Tuesday, December 11, 2012

Tue 11 Dec - ZYT, CPR, ASC, IGR, BEG

Prelims from Zytronic (ZYT) are released today. They are a maker of touch sensors, with a mkt cap of £51m at 347p/share. Their results look pretty good, with PBT up 17% from £3.6m to £4.2m, and EPS up 21% to 22.2p.
That puts the shares on a fairly warm PER of 15.6, although they do have net cash of £2.3m, and the divis are up 10% to 8.5p (a yield of 2.4%).

The short term outlook looks a bit wobbly - with current trading below the equivalent buoyant period last year, as expected they say. The interesting bit is that there are some "very interesting & substantial projects for major customers under development".

I've been invited to meet management later today, so am looking forward to hearing more about the company's growth plans.
Their 20% operating profit margin indicates that they have pricing power, something that appeals to me. If decent growth is in the pipeline too, then could be interesting.

I see that ZYT shares have sold off 11% in early trading, so the results must have disappointed some holders.

Carpetright (CPR) shares have maintained an impressive feat of levitation for many years now, nobody seems to have any idea why the company has such a stratospheric valuation. Shorters have attacked it again & again, and every time it rebounds.

At 666p (a sign? lol!) it's valued at £470m. Their H1 performance in the UK was improved a bit, from breakeven last year's H1, to a £5.2m operating profit this year. Europe (a much smaller part of the group) went the other way, with operating profit falling from £2.9m to breakeven. There is no dividend.

It does own a property portfolio worth £82.6m. The average net debt in H1 was £27m, down from £79.6m in the previous H1), a large reduction, driven by the sale & leaseback of freehold shops.

The valuation remains completely unfathomable, one assumes because investors are looking back to 2006-7 when it made £40m+ profit p.a.. Someone ought to point out to them that those figures were on the back of an unsustainable consumer credit boom that is not going to be repeated.
At some point the bubble here will burst, and the shares will come down to fair value, which I reckon is probably 200-300p/share, if that.

ASOS (ASC) really is a remarkable business, and for me very much "the one that got away" - I sold my half million shares in it for the princely price of 9p each, pleased at having more than doubled my money quite a few years ago. They are now 2446p per share. Hmmmmm.

Their Q1 trading statement today shows sales up 30% overall, with the UK still strong at 24%, but International now 63% of total retail sales, and up 34%. So they seem to be doing what so many UK retailers fail at - namely expansion abroad. The valuation still looks absurdly high at £2bn, but it is a very special business. I cannot help think though, at some point, there will be a sharp correction.

Had a quick look at results for International Greetings (IGR), but the extremely high level of debt puts me off, even allowing for the fact that it's a seasonal peak (stocking up for Xmas).

Tomorrow I am up in London again to see the Directors of Begbies Traynor (BEG), presenting their interims to 31 Oct. This is one of my favourite value shares, with a low PER and high divi yield. Business is likely to remain somewhat depressed, due to the lenience of Banks & HMRC, under political pressure not to push zombie companies into insolvency. But that is a temporary factor, which will unwind once the economy begins improving. So that could bring a multi-year boom in business for BEG. Given that the shares are cheap in a quiet period, then they might look ultra-cheap once business is improving.

I don't normally like ambulance-chasing businesses, but insolvency practitioners are a necessary part of the process for orderly and legal resolution of insolvent companies, however harrowing the process might be for the people involved.

That's it for today. Tomorrow's report might be in the afternoon, as I have to get across London to the Begbies meeting for 10am.

Regards, Paul.


  1. Look forward to hearing your take on Begbies Traynor. My main concern is the overhang of shares from Caledonia investment trust which is BEG's biggest institutional investor with a stake of over 15% at one stage. It now seems to be steadily running down its stake. Has BEG's management talked to Caledonia, and has it tried to find some friendly long-term investors to absorb the CLDN stake? How safe is BEG's divi.

    1. Hi GUP!
      Good questions, I've made a note & will try to ask them tomorrow. Personally I tend to view a stock overhang as a positive - because it explains the low price, and it enables me to fill my boots & get my friends in too, without chasing the price up (e.g. Vianet).
      But in the back of the mind, you worry that maybe the seller knows something we don't!
      I shall report back tomorrow afternoon.