Wednesday, October 24, 2012

Wed 24 Oct - HOME, SPD, SNX, IND, TNI

Good morning! This is turning into a busy & interesting week. HOME results today, so I'll move onto those in a moment. Firstly though, I just wanted to update you on my charity fund-raising, which is going really well (see box on far right of this page --->). Lots of donations have been made, thank you all so much. Also, Ian Reid has made an extremely generous pledge offline, to donate via his charity CAF account in Feb 2013, when I have completed the Half Marathon. Thanks Ian, you're a star! Anyone else is welcome to also pledge in this way, if you would prefer, or just use the JustGiving website. I'm trying to get as many donations as possible in the bag before people start blowing all their money on Xmas shopping & parties!

Secondly, I'm delighted to announce that I have secured an advertising or sponsorship deal with WH Ireland. So I've written a bit of blurb on the Sponsors Page which details an excellent product they are offering which I think will be of specific interest to some readers here, hence why I agreed to promote it.

They combine a proper telephone broker service with a white label spread betting service. What's so good about that? Well, it means that you can trade small caps through a proper broker, and secure dramatic price improvements (often getting well inside the spread), plus combining that with the tax free status of a spread bet.

Spread betting is inherently risky if you use the gearing available, but there is no necessity to use gearing at all. You can just deposit say £20k and open £20k in underlying positions if you want. Or deposit £5k, and keep the other £15k in a secure bank account, available for margin calls should it be required.

I'm planning on writing a more detailed article about my successes and failures with spread betting, and what I've learned from that. I do emphasise that it's a potentially risky product which should only be used by sophisticated investors in my opinion. However, this WH Ireland combination of telephone broker service, big price improvements on small caps, within a tax-free wrapper is in my opinion a winner. I have also traded with Rich & Sam (the London-based brokers with WH Ireland) for years, and found them excellent people to have on your side.

I should also emphasise that I have a deal with WH Ireland whereby new accounts referred through me trigger commission payments to me, so this is a great way of supporting this Blog (as I need to earn a bit of an income from it, to reflect the amount of work involved in publishing it). Rest assured however that I will only ever promote things that are genuinely good & helpful, in my view.

The Google ads on this site are served by Google, so that's a separate thing, and gives me a little income of about £90 a month. So I won't be retiring soon, but every little helps, as they say!

OK, on to Home Retail Group (HOME) interim results. I sold my shares at around 105p in advance of the interims, as decided that a 50% gain was too good to ignore, and I'd rather see the results before deciding whether to buy back in.

The results are pretty much as expected, with benchmark operating profit down 29% to £19m. Given that turnover was £2,531m in the 6 months, we're really talking about more or less breakeven. But at least they didn't tip over into a loss, which in encouraging.

Sensibly, they have maintained an interim dividend, although greatly reduced to 1p, but that's fine and was expected to be cut or passed altogether. Paying something signals some confidence, as was the right decision.

Cash generation is particularly good, at £122m in 6 months, with closing net cash of £316m, so that bullet-proof balance sheet remains intact. They also continue to have a huge store card debtor book of £437m sitting there, with no corresponding creditors at all required to finance this.

At £893m mkt cap (at 110p a share) the shares are still therefore arguably cheap on a balance sheet basis. Although they don't look at all cheap on an earnings basis, with consensus estimate of 6p EPS that puts the PER in the high teens. It's also high risk, given that the operating profit margin is now wafer thin - i.e. it wouldn't take much to tip HOME into losses.

On balance I feel the shares are probably priced about right at 110p in the circumstances, and am happy with my decision to bank a cracking 50% profit on these shares from the recent lows.

I watched the online analyst meeting, which actually was a lot easier than dragging myself up to London to be there, so they did me a favour by not allowing me to have a place at the meeting. Stupid decision by HOME though, since my analysis here is read by almost 2,000 investors per day. So categorising me as a private investor instead of an analyst has not exactly endeared me to them. But there again, they allowed the 6th largest short position in the market to build up here, which suggests that communicating their strengths to the investor community is not exactly this group's strong point!

On the other hand, as I predicted, the closure of the short positions is providing a lot of the upward impetus for the shares. The short position has shrunk, but is still enormous at about 120m shares out on loan.
So the short squeeze could well continue, which would be good for the share price.

In my opinion the analyst meeting was pretty impressive - they have an excellent, coherent plan to transform Argos, presented by their new, American MD of Argos. It's all about modernising it, and making Argos a digitally-focused business. As 50% of its sales are already multi-channel, they're not doing too badly already, but lots of sensible ideas on what can be improved through investment.

So on balance I'm optimistic about HOME's future, but for now the shares look to be priced about right at 110p, until the turnaround bears more fruit. Therefore I'm happy to watch from the sidelines, and would become interested again if they slip back to say the 80p level.

Another good trading statement from Sports Direct (SPD), but the share price looks up with events at 401p.

Synectics (SNX) used to be called Quadnetics, and is a CCTV surveillance company, so I always look at their trading to see what the industry trends are for read-across to my largest holding, in IndigoVision (IND).

Therefore it is good to see SNX shares up 5% today on a positive trading statement. Also interesting to note that the founder, and deposed CEO of IndigoVision has sold his shares - amazingly, dumping them at 400p (over 20% discount to the market price yesterday) which seems a bizarre move, given that there are 75p divis due shortly. Although maybe some deal was done with the divis between the seller & buyers?

Anyway, it's good to have him out of the way, and it looks like the shares have been Placed with Institutions, as already an RNS has popped up saying Liontrust have taken 7% of the company. More RNSs will no doubt follow. The shares were pre-emptively marked down this morning to deter any flippers trying to bank an instant 20% gain, but quickly recovered, so they seem to have been Placed with sensible buyers. Could lead to follow-on buying from these new shareholders, if the next trading statement is as positive as I suspect it might be.

Finally, I must admit to starting to get cold feet on the Trinity Mirror hacking publicity. It's not news at all, as information that TNI were probably involved in phone hacking has been in the public domain for many years now. However, 4 actual legal cases have now emerged, and that worries me. If it's the thin end of the wedge, then things could get messy. If not, then I'm sure there will be an opportunity to buy back later.

So having slept on it, I've sold some TNI shares today, as it now looks higher risk to me now that specific evidence appears to be emerging, and nobody ever went bust by banking a profit.


  1. Any thoughts on DTG....thought this might hit your radar.

    1. Hi, I've been in Dart Group before, and notice they had a positive trading update today. Looks cheap, but it always does! Bear in mind that they fund the entire business on advance payments from airline customers, which is risky.
      Profits can be lumpy & low margin, heavily dependent on oil price. I don't usually invest in airlines, as wobbly sector. However, it's difficult to argue with a PER of under 5 for Dart. Might be worth a further look? P.