Friday, September 21, 2012

Fri - 21 Sept - HMV, TAN, GBO, TMZ

Good morning, phew Friday at last, must admit I'm feeling a little knackered, so will enjoy a good rest this weekend! Right, here is my usual quick blast through this morning's results of interest. My old Dell laptop has staged a miraculous recovery, so the £ signs are back!

HMV Group (HMV) has predictably come out with another pretty disastrous trading statement - it's a miracle it hasn't gone bust (yet) - but the former CEO Simon Fox (since joined TNI as CEO) did a series of astute deals with the Banks & suppliers which at least gave it a fighting chance of survival. But with the onslaught of digital streaming services for music (e.g. Spotify, which I use & it's brilliant) & film, combined with exhorbitant rents, it's difficult to imagine how HMV can possibly survive longer term. Their LFL sales are down 11.6% in the last 20 weeks, but they point to a strong release schedule of music, DVDs and games ahead of Xmas. I doubt there is any value in the equity, since debt is so high & prospects to bad, so this is one falling knife I won't be tempted to catch.

Tanfield Group (TAN) has pulled its IPO of subsidiary, Smiths Electric Vehicles. Can't say I'm surprised, it looked like pie in the sky from the start. This is a great trading share, as waves of PI excitement regularly (and for years) take the shares up to ridiculously high valuations, before it disappoints and crashes back down again. We are now probably in the latter phase, and last time I looked it was touch & go whether the core aerial platforms business will turn itself around in time to survive. So I would use my bargepole on this one right now. I would expect a big sell-off in the shares today.

Am beginning to regret my decision to sell shares in Globo (GBO) due to concerns over what impact a Grexit might have on Globo's still substantial Greek operations. They say today that the Greek operations will be disposed of in Q4. Their interims today are very impressive, with H1 EBITDA up 48% to E10.87m. Although once again I note that all their reported operating cashflow is consumed by costs which have been capitalised. So how real is the profit? I'm pretty sceptical actually. Companies which capitalise internal intangibles are usually an accident waiting to happen, once people realise that the profits are largely fictitious. This may or may not be the case with Globo, but I don't like capitalising internal development costs one bit, and also question the longevity of services like this - the internet & mobile space is changing so fast, that what's hot one year is quickly surpassed by something new next year. Hence growth can be rapid but brief. So on balance, whilst I suspect these shares might have big short-term upside in them, it's probably best for me to watch from the sidelines due to my concerns.

Scratching my head over results from Toumaz Ltd (TMZ). This jam tomorrow operation has once again delivered negligible turnover, and consistent losses, yet has a mkt cap of £78m. Clearly investors believe that waves of jam will indeed roll in tomorrow (or am I mixing my metaphors there, with gravy?), in order to support such a high valuation. Not for me, have been caught far too often over the past 15 years with overvalued hype stocks. I'd rather pay a low multiple for good solid cashflows elsewhere thank you.

Futures are indicating a positive start with the FTSE up 26. Which is nice. More later when I publish Part 2, have a great day & weekend!

Thursday, September 20, 2012

Thu 20 Sept - BJU, TFW, MOSB, SAA

Good morning. Firstly, a reader notified me yesterday to say that my "Follow By Email" service provided by Google is malfunctioning, and is sending out updates 4 or 5 hours late, so people are only getting the updates from here in mid-late afternoon! This is a nuisance, as most days I rush to publish as early as I can, as the information is time-sensitive. I've lodged a complaint with Google, and hope that they fix it soon. So my apologies for that.

However, in the meantime I also notify new posts have been published immediately on Twitter. So if you follow me @paulypilot on Twitter, then you will always be notified as soon as new posts are published.
Or, just check the front page here around 8am onwards, Part 1 is usually posted around 8-9am.

If anyone can suggest a better email feed service that will be more reliable than Google's, and is easy to set up, then let me know & I'll try to switch over to that.

It never rains but it pours, and my trusty Dell laptop has finally given up the ghost, so am using my backup laptop with no pound sign on the keyboard, so as from now assume all figures are in GBP unless stated otherwise, and expect more typos as the keyboard is ropey!

Please also note the new links to Motley Fool on the right hand side - "my" discussion board there, called Paulypilot's Pub, is a great resource, full of very smart investors, and we're getting it going again after a period of withering on the vine. So do please pay us a visit there, and contribute to the discussion.

Brainjuicer (BJU) is a 42m mkt cap (at 337p/share) market research company. Interim results are pretty solid, with good percentage growth in profits, but on very small numbers. They confirm full year guidance, but broker consensus is 16p EPS, giving a hefty PER of 21. Also the year is heavily weighted to H2, so that increases the risk. Much too pricey for my liking. Why pay such a premium, when there are so many good companies out there on a PER of 10?

I've always admired lighting company, F W Thorpe (TFW), which seems impervious to Recession, producing solid results year after year. They've delivered again, with an 18% increase in EPS to 84.8p. The shares are currently down 5% at 1000p, so the PER looks reasonable at 11.8

Total dividends of 19.4p (up 10%) gives a divi yield of 1.9%, which is perhaps a tad stingey, but worth having I suppose. They also say that the last 2 months of the year were slow (but has since returned to normal), so perhaps that is why the shares are down today. The balance sheet is a thing of beauty, stuffed full of cash, around 31.2m net cash, that's 27% of the market cap! I do enjoy a strong balance sheet, and this one is lovely - get this - current assets of 53.7m (over half of which is cash), and total liabilities of 10.0m! So quite why they are so tight with dividends, when there is pots of cash sitting there doing nothing, is beyond me! If I were a shareholder, I would be pushing for a substantial (i.e. doubling or more) increase in the dividend.

So overall, TFW looks a good long-term investment to me, even though the shares have done well over the last few years. Good growth company, reasonably priced.

Suits retail & hire company Moss Bros (MOSB) is one of those old fashioned names that one assumed would have gone bust by now. But actually they are doing OK. At 46p the mkt cap is 46m.

Interim operating profit fell 5% to 2.0m, which is surprising given the positive LFL sales achieved, but it seems to be due to higher cost prices leading to gross margin falling 2.2%. The current trading statement is OK, and they confirm full year expectations. 

Net cash is more than half the mkt cap at 26m, although it should be noted that the choice of year end 31 Jan, gives seasonal peaks in cash at both year end and interim period end. So I imagine the average cash balance during the year is somewhat lower.

The PER looks a bit toppy to me, 29 falling to 17 next year, although if you strip out net cash, it looks more reasonable. I cannot see a great deal of upside on these shares, so not for me.

Advertising & marketing group M&C Saatchi (SAA) reports solid results. 101m mkt cap at 160p/share. EPS is up 11% to 7.95p for H1. So looks like they are on track this year, which means the forecast PER is 10, and divi yield about 3%. Looks good value for such a big name company.

Although I did note some "funnies" on their balance sheet, quite big liabilities relating to a put option for a minority shareholder. So that would need further investigation before taking this any further.

OK that's it for this morning, sorry it's so late, usual service resumes tomorrow!

Wednesday, September 19, 2012

Weds 19 Sept (Part 2) - FCCN again, INS, SWL, PTD, ANP

Hello again, thought I'd come back with some more comments & a few more sets of results to look at, now the initial excitement of the spike down in French Connection (FCCN) shares this morning. Let's try a 2-day chart for FCCN to show the spike down this morning (apologies if this takes several attempts to get the chart to work!);

French Connection 2-day chart
Just shows how irrational the market in small caps can be sometimes, because the results which FCCN announced were precisely in line with the trading statement of 9 August. But evidently the sellers this morning hadn't read that trading statement or understood it, which provided a glaring buying opportunity first thing, as indeed I tweeted at 8:14am today, when the shares were 19.5p!

(If you wish, please follow me on Twitter @paulypilot)

Managed to top myself back up to a full sized position in FCCN this morning on that spike down, so feeling rather pleased with myself!

What next, OK some more results. Shares in software company (for drug development industry), Instem (INS) have been in a steady downtrend this year, and I would say the mkt cap of £17m (at 143p/share) is still looking stretched, given turnover flat at £10m for the last 3 years, and declining profitability.

H1 turnover is again flat at £4.9m, but adjusted operating profit has halved to only £0.3m. They say that they are in line, but that's for full year profit of only £1.1m (broker consensus) and 6.1p EPS. That puts them on a PER of 23, which looks at least double what I'd say is fair value. So a lot of future expectations (which don't look justified, given the cautious sounding outlook statement) built into this price, hence not for me.

One of the reasons I like doing this Blog, is that it's a good way of finding new companies, and almost every day something crops up that I've never heard of before. Swallowfield (SWL) is typical of that. £12.8m mkt cap, supplier of cosmetics & household goods.

Their results for y/e 30 June 2012 look OK, with EPS up 17% to 11.2p, putting them on a PER of 10 at 113p/share. Net debt has reduced to £4.1m. What puts me off is the very low operating margin, only 2.7%. The most interesting bit is the total divi of 6.3p for the year, so that's a juicy yield of 5.6%, although they do talk about increasing divi cover gradually over time. So risk that could be reduced if they have a bad year. Outlook statement a little wobbly - talk of an H2 weighted year this year. Probably not for me - not cheap enough. PER of 6, and a yield of 8-10% and I might be interested. But companies this small are higher risk, so they either have to have great growth potential, or be very cheap. Swallowfield doesn't really tick either of those boxes.

Pittards (PTD) might be worth a closer look, as a special situation small cap. £11m mkt cap at 2.48p/share, what looks interesting is that the forward PER is only 3 times 2013 broker consensus profit of £3.2m, and EPS of 0.79p.

Debt has been steadily rising, and net debt is now £6.2m, a potential red flag. The main problem however is that the Ethiopian Government have imposed a 150% export tariff on crust leather (I know, you couldn't make it up!). And since Pittards is a producer of leather goods, this has smashed their profitability in H1 to 30 June 2012. But they are cost-cutting, so if you think the broker forecast for next year is realistic, then this could be a bargain. I've not researched it in enough depth to make an informed decision, so will pass on this.

Interim results from Anpario (ANP) look pretty good - 20% rise in underlying EPS to 5.25p. They make animal feed additives. Market cap is £22.7m at 116p/share, and it has a decent balance sheet with about 10% of that in net cash, £2.8m.

Forward PER is about 10, yield about 2.5%. Trouble is, there are so many reasonable quality companies out there also on a PER of about 10.
Once the economy is recovering properly (which it will do, in time) many of these companies will see earnings cyclically rise, and might end up looking tremendous bargains at today's prices though. But which ones??!

That's it for today, have a good day & see you tomorrow morning.

Wed 19 Sept 2012 - FCCN, ASC, CLL

Good morning! I'm delighted to see page hits here shooting up from an average of around 600 per day during August, to over 1,000 per day now. The more the merrier, so please feel free to pass on this site's details to friends & colleagues if you think they would find it useful.

Another busy morning for results, so I might split the report into 2 again this morning, rather than delay the first part. As usual, I'll start with my particular area of expertise, retailers (where I was the Head of Finance for a ladieswear chain for 8 years ending in 2002, hence the "Pilot" in my nickname).

Fashion brand French Connection (FCCN) reports gloomy interims, as expected since they have warned on profits a number of times in the last year. The trading statement dated 9 Aug 2012 said that H1 operating profit would be £7m worse than last year (which was a profit of £0.7m), hence the H1 loss of £6.3m loss announced today is bang on where they said it would be.

Closing net cash is reported at £21.2m, well down from the £30.9m reported this time last year, although it should be emphasised that about half of the reduction is down to working capital movements which should reverse, so the underlying fall in net cash is only about £5m.

They also do a substantial amount of wholesale business, so unlike most retailers they also own a substantial (£27.7m) debtor book.  Their inventories is £2m more than ALL creditors, so you can see that this is a very strong balance sheet - the chance of this company going bust is nil right now. Therefore that gives them a chance to turnaround their trading performance.

Whilst it's disappointing that no current trading information is given, the narrative to the results today does go into detail about what they are doing to turn the business around - encrouaging, as it scotches the suggestion that management have given up.

I hold some FCCN shares in my personal portfolio. Why, you may ask? Because they are so cheap! Yes, the business is struggling, but it has more than enough financial strength to give it time to engineer a turnaround (which they have done before - last year the shares shot up to peak at 140p on the back of one good trading season). So it's the type of situation I love - where all the bad news is in the price, in spades, but the turnaround potential is in for free.

Did I mention that the share price of 25p gives a mkt cap of only £24m?! Only 10% above its own net cash position. That's crazy, especially when you recognise that trading is H2 weighted, so the £6.6m H1 loss should be partially recoupled in H2, so I reckon you're looking at a full year loss of around £4m - hardly catastrophic.

Also, bear in mind that FCCN has several highly successful parts, which together make a profit of around £15m p.a. - namely wholesale, international, and brand licensing. The latter in particular is a gold-mine, and demonstrates the strength of the brand, that makers of glasses, jewellery, perfume, accessories, etc, pay FCCN a licence fee simply to stamp the FCCN brand name on their products. Forget slogan T-shirts, that was years ago & isn't relevant any more.

The main things FCCN need to do are: lower their prices (everyone I ask says FCCN prices are too high, and I agree), improve the quality & design of the product, improve the tatty stores (tricky if they are pending disposal, but a tatty store damaged the brand), and improve retail standards (poor visual merchandising, lousy in-store graphics, etc).

They talk of a turnaround taking around 2 years, so I'm in this one for the long-haul, but at £24m mkt cap there is serious upside potential here if & when the turnaround happens. No guarantee it will of course, but the results today (especially the narrative) at least show that management are trying.

There is no reason for the price to move today, as the results are in line with expectations, but I shall probably buy some more if there is any significant weakness. I think we've seen the low at 20p some time ago, so risk/reward looks pretty good to me around 25p if you're prepared to wait for the turnaround. Bear in mind also that the next trading statement could be positive, since Sept 2011 was when their trading hit a brick wall - hence last year's poor sales figures are this year's soft comparatives, which are therefore easy to beat.

Oh, one negative is that FCCN passed the Interim divi, which is a bit disappointing, but not unreasonable until they have sorted the business out.

Moving on, internet clothing retailer ASOS (ASC), reports positive Q4 trading to 31 August, which it needs to given its stratospheric rating of 52 times historic earnings. Although that falls to 33 times next year's earnings. Bear in mind that the mkt cap is £1.6bn at 2041p/share, whilst reported sales are £553m, so the share price effectively already factors in a tripling of the size of the business (since ex-growth one might expect it to be valued at a PSR of 1).

On the other hand, ASOS has always looked expensive during its spectacular growth. Indeed, I was an early shareholder, with 500,000 shares in this a few years ago, which would today be worth £10m. However, instead of holding for 2041p/share, I sold for a handsome profit at ... wait for it ... 9p a share (as they looked fully priced at that level a few years ago, and I'd bought at around 3p). Argghhh!

Such a toppy rating is an accident waiting to happen in my view, although the international growth is very impressive at 42% Y-on-Y in Q4, and 64% for the full year.

Marketing company Cello (CLL) has delivered OK-ish interim results, with adj EPS down from 3.06p to 2.69p. However they confirm the full year outlook, which is for 6.44p, putting them on a low PER of just 6.
However, there is rather too much debt for my liking (£13.7m), and a balance sheet overweight with goodwill, so will probably keep this on my watch list. The forecast divi yield is approaching 5% though, which does look quite interesting.

I see FCCN has fallen off a cliff in the last few minutes. Why, given that results were exactly as expected??? Gotta go, I have some more FCCN shares to buy!!!

Tuesday, September 18, 2012

Tue 18 Sep (Part 2) - WIL, SUN, HOME

Part 2 here, as lots more results to look at. Fairly poor start to the day so far, with the FTSE100 down 43 points. Although I see inflation has come in slightly under expectations, at 2.9% Y-on-Y. Twitter is great for receiving up to the second economic information, and of course my Tweets are @paulypilot.
I must get round to changing that ropey picture of me on Twitter, just awful.

Wilmington Group (WIL) is a publishing & training group, mkt cap £91m at 108p a share. Their results for y/e 30 June 2012 look OK - adj profit before tax is up 4.6% to £14.0m. Quite a bit of debt though, at £36.2m. Final divi of 3.5p means full year divis of 7.0p, giving a rather decent yield of 6.5% - very much better than the Bank or Building Society.

Adj EPS rose 5% to 12.4p, so that's a PER of 8.7, which rises to about 12 when you adjust for the net debt. Market likes the results, shares up 10p to 118p. That probably looks about right to me, can't get massively excited about chasing it any higher. There are lots of good businesses around on a PER of about 10, so unless I see spectacular profit growth potential, really can't see the point in paying more.

Surgical Innovations (SUN) results don't look particularly exciting. £37m mkt cap at 8.7p/share, yet it only did £3m turnover in the half year to 30 June. Admittedly on high margins, delivering £976k of EBITDA, about 10% up on last year. Small numbers though, so not for me.

Looking at the top 5 movers this morning (excluding resource stocks & shares under 1p each);


1. Pentagon Protection (PPR) - up 43% to 5.0p on an RNS about "further contract gains" - might be worth a look?
2. Ceres Power (CWR) - up 8.9% to 12.25p on "technology update..." RNS
3. Ceramic Fuel (CFU) - up 8.6% to 4.75p
4. Ukrproduct (UKR) - up 8.5% to 11.5p - results were last week, only £4m mkt cap though.
5. Simigon (SIM) - up 7.2% to 16.75p - never heard of it before.


1. Volex (VLX) - down 29.5% to 180p on profits warning, although recovered a bit from earlier, steeper loss. Covered in my Part 1 report earlier.
2. Work Group (WORK) - down 19% to 8.5p on interim results.
3. K3 Bus. Tech (KBT) - down 19% to 143p on end of offer period, and results which look OK but not helped by vague outlook statement. I've nibbled at these at 143p, as that puts them on a PER of under 5, which looks interesting.
4. Brady Explor. (BRDY) - down 10.2% to 1.98p, not sure why.
5. Greatland (GGP) - down 9.6% to 0.85p - never heard of it before.

I've also been buying more Home Retail Group (HOME) which has been extensively covered here before. Perplexed as to why the shares have sold off from 100p at time of Q2 Tr Stat last week, to 91p now, given that trading is as hoped for, ie. showing stabilised LFL sales at Argos, and an improving trend (although still down, as you would expect from a garden centre in a wet summer) at Homebase.

I still think it's great value, mainly because the operating businesses are in for free, and are still profitable, with the mkt cap = net cash + storecard debtor book. Sooner or later HOME is likely to be bid for in my opinion. But please do your own research ("DYOR") as usual! Have a good day.

Tue 18 Sep (Part 1) - TNI, DEB, JD., KBT, VLX

Good morning. Apologies for no report yesterday - I had a look through the morning's RNSs and just couldn't find anything of interest to me - all just boring stuff & lots of micro caps below my £10m threshold.

Then of course Trinity Mirror (TNI) began another big rise (up about 11% yesterday), and I got rather over-excited about that for the rest of the day. Amazingly, despite only having been going for 3 months, this Blog has already delivered its first 100% gain, following my TNI article 22 June 2012, when the shares were just 25p (they closed at 52p yesterday).

I should of course stress that this is NOT a share tipping site, but just somewhere I share my research ideas & opinions. Readers are always urged to do your own research & take the necessary professional advice for your circumstances. Sometimes I'll be right, and sometimes wrong, but in the case of TNI it appears to be a winner, and remarkably despite doubling in price, TNI shares are still only on a current year, and 2013 year forward PER of just 2! Yes, TWO!

Masses of debt? No, actually. In fact it's being paid down at the rate of £40m per 6 months, and is not much over 1 times EBITDA, which is generally seen as pretty modest gearing. I calculate that TNI will move into net cash at some point in 2014.

Pension deficit? Yes, but it's roughly equal to TNI's own freehold property, so what's the problem? Also, overpayments of £10m p.a. until 2014 are only about a month's cashflow.

I cannot see myself selling any TNI below 100p, which even then would only be a PER of 4. In my view newspapers, if well managed, have decades life left in them, and should be seen more as lifestyle magazines, or time fillers, rather than the main source of news. And of course, as TNI has shown, they are still highly profitable - I don't ever recall seeing another dying industry operating at a profit margin of 15-20%, which is where TNI is at.

Turning to today's RNSs. Debenhams (DEB) has issued a positive trading update covering various periods in its year ending 1 Sept 2012. The upshot is that they've delivered positive LFL sales throughout the year, averaging +2.6%, and with trend accelerating to 4.4% in the last 10 weeks. That's really impressive. Gross margins a whisker down, and full year profit expectations confirmed.

It's a quality business, and the shares have done very well this year, rising steadily from 60p to 99p. However, at that level, they're priced about right in my view (PER of about 11). Given that the balance sheet is still weak, stuffed full of intangibles & debt - the long-lasting & near-disastrous legacy of private equity involvement a few years ago - I wouldn't want to chase the shares any higher.

A better value retailer in my view is JD Sports Fashion (JD.). Their interims to 28 July 2012 look poor at first glance, but remember this is expected because JD acquired the best Blacks Leisure shops from the Administrator. Hence has incurred some initial trading losses as they rebuilt the stock & sales of those shops.

The underlying business looks good to me though, with LFL sales of +1.1% (anything above zero is good in the current economic situation). It's heavily reliant on Xmas and January sale trade, and has confirmed full year expectations, so that puts the shares on a current year PER of 7.7, falling to 6.8 next year. I think that looks good value.

Although on the downside, JD is 57% owned by Pentland, and the shares are not as liquid as you would think for a £355m mkt cap company. Often a very wide spread. A quality company though, and the only real competitor to Sports Direct, now that JJB Sports is on its way out.

K3 Business Technology Group (KBT) looks interesting, as its results for the year to 30 June 2012 are issued, and deliver adj EPS of 30.2p, putting them on a PER of just 5.9 at 177p/share. There is net debt of about 55p/share on top of that to take into account though.

The shares have opened down 15% at 150p because a separate announcement says that offer talks have ended. Might be worth a further look?
Talk in their outlook statement of this year being one of investment, sounds like a veiled profits warning too, so I might wait for the dust to settle here before diving in.

Electrical flex maker, Volex (VLX) has put out a profits warning. Savage reaction from the market, with the price marked down 35%. This seems harsh, given that they indicate profits will only be flat against last year. But there again, looking at the figures, they did 18p EPS last year, and consensus was for 28p this year, so on that basis a big sell-off is probably warranted. Puts them on a PER of about 10, probably about right (they look around net cash/debt neutral).

There are lots more results to look through, so I'll publish this & hopefully come back with part 2 after a cup of tea & some porridge!