Fri 19 Oct - BEG, TNI, MAYG, XPS

Good morning! A very quiet day for results today, which will give me more time this afternoon to put the finishing touches to my new website. It's not finished yet, but by all means check it out to get a preview of what it will be like - at www.SmallCapValue.co.uk

This is a project that myself and a friend dreamed up & have been working on throughout 2012, which relies on a stock screening system called PAS (Performance Analysis Scores) which we've been given exclusive access to. The PAS system has been developed over 30 years by a UK Business School Professor, and the system has an enviable track record of long-term market out-performance. I'll be trying it out with smaller caps for the first time on my new website (which will be free [hopefully forever], if I can generate enough income from ads & sponsorship).

The frustrating thing (but a nice problem to have!) is that our main stock picks for the PAS system were going to be Trinity Mirror and IndigoVision, but of course they have both shot up in the meantime. Hence if only I'd launched the project a few months ago, we'd be looking like investing geniuses by now! The other reason I like PAS is because it has confirmed a lot of my own stock selection choices, as well as throwing up new ideas.

The unique thing with PAS is that it has been built by selecting 200 of the most successful Listed companies, and 200 of the least successful, then uses 120 algorithms which identified common patterns in the accounts of such companies over many years. These are things that are unique patterns, and not something which can be replicated using a conventional stock screen. The results are sometimes surprising, in that companies which I thought were safe are flagged as risky by PAS, and vice versa.

So my new site will be testing the system out in real time with a model portfolio, and who knows where that will take us in the future? But it will be an interesting project anyway.

We are hoping that using PAS as an initial market screen, and me then scrutinising and selecting the best stocks from within that group, should combine to produce significant market out-performance, at low risk, over time.

OK, looking at some announcements today, insolvency accountant, Begbies Traynor (BEG) - I hold shares in BEG - puts out an interesting "Red Flag Alert Report", commenting on the state of corporate UK. They note an increasing North/South divide, with London and the South East seeing growth, but other areas languishing.

That sounds sensible to me, as subjectively when I'm in Brighton or London, it doesn't seem like a Recession at all - bars, restaurants & shops are all busy, people are out spending money, and there's plenty of construction & refurbishment going on. If anything, things feel pretty buoyant right now. Whereas in the North, and elsewhere I hear that it's not buoyant at all.

BEG also comment on the continuing issue of zombie companies - which are essentially insolvent, but are being propped up by banks and other creditors (eg. HMRC) reluctant to foreclose. BEG say this is hampering an economic recovery, but they would say that, wouldn't they! (as they want more business).

There's no doubt that economic policy is wildly distorting lots of things right now - we should have seen a 30-50% correction in house prices, and much higher unemployment, but neither have happened due to artificially low interest rates. This may be a good thing in the short term, but how will the economy recover if it never goes through the necessary corrections fuelled by Recession?

Turning to my own stocks, Trinity Mirror (TNI) is still looking very resilient, hovering around the 70p level. There's an IMS due on 8 Nov, although we have already been told this week (RNS of 15 Oct) that trading is in line with expectations. So we will probably be told about further reduction in net debt, a possible fall in the pension deficit? (due to slight increase in bond yields recently).

I remain of the view that May Gurney (MAYG) seems good value, on a low PER and high divi yield, with a recent in line trading update, and good news on new contract wins. The previously reported problem areas are said to be ring-fenced, so I am hopeful for a gradual recovery in share price.

I've also opened a new position in IT etailer, EXpansys (XPS). The reason is a low fwd PER of 4-5, a solid balance sheet with net cash, good growth, 42% owned by Peter Jones from Dragon's Den, and a good chart. Also, I've noticed their ads all over the internet, and have just ordered a new laptop from them, as their prices look competitive.
On the downside, it's a low margin business, with potential product obsolescence risk. Just flagging it up for you to DYOR if you like the sound of it - do report back with any views, as two minds are usually better than one!

Thanks again for the kind & generous donations to my charity Half Marathon (see box on the right --->), it's greatly appreciated.

Have a good day & a smashing weekend!

Regards, Paul.