Thursday, November 15, 2012


Good morning. A share that I previously held (but currently do not, as I felt the valuation was starting to look a tad stretched) is Snoozebox (ZZZ) - an innovative company which turns standard metal shipping containers into portable hotel or lodging accommodation.

They have raised £8.4m (before costs) at 55p a share, not bad considering that's a 13% discount to a fairly buoyant market price. Before the Placing the mkt cap was £34m. After the Placing the enlarged share capital will be 66.6m shares, so if they ease back to say 60p, that will be a £40m mkt cap. That looks a bit scary considering the company is still in its first proper year of trading, and  profits are as yet unknown.

So I shall continue watching from the sidelines. My experience of exciting small growth companies is that it nearly always takes longer and costs more, to get where they want to go. Hence at some point a buying opportunity will probably arise from a profits warning. So Snoozebox is currently on my watch list, but I'm not interested in paying up at this price. Halve it to 30p or less on some bad news, and I'd look again.

A share I do hold is Scottish TV outfit STV Group (STVG). It's a typical old media type of company - on a very cheap forward PER (of only 3!), but has lots of debt & a pension deficit.

I'm a bit rusty on the numbers, but from historical & broker forecasts, I came to the conclusion that the debt is manageable, and that the shares could easily have a nice run from around the 100p level to say 150-200p if we're lucky. Hence why I bought some around the current price.

They've put out a Q3 IMS this morning which sounds reassuring on every KPI that they mention, apart from the most important one which they don't mention, namely profit! So not a very well constructed IMS at all. It should have been shorter, and just said whether or not they're on plan with profit expectations. However, I suspect enough can be inferred from this IMS to assume that profits are on track, so could see a bit of a lift in STVG, although the futures are pointing to another down day overall, so not sure if STVG can fight against that headwind today? I'm happy to hold anyway.

Specialist recruitment company, Hydrogen (HYDG) has put out a profits warning, so expect a sharp fall there today. They say that their stronger trading period, from Sept-Nov has disappointed, and therefore full year profits, "will be significantly below current market expectations". Ouch. That looks like a fairly serious warning, so my guesstimate is that will probably hit the share price by around 20%.

My favourite pick in the recruitment sector remains Staffline (STAF), because it's fairly recession-proof, supplying mainly low wage, blue collar staff to essential sectors like food production & retail. Hence less likelihood of a profits warning there in my view (famous last words!).
Incidentally, STAF shares have had a good week because they were tipped in the MIDAS column of last weekend's Mail on Sunday, hence the flurry of buying on Monday morning.

Another small cap profits warning, from Swallowfield (SWL), a UK company involved in cosmetics & personal care products. They say that due to various factors their Board, "expects full year earnings to be significantly below current market expectations". So I would have thought that's probably a 20%-ish share price fall too. Although they do say that things are improving in H2, so the market might possibly give some credit for that?

Profits warnings can provide a good chance to buy good companies at bargain prices, on temporary setbacks, but you need balls of steel, and an ability to sort the wheat from the chaff. Also I tend to find that sitting back and waiting for the dust to settle (sometimes weeks, or months later) is the safest strategy.
In these unsettled times, not many shares bounce back immediately from profits warnings, and often a second fall follows after the initial dead cat bounce.

I don't like the look of either Hydrogen or Swallowfield, so am not interested in trying to catch those falling knives.

Opsec Security (OSG) interims look pretty good, with adjusted operating profit up from £1.4m to £3.1m, although driven by a large contract, and an acquisition. So it would need more time that I have available to delve into the numbers there.

That's it for now.

Regards, Paul.

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