Wednesday, October 31, 2012

Weds 31 Oct - TRCS, IND, SPA, VLX, LOQ, SPA

Firstly, I'm pleased to announce that I've linked up with who are syndicating my content, which will now appear on their Home page, so a warm welcome to our new readers from there.

Also just a quick reminder that this is absolutely NOT a share tipping site, so nothing contained here is ever financial advice. It's just a place for discussion of small caps which interest me. The mantra here is Do Your Own Research! (DYOR).

Shares in Tracsis (TRCS) have performed very well, and am kicking myself for not having bought any when it was recommended to me by a friend some time ago. They are a small software company, supplying mainly systems to manage public transport, especially trains. Serial out-performing trading statements have brought it a loyal investor following & strong share price rises.

The shares are up 10p today to 143p, a mkt cap of £35.6m.
Growth is stellar, with turnover up 112% to £8.7m (only a quarter of the mkt cap though), and adj EBITDA up 164% to £3.3m.

Cash balances are very strong, up £2.9m to £7.6m.
In fact it has a cracking balance sheet, with current assets of £9.1m (incl. £7.6m in cash), and just £3.4m total creditors. So that gives them about £5-6m in surplus cash that could be used for acquisitions or divis/buybacks.

Stingy dividend though, only 0.55p for the full year.

The outlook sounds buoyant, but I wonder how sustainable these figures are? I don't know how much of the revenue is recurring, is there not a risk that at some point the large new contracts could dry up, and profits might vanish?

The bottom line is this. If profits growth can be maintained, then with 10p EPS in the bag for y/e 31 July 2012, the shares are cheap on a PER of 14.
OR, if those profits are unsustainable in the long run, then the company could be set for a fall. On balance I don't want to take the risk, so will pass on this one. But I can see the logic for holding, if you know more about the business than I do, and are convinced it can continue growing.

Note that IndigoVision (IND) - which is my largest market position - has gone ex-divi today, hence the 85p drop. A 5p final, and 70p special divi will both be paid on 30 Nov, if they are (as expected) approved at the AGM on 8 Nov.

To my mind, there is no way the prudent management team would be prepared to give away substantially all of the cash pile that they've carefully built up over 5 years, unless the company is trading its socks off.

Therefore I am expecting a positive AGM trading statement next week. I might well top-up with some more at 410p, having managed to buy a couple of cheap large blocks of stock at below market price yesterday for friends.

I'm surprised they've dropped by more than the divi amount today, but maybe the 17% fall due to going ex-divi spooked some small holders into selling, not realising that it was the divi effect accounting for 75p of the fall? Who knows.

It's back from the dead day, with CPP Group rebounding on news of a possible bid. The shares have risen to 28p, after recent lows of well below 10p.
Dismal (for investors, if not management) CD/DVD distributor Mbl Group (MUBL) has also recovered somewhat, up 21% to 14p today.
Shaft Sinkers (SHFT) is up 8% to 41p, on news that operations have resumed.
Finally, joke stock Pursuit Dynamics is trying to tap gullible investors yet again for more money - this time they want £6m at 3p a share. Wasn't long ago that this perpetual hype machine was over 600p a share.

So having veered away from that last paragraph using my bargepole, let's get back to some decent companies.

Volex (VLX) might be worth a look. They make electrical cables in the Far East, but it'a s UK company. They've had a lousy H1, to 30 Sept, reported today. But the outlook confirms full year revised guidance, and sounds positive for next year. So I'm tempted to dig a bit deeper here, as the fwd PER is showing as about 6, and there's minimal net debt. Could be a nice turnaround story? I shall report back if it floats my boat after more research.

Virtual queuing systems (for theme parks) provider, Lo-Q (LOQ) reports with an in line (haha, geddit?!) trading statement. It's delivered very well indeed, and well done to all my friends who've made a packet backing this one, but with the PER up in the mid-20s, it's difficult to see much value there in the short term anyway.

Had a quick glance at interims from 1Spatial (SPA) a management consultancy & software business. They just about managed to scrape into the black at the EBITDA level, so a £14m mkt cap doesn't look interesting to me.

OK that's it for today. Thank you again for all the kind donations to my charity fund-raising efforts in advance of my first ever Half Marathon attempt in Feb 2013. The training runs are going really well, and managed my longest & quickest to date last weekend, running 7.5 miles in 1hr 21mins. Not too bad, considering I'm 44, and 2 stone overweight, so not built for running! Your donations are certainly spurring me on, thanks! If you would like to show some support, please donate via this link to my JustGiving page.

Regards, Paul.

(of the shares mentioned above, Paul holds a long position in IndigoVision only, and no short positions)


  1. Paul,

    Thanks for the comment on Tracsis. I've been a holder here for a while, and its always nice to see someone as respected as you give them a once over.

    As you say- the risk is always that the profits dry up at some point in future, they run out of people to sell to.

    However management seem optimistic (suggest that without acquisitions we should see the same rate of organic growth as last year- around 40%). This would gives prospective EPS of around 14p, and thus forward P/E of 10. I'm not adding more at this point, but I don't feel it's got too expensive yet.

    One thing that you allude to is the management. They've successfully grown the company rapidly, while maintaining great cashflow, a rock solid balance sheet, and great sales growth. In addition they have a habit of under-promising and over-delivering.

    Directors own a fair bit of the company, and there's been a recent director buy at 130ish p.

    I've got a feeling the next year will be about international growth (currently 3% of revenues I think).

    1. Excellent comments, thanks marlint111.

      A broker I respect, at Equity Development, who Tweets as @equity_research has today been to mgt meeting with Tracsis, and has Tweeted positive comments about it. Worth a look.

      You could well be right on this one. I just can't bring myself to buy after such a strong bull run! Thanks for your input, appreciated.

      Cheers, Paul.

  2. i'd be interested to hear your views on volex.

    my question is, Is cabling a commodity? i think the conventional wisdom is to look out for widget manufacturers - think plastics capital - as the opposite of commodity processors. Niche widget makers. There's obviously a lot of skill and technology in cables, transformers, etc, and setting up the plant to make them, but the market is so huge they can't help but become commodified. is that so?

    and then bung in rapid technological change.. but i see the low p/e and general good track record...

    1. Hi King Arthur! That picture of Scargill really disturbs me by the way LOL!

      Yes, you are right. Cables are completely a commodity, but nothing wrong in that. If you can consistently make 2-3% profit because you are more efficient than anyone else, then you have the market to yourself.

      I have no idea whether Volex are there nor not, but the PER of 6 seems to be supported by their outlook statement today (I always refer to FORWARD PERs, never historical ones, if that possibly caused confusion?).

      I'm not going to have time to look at Volex, realistically, just too busy. But would love to see some good research on it, so anyone who has the time & inclincation is welcome to write a piece, and if I think it's good enough, I will consider publishing it here attributed of course, to a guest writer. Never been done before, but why not? I can't do everything myself!

      Cheers, Paul.

    2. and indeed it would be nice to build up a team of guest writers I think.

    3. Can people submit write ups on any company?
      I would like to try my luck on isable oil
      and mining companies. I believe in state
      the facts and calculate the figures. It
      could complement your retail writeup.

      ref volex I believe people should sit on
      sidelines and wait for clearer signal. Similar
      to Tni really and both may drift gently lower.


    4. Hi HH,

      I'd consider articles for publication if they present a strong & rational case for a share being good value.
      However, it would need to be in the context of the sectors that this website covers (see here )

      So unfortunately that excludes resource sector shares.

      Re Volex - there's an article about it in Investors Chronicle which is interesting - they've lost a major customer (APPLE);;jsessionid=D148E7632156683778F0CB6846354D55.mps-apr-01-8104

      Regards, Paul.

    5. well, don't look at me for content!
      but about Volex: I just thought it was interesting - probably obvious too - that a company sitting right next to Apple, making very visible components, one of which i can see on the floor right next to me, can have no branding power and these small and vulnerable profit margins. the report said the last half year was 250m revenue, down from 270 [down 8%]. but profits 5m down from 15m [down 66%]. & which is before >5m earmarked for restructuring costs to come. It reckons on emerging from the bog towards the end of next year. I think of commodity firms as these slow beasts which can spend loads on a production line, but know it'll be good for many years, and wonder if Volex gets the worst of both worlds.


  3. Indigovision Oct news letter Turnover 30m profit over 2m