for full year profit of only £1.1m (broker consensus) and 6.1p EPS. That puts them on a PER of 23, which looks at least double what I'd say is fair value. So a lot of future expectations (which don't look justified, given the cautious sounding outlook statement) built into this price, hence not for me.

One of the reasons I like doing this Blog, is that it's a good way of finding new companies, and almost every day something crops up that I've never heard of before. Swallowfield (SWL) is typical of that. £12.8m mkt cap, supplier of cosmetics & household goods.

Their results for y/e 30 June 2012 look OK, with EPS up 17% to 11.2p, putting them on a PER of 10 at 113p/share. Net debt has reduced to £4.1m. What puts me off is the very low operating margin, only 2.7%. The most interesting bit is the total divi of 6.3p for the year, so that's a juicy yield of 5.6%, although they do talk about increasing divi cover gradually over time. So risk that could be reduced if they have a bad year. Outlook statement a little wobbly - talk of an H2 weighted year this year. Probably not for me - not cheap enough. PER of 6, and a yield of 8-10% and I might be interested. But companies this small are higher risk, so they either have to have great growth potential, or be very cheap. Swallowfield doesn't really tick either of those boxes.

Pittards (PTD) might be worth a closer look, as a special situation small cap. £11m mkt cap at 2.48p/share, what looks interesting is that the forward PER is only 3 times 2013 broker consensus profit of £3.2m, and EPS of 0.79p.

Debt has been steadily rising, and net debt is now £6.2m, a potential red flag. The main problem however is that the Ethiopian Government have imposed a 150% export tariff on crust leather (I know, you couldn't make it up!). And since Pittards is a producer of leather goods, this has smashed their profitability in H1 to 30 June 2012. But they are cost-cutting, so if you think the broker forecast for next year is realistic, then this could be a bargain. I've not researched it in enough depth to make an informed decision, so will pass on this.

Interim results from Anpario (ANP) look pretty good - 20% rise in underlying EPS to 5.25p. They make animal feed additives. Market cap is £22.7m at 116p/share, and it has a decent balance sheet with about 10% of that in net cash, £2.8m.

Forward PER is about 10, yield about 2.5%. Trouble is, there are so many reasonable quality companies out there also on a PER of about 10.
Once the economy is recovering properly (which it will do, in time) many of these companies will see earnings cyclically rise, and might end up looking tremendous bargains at today's prices though. But which ones??!

That's it for today, have a good day & see you tomorrow morning.