Wednesday, December 5, 2012


Good morning from le gai Paris! Apologies for missing yesterday morning's report, but I was swishing under the English Channel on a Eurostar. What a convenient & pleasant service, and so nice to be able to walk to your hotel on arrival, with no hanging around waiting for bags, passport control (done efficiently at St Pancras).

There were several important announcements yesterday for shares in my personal, and portfolios (which heavily overlap), so I will cover those first.

May Gurney (MAYG) is an out-sourcing company for the public & regulated sectors, providing largely recession-proof services such as road maintenance, refuse collection, etc. Specific problems with several contracts have trashed the shares, but gave me the opportunity to buy in cheaply at 138p, as detailed here in my article a few months ago.

That proved a shrewd purchase, as they are now around 174p to buy. The interim results yesterday provide no surprises, with underlying EPS and full year outlook all in line with expectations. They should generate around 25p adj EPS this year, so clearly the PER is still attractively low at 7 times.

The interim divi has been maintained at 2.79p, so 8.4p for the full year looks sustainable, giving a yield of around 5%, very nice! Cash generation & order book both look fine, as does the balance sheet, where all bar £3m of the net debt is underwritten by customer contracts (£74m in finance leases for vehicles & plant). So a nice situation where I'm happy to hold. In time I believe the PER should rise to at least 10, which implies a share price of 250p+.

Vianet (VNET) also reported interims yesterday, which were solid. Turnover was slightly down, as expected since they exited some low margin cellar audit business last year. My preferred measure of performance is adjusted (i.e. pre-exceptional & amortisation) EPS, which rose strongly to 5.3p. However it should be noted that the utilisation of tax losses resulted in no tax charge for this 6 month period, hence that figure is correspondingly flattered. Underlying profits are pretty much flat against last year.

There is an extremely informative video results presentation here, which if you have time is well worth a listen. I went through it last night, and am very excited about Vianet's prospects in the next year or two. It sounds like they are running a little behind plan this year, so I have mentally trimmed my expectations from 13.2p EPS to around 12p for this year.

Next year's 16.4p looks achievable though, and management comments about expansion into the USA for their core iDraught product sound tremendously exciting, and mean this company should get a re-rating to a growth company PER at some point in 2013. At present investors are worried that their core product (the beer monitoring Brulines product, which is primarily used to monitor adherence to the "tie" in UK tenanted pubs) is in a declining market due to the conntinued pub closures in the UK.

However, the rate of pub closures has slowed, and the launch of the iDraught product in the USA in 2013 is expected to initially be for national bar operators with 2,000 sites. So that launch will increase the company's total installed base by over 10% in one fell swoop! Trials have been underway in Colorado for 2 years, and they are now ready to launch nationally, using a large US distribution partner called Micro Matic.

The plan for the USA is a 3-year growth to 5,000 installations, yielding $12m p.a. in recurring revenue! That's serious growth, and would only be scratching the surface of the US market which is reckoned to be 300,000 bars.

Vending solutions is the other part of Vianet that really excites me. As I understand it, this is a fairly cheap (about £120, and then around £10 a month) after-market product which links vending machines to wireless networks, and enables the owner to monitor all aspects of the machine's performance remotely via the internet. Machine owners have seen big increases in profitability from using this product. There is also a contactless payment product too, enabling machines to become cashless, which was trialled successfully by Coca-Cola & VISA at the London Olympics.
A large contract win is "imminent" according to the results presentation video, so some excitement there too.

I really like Vianet's products, as they give clients such obvious advantages in profitability, hence should be relatively easy to sell, and generate good growth.

Interestingly, management say in the results presentation that iDraught launching in the USA "will step change the group's earnings", and they also use the same phrase about vending, saying it is "on the verge of major contract wins". Pretty exciting stuff, so I'm very happy to hold here, especially as we're being paid over 5% dividend yield whilst we wait. The interim divi was raised slightly to 1.7p. The CEO certainly believes his own story, as he spent his divis on buying more shares - £317k spent in the last year in fact, a serious vote of confidence there! He holds 15% of the company, just right.

I am hoping to speak with management on my return from France shortly, and continue to believe that this is one of the most interesting, undervalued growth stocks out there. The market has not yet latched onto the seriously good growth prospects developing here, and is pricing it as a mature business. There are no guarantees of course, but it looks attractive to me.

As I suspected, it looks like there is an overhang of stock in Vianet, with a recent RNS showing that an HSBC Nominee account has sold over a million shares, and now has just over 3m shares (11%) remaining. Hence it seems likely that the share price might mark time until that is cleared, assuming that they intend selling all, which they may or may not. In any case, I see that as an advantage, as it's allowing us to buy as many as we want without chasing the price up.

Things always seem to happen in threes, and the third trading announcement from yesterday in my portfolio was from internet TV set-top box maker, Amino Technologies (AMO). They indicated in line trading, which puts them on a PER of 12, based on fc EPS just above 5p.

However, the most interesting thing about Amino is its balance sheet stuffed full of cash, which has now reached £17m (bear in mind the mkt cap is only £31m). They made a very bullish statement about dividends, as follows;

In line with guidance at the full year results for 2011 when the Company announced its maiden dividend, the Board now intends to introduce a progressive dividend policy. The Board is pleased to be recommending a full year dividend of 3p for the year ended 30 November 2012, a 50 per cent increase year on year, with an expectation to provide both an interim and full year dividend moving forward. Furthermore, the Board expects this dividend to grow by no less than 15 per cent per annum for each of the next two years.  

That suggests that AMO shareholders will do very nicely from divis over the next few years, although as they don't indicate the quantum of the interim divis, it's difficult to know what the yield will be. But based on the final divi, it's going to be at least 5%, so an attractive situation. I may buy more if they slip back a bit after yesterday's rise.

Looking at today's RNS, I see that Silverdell (SID) has issued finals for the y/e 30 Sep 2012. I like the management here (have met them at a FinnCap meeting), but what put me off investing was the cash-hungry nature of the business, in that they have to pay wages to contractors promptly, but then customers wait 60 days to pay Silverdell. So they function almost like a bank for their customers!

Revenue & profits are up strongly, due to the acquisition of EDS, although the increased number of shares from their equity fundraising means that EPS is only up marginally to 1.5p. So the shares are on a PER of 9 at 13.5p, which is maybe slightly low, perhaps a fairer range would be a PER of 10-12, indicating small upside to the 15-18p range. However I can't see any reason for a premium PER, so not enough upside on the share price to get me excited.

Maiden dividend of 0.175p is payable in Mar 2013, and is good news. 2 years' dividends should cover the bid/offer spread!
The outlook statement sounds positive.

A cleverly worded trading statement from K3 Business Technology (KBT) could be read as bullish or potentially bearish, saying that they need to close "a number of key deals" to underpin expectations for this year's trading. So by implication if they don't close those deals then...
I held these shares briefly, but decided I don't like the treatment of intangibles, so sold out.

Both Home Retail Group (HOME) and Trinity Mirror (TNI) have continued to rise after I sold out too early in both cases. Can't see any company specific news other than a new Non-Exec being appointed for HOME to justify their near-10% rise so far today. Anyway, in both cases I banked a terrific profit & moved on, so can't complain. There's still a huge short position in HOME, so perhaps there is a continued squeeze there? And the hacking story has gone quiet again at TNI, although it's bound to rear its ugly head again at some point, and with trials expected in June 2013 I think that's a story that's not likely to go away. I was prepared to gamble on it when the shares were 25p and on a PER of 1, but not now they are almost 90p. What a staggering recovery though, and just goes to show that sometimes the stock market does throw free money at you. Not too often though, sadly!

Right that's me done. Time for some croissants & sight-seeing!

Regards, Paul.


  1. Paul, re. Silverdell, EPS median forecast for 2013 is 2.45, giving a forward P/E of just 5.6. There are 2 brokers estimates. If we go with the more conservative one (Finncap at 2.07) still this delivers a fwd P/E of 6.70 at current price of 13.75, which looks low to me. Any thoughts?

  2. Hi Langbarb,
    As there was a material quantity of shares issued in the fund-raising, I would treat all forecasts with caution, and double-check the figures myself.
    But if you're happy that the forecasts do correctly account for the new shares in issue, then I would agree that a fwd PER of 6.7 seems quite attractive.

    If you manage to get hold of the broker note, do email it to me paulypilot@g mail dot c o dot u K and I'll check it out.

    Thanks for your input. 2 minds always better than one!

    Cheers, Paul.