Monday, December 10, 2012

Mon 10 Dec - AMO, INL, AND, HDD, AN., TET

A fairly light morning for news so far. The only share in my portfolio putting out an RNS today is more good news from Amino Technologies (AMO). They've won a contract with a European telecoms company for their innovative set-top boxes which stream TV to devices around the house. It's put a couple of percent on the share price. This is on top of last week's in line trading statement, and news of a progressive dividend policy that sees the yield over 5%, and rising 15% p.a. for 2 years. So a good incentive for me to sit tight/buy more on any dips.

I note that Inland (INL), the brownfield regeneration minnow, is starting to move up this morning, a delayed reaction to the granting of planning permission on it's site in Poole. Their mishandling of Directors remuneration has certainly put a dampener on things, together with the bizarre reaction of the CEO at widespread criticism from shareholders at their AGM. But let's hope this year will finally show the company actually generate some shareholder value? Although the shares are still 60% down on the IPO price. There is "hidden" NAV though, so the true underlying NAV is probably now around 32-35p, hence why despite my reservations about management, I bought a few more after their AGM.

Results from specialist camera maker, Andor Technology (AND) look reasonably good, with adj profit before tax edging up from £9.7m to £10.0m. Adj EPS comes in at 27.5p, so the shares aren't exactly cheap on a PER of 14.4. However, when you consider they have £17.1m in net cash (compared with a mkt cap of £114m at 395p/share) and are still managing to grow in a lousy economy, then it might be an interesting company.

Their inaugural dividend of just 2p seems unnecessarily cautious given the strength of both profits and the balance sheet, they could have paid much more, 5-10p would have made a bolder statement, and would be easily affordable.

Results for y/e 30 Sep 2012 from minnow metal hardening engineer, Hardide (HDD) look encouraging. It has swung from losses into a £378k profit on turnover up 49% to £2.9m (still tiny, but a good profit margin which indicates lean overheads & pricing power).

The £8.4m mkt cap (at 1.1p/share) doesn't exactly make it look cheap on those figures, but if this becomes an exponential growth story, then it could be a tremendous bargain. Might be worth doing some digging to find out what the growth potential is?

Telecoms company, Alternative Networks (AN.) results look pretty good, although as always in these reports I only ever have a quick glance, so it's essential to DYOR.

Adj EPS is up 10% to 25.3p, although it looks like there are quite a lot of share options in existence, as the diluted adj EPS figure is a fair bit lower, at 22.4p.
Using the latter figure, that puts the PER at 11.6 (at 259p/share). Given that it also has net cash, a positive outlook statement, a strong balance sheet, and a decent dividend of 11.5p (for a 4.4% yield), and stated intention to raise divis by 10% p.a. over the next 2 years, this looks like an interesting situation.

The 2 things to watch out for with this type of company, are that they're not inflating profits by capitalising costs into intangibles. There are £26.3m of intangibles on AN.'s balance sheet, so that needs a further look.

Secondly, the risk is that net cash can be up-front payments by customers, hence always worth checking what the deferred income creditor is, and deducting that from net cash to arrive at a true net cash owned by the company itself.

But at first glance, I like the look of Alternative Networks.

Have had a quick glance at results from Treatt (TET) the supplier of organic & fair trade ingredients for food & cosmetics - likely to be a good growth sector one would imagine.

Looks like they've been under margin pressure, with profit before tax down 20% to £5.1m, on turnover flat at £74m.
Dividends are healthy, at 15.5p for the year, a yield of 4.2%.
Debt is a little higher than I would like, although the Balance Sheet overall looks OK - the debt seems to be mainly supporting fairly high stock levels, and low trade creditors.

I can't invest in the face of falling earnings though, unless the PER was much lower. Another fly in the ointment is the absurdly generous 2-year notice period in the former CEO's contract, resulting in a £0.6m pay-off. This is yet another area where shareholders need to put their foot down & demand improvements in conduct - yet another area where Directors "take the proverbial".

Why on earth should anyone have a 12-month notice period in their contract? (let alone 24?!). 6-months is plenty, and 3-months would be adequate for most Directors. They rarely actually work out their notice periods anyway. Nobody is indispensable, and in truth long notice periods for Directors are just yet another example of a managerial class finding ways to dip their hands into the till at every opportunity, even when they're leaving. So people who under-perform & leave, are given a 12-month pay-off, it's ridiculous! They should leave with 30-days pay at best, if they under-perform. Or nothing.

So this situation at Treatt where the outgoing CEO got a 2-year pay-off needs to be investigated, and if I were a shareholder then I would be asking the head of the Remuneration Committee why this has happened, and to make sure that in future Directors are only given 6-month notice periods at the maximum. Anything more is pure greed. It's difficult to think of any examples of Directors who have given their notice, and then continued working for more than 6 months. Usually they leave within about 3-months, by mutual agreement, as they are anxious to take on their new position. But they are always paid 12-months. This has got to stop. Time for a new shareholder spring in 2013 I think, to challenge & reduce excessive rewards for failure, including long notice periods.

You can't beat a good rant to get the blood pumping! It's a glorious day here in Hove, so I'm going for a jog along the seafront now, as only 2 months away from my Half Marathon - thank you so much to everyone who has already sponsored my 2 charities, and if you're feeling generous then please feel free to contribute here at JustGiving. We're already up to 47% of my target, but it would be great to get over 50% before Xmas!

Regards, Paul.


  1. Hi

    You mentioned previously that it was your intention to post a report on the Inland meeting. Is it still your intention? You've teased us with snippets here - it would be great to hear a fuller version.



    1. Hi Ian,

      I'm in 2 minds about this. I came to the conclusion that there's not really any benefit from raking over the coals. Shareholders gave mgt a roasting over the bonuses. Mgt listened & did at least acknowledge that they should have communicated better over it.

      But I doubt much will change, as this company seems the private fiefdom of an eccentric and (in my view) deluded CEO & FD, who have extremely high opinions of themselves, and seem completely blind to the reality that they've only destroyed shareholder value at Inland since its IPO in 2007.

      Having said that, they are now making progress on some of their larger sites (eg planning permission granted at Poole recently) so the newsflow should be pretty good this year. Hence, despite my reservations about mgt, I've bought some more shares, and will await developments.

      But I doubt that I'll be doing a full write-up, as it takes too long, and the issue over remuneration has already been done to death.

      Cheers, Paul.

  2. Hi Paul,
    You did not comment on the poor results by Expansys and whether they changed your view of the Company. As you have kept them in your portfolio I presume not.
    best wishes

    1. Hi John,

      True. I didn't get round to commenting on them, had intended to, but got side-tracked onto other things.

      I thought the results were disappointing, but the full year outlook is still reasonable, and Bal Sheet strength means that it shouldn't go bust.

      If they make the full year forecasts, then the PER is only 4.

      I'm NOT an enthusiastic holder any more - am holding more because I can't see much point in selling, rather than because I think they're a good share.

      This was only a small side bet for me, so not something I'm going to lose any sleep over.

      Cheers, Paul.