Friday, November 30, 2012

Fri 30 Nov - CUP, IND, RGO, ACL, HVN

I see that online dating group, Cupid (CUP) has called a general meeting to authorise buying back 10% of its own shares - a good sign. I really must find some room in my portfolio for Cupid, I've liked the company for a long time, and it is fairly rare in providing both strong growth and a low valuation (fwd PER is only 9). I suppose that's saying the market is unsure whether growth is sustainable, otherwise the rating would be much higher.

There is also the issue that Cupid's FD cashed in £1.2m of share options recently at 202p, which has dented confidence. The price is now 180p.

My friend "MrContrarian" has just Tweeted about a new free web page he's created which sorts & highlights the morning's RNSs. I've had a quick look, and it looks excellent, and I'll be using it from now on to help me home in on the most interesting results & announcements (which are highlighted in yellow). Check it out here;

IndigoVision (IND) dividends totalling 75p should be paid today. Amazing to think that I paid about half that for my original shares about 7 or 8 years ago. Reinforces my opinion that to make the really big gains from a share (hundreds or thousands of percent gains) you need to take a 5 year+ view.

The company have decided against talking to private shareholders openly, as bulletin board postings have damaged the business - competitors have abused them in competitive pitches. So I'm not able to report back in detail on my latest chat with the company. However, my general impression is very positive - the company's strategy seems absolutely spot-on to me, and with new management in place for almost a year now, many improvements have been made across all aspects of the business.

Management are fully aware that they need to get on with it & deliver growth now, and I think there's a good chance that will happen. It's all about delivery now, they've got the product right & resolved all other issues. Customers,  integrators, and employees are all happy, so should be all systems go hopefully.

2Ergo (RGO) shares have been a disaster, with the company's original business model not really working. They had to do a disastrous Placing not long ago, at a near-75% discount to the prevailing share price, which at the time I thought was scandalous (especially as Directors took a large chunk of the Placing shares themselves). But as was later pointed out to me, chances are everyone else had said no, so this was their only option.

Surely in this day & age we should be able to have an electronic system, whereby Listed companies can do Placings with all shareholders simultaneously? Or at least professional investors could pre-register for possible Placings, and then do them electronically with the shares suspended for say 7 days whilst the deal is done? It seems crazy that existing shareholders can be diluted out of sight in such a Placing, without even being given a chance to participate.

2Ergo results this morning are predictably grim, but the 2 products they are persevering with and have launched, actually look really interesting. They have enough cash to last more than another year by the looks of it, so the £6m mkt cap is really an all or nothing bet on these new products succeeding.

Their product is a small device which plugs into a retailer's till, which allows people who have a mobile phone electronic coupon (e.g. money off voucher sent by the retailer to them) to wave their phone at the device, which then redeems their coupon at the till point. Clever!

Mobile is completely where it's at, in many areas, so if this product does take off, then I could see 2Ergo shares at multiples of the current mkt cap. They have partnering arrangements with 25 EPoS system providers. It's very high risk, but I couldn't resist a small flutter, and have bought a small amount this morning for fun money. Well, everyone needs a little excitement in their portfolio!

Electronics company Acal (ACL) announces interims which look fairly weak, with turnover down 18%, but they misrepresent this by showing it as down 13% in the headline section. The excuse is that growth is shown as "CER growth" with a footnote explaining that this is at constant exchange rates. This is misleading. By all means show the CER growth to one side, but speaking as an accountant, the % change figure next to 2 numbers should always be the actual percentage change of those 2 numbers, not an adjusted figure to make it look better. Show any adjusted figures in addition, not instead of the actual percentage change please.

Underlying diluted EPS is down 15% (and not 9% as shown in the RNS!) to 8.2p, and the interim divi of 2.5p is maintained. So doesn't look horrendous, but the market has taken fright & marked the shares down 14% to 140p. That gives it a reasonably attractive PER of about 9, and the outlook sounds OK. So might be worth a further look? Very nice strong balance sheet too, this looks quite interesting, although it's a low margin business.

Finally, I note that recruitment company Harvey Nash (HVN) has put out a surprisingly strong IMS - saying that full year profit before tax is likely to be 10% higher than expected. It's been a while since we've seen statements like that! Their shares look good value, on a low PER, although it should be noted they have net debt of around 30% of mkt cap.

Have a good day & a lovely weekend y'all!

Regards, Paul Scott.


  1. Paul,

    2Ergo does look interesting.

    A couple of thinks I'm not clear on:

    1.) They say that their only business now is "podifi™, TikTap™ and Customer Insight ". Podifi and TikTap launched in Q4, so had little change to contribute to revenue. "Customer Insight" is described as "providing major brands with data and customer insights derived from consumer and retail activity across the podifi™ and TikTap™ platforms". So analytics from podifi/tikitap (which presumably ouldn't generate any revenue before these had been launched. So where is all the revenue coming from? It specifically discounts revenue from discontinued operations.

    2.) The results of discontinued operations suggest that in 2011 there was £7.5 million revenue and £6.5 million costs. In 2012 - £1.5 million revenue, £6.7 million costs. So revenue dropped enormously, yet their cost of sales increased? My worry would be that costs have been assigned to discontinued operations which don't belong there, in order to make this year's figures look better...

    1. Hi marlint,

      I don't know the answer to your specific questions, but what intrigued me about RGO is that in the outlook section they indicate that they're expecting to move back into profit in 2013. IF true, then that's highly significant. Also Directors putting their own money into Placing means they're putting things on the line now personally, nothing like that to energise people.

      It's a punt, and only with fun money, but I like risk/reward, as the loss is 100%, whereas I could see upside of 500%+ if things go well, from a £6m mkt cap.

      Cheers, Paul.

  2. Thanks for the mention of my Colour-coded RNS page. It's still experimental and about once a month does not work - you'll see few or no RNSs so it's obvious that's the feed is screwed.
    I have a plan to re-do the sorting engine but I've not found the time.
    The highlight colours are orange and blue, as noted in the blurb above the table.

    1. No problem, it's a really useful tool, I have added to my bookmark bar & will use every day :-)
      Thanks for setting it up!

  3. The reason why placings are done rather than an open offer or rights issue to all investors is because of the requirements of the Prospectus Directive (as laid down by the European Commission) to have a full prospectus if large numbers of retail clients are involved. A placing can be done to a few institutional investors (i.e. professional or "sophisticated investors" in legal terms) without a full prospectus and hence is intrinsically much cheaper and easier. We need to get rid of the prospectus directive in its current form. The whole thing is a nonsense anyway. Any fool can buy shares in the market without knowing anything about the company at all, but if the same investor wants to buy more shares in a rights issue, he has to be given a lot more information. All nonsense.

    1. Great comment Roger, I completely agree.

      Regards, Paul.

  4. European commission you say .....

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