Thursday, November 8, 2012

Thu 8 Nov (part 2) - IND

Hello again. Oh dear, today is not panning out quite as I had hoped.

Taken in isolation, the AGM Statement from IndigoVision (IND) is reasonably positive - Q1 sales up 6% vs last year, and order intake up 10%.

However, on the negative side, gross margins have reduced (doesn't say how much) due to product mix (which is what they always say when margins fall!), which was not expected.

Furthermore, by stressing that this will be an H2-weighted year, they are effectively delivering a mild, veiled profits warning for H1, which is what has triggered a sharp fall by about 50p to 350p a share.

I think that's a tad overdone, as there really wasn't much (if any) premium built into yesterday's share price for out-performance anyway. This only puts the shares on a forecast PER of about 10 for this year, hardly demanding.

Although I do think that IND could have managed shareholder expectations better. Giving away their cash pile in a special dividend (never been done before by IND) is naturally taken as a sign of confidence - which was reiterated in the Scottish press not long ago.

Furthermore, the last results announcement talked of 20% market growth, and planning on achieving at least that growth rate, so they talked up expectations to a level which have not been met in Q1.

I apologise for calling this wrong in the short term, but believe that my reasoning was logical, based on the facts available. They are talking positively about new product launches for H2 but the fact remains that sales at IND are difficult to predict, with relatively short visibility - something they've admitted before. Hence the shares being volatile - they shoot up on positive news, and shoot down then the news is less positive.

Bottom line here though, is that the valuation is modest (only 7.5m shares in issue remember), so mkt cap only about £25m. Hardly demanding for a profitable company that has potential to out-perform. Just frustrating that, yet again we return to taxiing along the runway, with another attempted take-off aborted! But on a PER of about 10, I think the downside risk is very modest, hence am happy to park this on the back-burner.


  1. Hi Paul,

    (continuing from our discussion on today's part 1). Agreed, its easy in hindsight and management obviously have some odd ideas about how to manage expectations, especially when they had a significant amount of Q1 data rolling in. Why would they have set the bar that high (e.g. 20% growth etc). As you say this is a company that has scored some own goals before. All in all, valuation is fair (and if things keep going according to their rosy projections i'm sure theyll go up over time) but you cant compare it to a MAYG at 138p or a HOME at 70p or even an FCCN. I'm planning on getting out once (if) I've recouped my money as I don't see this one taking off anytime soon. You obviously have a soft spot for this share since you have such a long history with it, but isn't that a classic investing mistake?



    1. Hi Si,

      All fair points, but IND has always been on the cusp of serious upside - high gross margins, market leading products, amazing number & quality of reference sites already using their products, global footprint, etc.

      When you model the potential upside, it's massive if their products really take off. Trouble is, they've got stuck at about £30m p.a. turnover, which is profitable to around £3m. IF they break through that glass ceiling, then on 60% margins the upside is massive, and could quickly see the shares reach 1000p+. It just hasn't happened (yet).

      As with any share, the trick is to BLASH (buy low & sell high), hence on today's excessive fall, I actually think it's a buy, so bought a few more for a family fund at 331.5p this afternoon.

      With hindsight would I have held these shares for so many years, had I known how things would pan out? No. But it's not a sell for me on a PER of about 10, with the upside still in there, effectively for free. It frequently surges 50%+ on positive trading news, and as the Chairman apparently said at today's AGM, they deal with large contracts, so growth does not happen in a straight line. That makes it more appealing as a buy (in my opinion) when the market is disappointed, as it has been today.

      They did give a bum steer though, in the last set of results, by flagging 20% growth as the target. That was a serious cock-up, as the market will take such a steer as being in the bag, when it wasn't.


  2. I was tempted for a moment to jump in, but no I'm not ready for IND just yet, and doesn't quite fit what I'm looking for.

    I tend to look at these:
    Revenue looks good, but the net income trend is a lot less encouraging, even if you were to ignore 2008.

    But I'm sure it will go well for you in the end.


  3. Hi Paul

    No apology needed, I think its more a case of IND managing news flow ineffectively rather than you calling it wrong. I agree with Si's post above however. Imagine you had no holding in this company; based on today's announcement, would you buy??? Veiled profit warning and short visibility on future orders... I can only see IND drifting down until next announcement.