Friday, November 23, 2012

Fri 23 Nov - FUTR, CSG, EPO, IND

First off, a company I've never looked at before, a magazine publisher called Future (FUTR). As with other media companies, they're trying to reinvent themselves for the digital age. Judging from their results for y/e 30 Sep 2012, issued this morning, they're not doing too badly.

As ever, I don't have time to go into any real depth in this morning skim of results, but just looking at the headline figures, turnover is down from £121.9m to £117.7m (that's the normalised figure, as it looks like they have disposed of something as total turnover fell by a larger percentage).

However, EBITDAE (the last E is "exceptionals") is up from £7.8m to £9.4m. They also talk about possibly resuming divis in 2013.
On the downside, I note that the vast bulk of their business is still print media (magazines), so the digital talk looks a bit of a smokescreen to me.

Readers here are familiar with the publishing sector, as we made a very nice profit on Trinity Mirror (TNI) shares this year, and are hence well aware of the declining nature of sales. Although I think magazines have a much longer lifespan than newspapers, as they are special interest, niche products.

With 1.1p adjusted EPS, and a share price of 17p, I really cannot see any value in Future, so will pass on this one.

Had a very quick look at interim results from Sweett Group (CSG), which is a £11m mkt cap international construction/property consultancy. The headline figures look quite good, returning to profit. But I don't like the balance sheet - too risky, with too much net debt, and debtors are too large (perhaps not surprising, as they operate partly in China, where paying debtors seems to be optional & when you feel like it).

Results from Earthport (EPO) are always good for a laugh, and today's announcement of prelims to 30 Jun 2012 are no exception. As usual, it starts off with lots of positive talk about new customer implementations, growth potential, etc. And in fairness, they have managed to increase turnover by 21% to £3m. Gross margin 78%, lots of bullish narrative, they even managed to get yet another fund-raising of £10.3m this time away successfully.

So all looking interesting, until you get to the P&L. Operating loss of £8.5m for the year. Staggering! With £5.8m cash left, they're burning through the latest fund-raising at a helluva rate. How many more years will this continue before investors will finally realise that EPO is a crock! There's nothing there, just a lot of bank accounts for moving client money around. If you need to operate overseas, then just open a bank account overseas, there is no need for Earthport to exist at all.

The mkt cap is £44m, so it seems that a new set of mugs appears every few years to refinance it. The total tally of losses to date, over 15 years, is a breath-taking £112m!

I see that IndigoVision (IND) my largest holding for many years, got a very bullish write-up in Shares magazines yesterday, and I'm hoping to have a meeting with management later today. Not sure whether I'll be able to report back though, as they have gone very prickly over some critical AGM comments on Motley Fool bulletin board. Trouble is, that's the deal when you become a stock market listed company - shareholders will discuss the company on bulletin boards. No way round that. Better to engage & manage the flow of information, than retreat into a shell, surely?

I firmly believe that Listed companies need a good mix of private investors (who create liquidity, narrow the spread, and set the share price), and Institutions (who provide long-term finance, and quick access to additional funds through Placings). Both are equally important, and need managing.

All too often Listed companies just manage their Institutional holders, and largely ignore their private investors. What they should do is engage with private investors, arrange meet the management sessions (e.g. through Dave Stredder & his excellent investor evenings at Finn Cap once a quarter), get some sponsored research notes out to private investors (as all too often we can't get access to conventional broker notes), do some investor videos, that kind of stuff.

Research clearly shows that an active private shareholder base means a much healthier share price, a much tighter bid/offer spread, which creates a proper market for everyone - as you need the liquidity to enable shareholders to move in & out. Far too many small caps have dormant share prices with ridiculously wide bid/offer spreads, because not enough effort is made to market the shares to investors. As long as that is done honestly & sensibly, then it's a win-win for everyone.

OK that's it for today, not much else in the way of small cap results, hence me wandering off at a tangent in today's report.

Good weekend all,

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