Friday, October 12, 2012


Good afternoon. Another quiet day for results, but that gives me a chance to have a look at a couple of companies that are new to me.

Firstly, Mission Marketing Group (TMMG) has announced an acquisition costing up to £3.2m, partly funded through a small Placing at 28p to raise £1.2m. This looks like a good deal, since it adds £0.7m annual profit to the group at little cost, so is earnings enhancing. Encouragingly, the Placing is only at a slight discount to the prevailing 30.75p mid-price (for a £22.3m mkt cap).

I quite like the look of this group, as the fwd PER is only 6, and I'm beginning to feel that this could be the right time to buy into cyclical things like marketing/advertising companies, in anticipation of an economic recovery that could be around the corner.

TMMG has historically had too much debt, but that is being brought down, although still a tad too high for comfort at £12.3m (about 2 years' profit), but facilities are available until 2015, so it doesn't look too risky. No divi though. Could be one to watch, although I'm not tempted to buy just yet.

I've used the pullback in May Gurney (MAYG) shares today to buy some more at 143.5p. See my report here for more details of a company that looks great value to me (PER<6, yield>6%, based on current year consensus broker forecasts, hardly any net debt other than ring-fenced finance leases), but as always please DYOR! No recommendations are ever made here, this is just a personal interest site where I give my honest opinions on shares, warts & all!

Things are generally feeling much more bullish for small caps at the moment - irrespective of what the main indices are doing, lots of oversold small caps are waking up & seeing serious re-ratings. I love these interludes in the market, which are great opportunities to make lots of money by banking big profits & recycling the money into other shares that have not yet moved. I've made serious money from this approach in the past, let's hope I can do it again (and hang on to the money this time!).

Of my main positions though, I'm not banking any profits on either IndigoVision (IND) or Trinity Mirror (TNI), both of which have done spectacularly well in the last few weeks.

IND still looks cheap to me, given that it will be paying 75p in divis in Nov 2012, so the net buying price after those divis is only around 450p. I reckon they are heading for 50p EPS this year (double last year), so that could be a PER of just 9 for a growth business that seems to be taking off, due to the new CEO. That's the upside case. If you think EPS will remain constant or only rise a bit, then the shares are probably fairly valued. Your money, so you decide!

I've bought more TNI recently, since it seems to have astonishing strength after each rise - where you would expect a large pullback, it instead just consolidates & then starts pushing up again. In my opinion, 100p+ may not be that far away. Yet it would STILL look cheap at 100p, since forecast EPS for this year & next year are 25p+, so that's a PER of just 4 at 100p, or 2.6 at today's price!

Perceived wisdom is that TNI is drowning in debt - everything I see published about TNI in other papers & magazines repeats this line - e.g. Shares mag was the latest to peddle garbage about TNI on page 41 of this week's issue (volume 14, issue 41), where they state;

"Despite their best efforts to make the transition from paper to digital, the heavy borrowings carried by regional newspaper publishers Trinity Mirror (TNI) and Johnston Press (JPR) leave them hamstrung."

This is complete nonsense, and just shows that the writer, Simon Keane, doesn't know what he's talking about! Or at the very least, he didn't bother to read TNI's and JPR's accounts.

If he had read their accounts, he would have discovered that JPR is indeed mired in debt it is very unlikely to ever be able to repay (indeed its cashflow barely covers the interest alone). However, he also would have discovered that TNI is repaying its debt so fast that it should achieve a net cash position some time in 2014! Bit of a difference, in fact total opposites!

Sure, TNI has a pension deficit over & above its net debt. But the latest pension deficit has reduced somewhat, and is roughly the same as the net book value of TNI's freehold property. One is a long-term asset, the other is a long-term liability, of similar size, so just what is the problem then?

I have sliced a few more profits on HOME at around 104p. Why? Because its interim figures due out on 24 Oct are finely balanced - they will be very close to breakeven (as H2 is the stronger half, with Xmas in it), and on huge turnover that could mean it could tip either way into a small profit or a small loss. A small loss might spook the market, and trigger a sell-off back to 70-80p, so on balance I'd rather take some money off the table now at 104p and have spare cash to buy back in cheaper after the interims, if it pans out like that.

Also, seeing as HOME have denied me access to the analyst meeting, and by any measure I'm an analyst, sod 'em. Hasn't exactly made me feel inclined to be supportive. Plus the shares are up 50% from recent lows, so top-slicing a profit is always sensible after such a decent move up in my opinion.

Finally, I note that Manganese Bronze Holdings (MNGS) shares have been suspended today pending an announcement. Doesn't look good, sadly. This is the maker of iconic london black cabs (with the back-breaking rear suspension, which attempts to send its passengers into orbit over every speed bump taken at more than 5mph).
The company's finances have looked desperately stretched for a year or two now, so I suspect the shares are probably now worthless.

Thursday, October 11, 2012

Thu 11 Oct - no report today

Good morning. I've got to dash to a meeting in London today, and didn't see anything particularly interesting on the RNS this morning, hence no report today. Will be back tomorrow morning. Have a good day.

Regards, Paul.

Wednesday, October 10, 2012

Wed 10 Oct - MAYG, THT, NPT, AVN

Good afternoon! Been busy again this morning, so sorry this report is a bit late. But hopefully you find my article below on May Gurney (MAYG) (published here late last night) interesting. Good to see MAYG continuing to rise, up another 6% today, and it still looks cheap to me, but as always please DYOR (do your own research).

There is a good discussion of May Gurney here on Motley Fool, please do share your thoughts on that discussion thread.

Troubled retailer Thorntons (THT) has issued a Q1 trading update, where they say that the first 14 weeks was in line with expectations. Own store LFL sales were down 1.7%, whilst commercial sales rose by 9.8%, and the Xmas order book is strong.
They are trading around breakeven, and with considerable debt, this is a very high risk situation, so not for me. But I am watching with interest.

As with all struggling retailers, the crux of the problem is onerous leases, where a long tail of loss-making shops on excessive rents could pull down the whole business. The solution is often a pre-pack administration or CVA, to dump all the loss-making shops in one go. Trouble is, that usually wipes out shareholders, and management usually walk away with the profitable part of the business pretty much free - a very unsatisfactory process. I hope Thorntons do survive, and manage to avoid such a process, but the shares look way too risky for me.

Interactive gaming company Netplay TV (NPT) have issued an in-line with market expectations update. Broker consensus is for 1p EPS this year, so that puts them on a PER of 12. Seems reasonable, although the company has a long history of under-performance & losses, which makes me view it with caution.

Ethically I'm not entirely comfortable with online casinos - who knows what proportion of players are kids who've nicked their parent's credit cards, etc?
Or people who are racking up debt with a gambling addiction? Plus they have to constantly advertise to bring in new players as old ones bust out. So not for me.

Satellite operator, Avanti Communications (AVN) has issued prelims for year-ended 30 June, which on the face of it look pretty grim for a £326m mkt cap (that's after today's 16% fall to 292p). I note that a Director has splashed £15k trying to support the share price today.

It always seems to be about jam tomorrow with Avanti. I've looked at this company lots of times before, and have never had the faintest idea how to value it.
But one thing's for sure, I don't want to pay up-front for things that may or may not happen in the future. I'd rather invest in cheap, unfashionable, bucket-loads of cashflow, like at Trinity Mirror (TNI).

That's it for today!
Regards, Paul.

May Gurney (MAYG) - 138p

May Gurney (MAYG) is a support services company, which provides essential maintenance services to the public sector (60%) and regulated (e.g. utilities) sector (40%).

I have bought some shares in it at 138p, and explain why I think it looks good value below.

The mkt cap is £97m at 138p/share (with 70.2m shares in issue).

Click here for full list of MAYG RNS announcements
Click here for MAYG Annual Report

(as always, this is not a recommendation or advice, but is simply my opinion on a share that interests me. Always DYOR (do your own research) and take professional advice, etc).

As you can see from the chart below, MAYG shares plummeted by half on 6 Sept 2012 when they issued a rather alarming-sounding profits warning.

Chart Showing Financial Data

However, the latest trading update, on 9 Oct 2012 seems to show that the shares halving in price was a big over-reaction, and they have risen nicely on this update. I feel the valuation is now looking very attractive, and believe that these shares look significantly undervalued, hence why I have bought some at 138p.

The latest trading update indicated that H1 trading (6m to 30 Sept 2012) is in line with expectations. Full year broker consensus for EPS this year is 24.6p, so that values the company on a bargain PER of just 5.6. That seems far too low to me, and I suspect the share price should be on a PER of 10-12, so that would suggest a target of 246-295p a share, or 78-114% upside from the current price, not bad if I'm right!

The dividend yield is also very attractive at 8.4p forecast divis for this year, yielding a stonking 6.1%. The dividend does not seem to be under any threat either.

So one might expect that the company is up to its neck in debt? Actually no, it's almost free of conventional debt, with the latest trading statement indicating net debt of just £3m at 30 Sept 2012.

There are also finance leases totalling £74m, but I have looked into this, and these pertain to vehicles & plant bought by them to service client contracts (e.g. refuse collection vehicles, etc). MAYG state that, "the obligation to repay the capital and interest related to this asset financing is contained within the contracts where the assets are utilised". Hence one can safely disregard this debt for the purposes of valuing the company, as it is effectively risk-free, and supported by the corresponding asset value.

MAYG's contracts are long-term, and not susceptible to Govt spending cuts, since they focus on repairs-based contracts, and essential services, hence will always be required regardless of the macro picture. They do a variety of public sector projects, here are a few examples;

  • Bristol City - Waste collection, street cleansing, winter maintenance
  • Cheshire West & Chester - Waste & recycling
  • East Sussex - Highways maintenance
  • Richmond upon Thames - Street lighting
  • Network Rail - BCDP, property & maintenance
  • Fulcrum - Gas connections & pipe laying
  • Welsh Water - civil engineering

So obviously bad debts are not something that MAYG has to worry about, which further de-risks it.

Their order book stands at a very impressive £1.5bn, with potential contract extensions of £1.1bn, plus a bidding pipeline of a staggering £4bn! So the growth is set to continue, and their turnover already reached £695m for y/e 31 Mar 2012. Obviously it's low margin work, and they achieved a margin of about 4.3% last year, delivering £30m operating profit. Not bad for a £97m mkt cap company. Margins tend to build throughout the life of contracts, so high recent growth could mean margins have scope to rise.

The contracts which went wrong and caused the mkt cap to drop by about £90m in Sept 2012 seem to be ring-fenced, and have required a £10m one-off provision - hardly the end of the world. Their CEO walked the plank at the time, and they now have an interim CEO who seems to be stabilising things, and indeed delivering good new contract wins. I also like the fact that MAYG expense the considerable costs of bidding for contracts as they go along, which is a conservative accounting treatment.

So to summarise, I see this as an opportunity to hopefully grab a bargain at 138p/share, the main points being;

  • Very low PER of 5.6 times brokers consensus for this year seems unduly harsh.
  • Dividend yield of over 6% whilst we wait for a re-rating.
  • Strong contract wins ongoing.
  • Problem contracts are relatively small, and liabilities ring-fenced.
  • Sound balance sheet with little to no structural debt.
  • Public sector & utility company clients, so little to no bad debt risk.
  • Impressive long-term order book.
  • In-line H1 Trading Statement 9 Oct 2012.
  • Activities are essential public services, so not susceptible to Govt spending cuts.
  • Director salaries are reasonable.

I have initiated a discussion of May Gurney here on Motley Fool. Please feel free  to add your thoughts to the discussion.

I suppose the main downside risk is that there could be more bad news to come from the problem contracts, or new problem contracts might emerge. However, given that the CEO walked the plank last month, I would have expected them to have kitchen-sinked any further problems by now. So hopefully that could be the last of the problems, and in any case once problems are ring-fenced investors tend to move on & look instead to the future.

There is no financing risk, i.e. onerous bank borrowings, which sunk companies like Jarvis or Rok. So I see this as much lower risk situation, with great upside based on such a low rating.

Tuesday, October 9, 2012

Tue 9 Oct - POS, UTW, AN., MAYG

Good afternoon. A little later than usual today, I like to keep you on your toes!
Interestingly, quite a few positive trading updates today, let's have a look at those first;

Plexus Holdings (POS) shares are up 12% to 168p (£124m mkt cap) on a very positive trading statement, saying that "after tax profits and earnings per share materially in excess of current analysts' forecasts".
The trouble is, there are no forecast information on either Hemscott or DigitalLook, so I am completely in the dark about what the forecasts are?! Therefore uninvestable for me. Also, the mkt cap of £124m looks very warm, considering at the interim stage they only had turnover of £9.3m, and EPS of just 1.5p. But there again growth companies always look expensive.

The market also likes results today from Utilitywise (UTW), a utilities cost consultant to business. Shares are up 13% to 89p (mkt cap of £49m).
Proforma revenue is up 25% to £14.6m. So looks a very high PSR, but that's because their operating margin is so high, making £3.9m PBT.
Those figures are for the year-ended 31 July 2012.

EPS is up 23% to 5.4p, so the PER works out at 16.5, which looks reasonable considering the strong growth & high margins (sign of a moat).
The outlook sounds good too, "we look forward to a further period of exciting growth". So if you like growth companies, this might be worth a further look.
I wonder whether revenues are recurring, as energy saving sounds like something which might work as a one-off perhaps?
It has net cash too, although I haven't looked at the rest of the Balance Sheet.

Up 11% at 225p (£98m mkt cap) is Alternative Networks (AN.).
At first sight this looks very interesting. Their trading statement today says that results for y/e 30 Sept 2012 will be in line with expectations for profit, and above expectations for cashflow.
Net cash has risen to £20.5m, and they indicate they're looking at ways to return surplus cash through dividends, buybacks, and making earnings accretive acquisitions, etc.

Broker consensus is EPS of 21.4p, so that's a reasonable PER of 10.5 even after today's share price rise, and the divi yield is reckoned to be 5.4%. Certainly seems worthy of a deeper look, in my opinion.

I like the look of May Gurney (MAYG), which is an infrastructure support services group, whatever that means! Seems to run recycling plants from what I can gather. Need to do some more research on this one, but at first glance it looks good. The shares halved in Sept 2012 from 220p to 110p on a warning of several problem contracts, and the departure of the CEO by the looks of it.

Their H1 trading statement today sounds OK though - says that H1 trading in line, problems highlighted in Sept have been ring-fenced, good news on contract wins, and net debt is only £3m (plus finance leases of £74m).

With forecast EPS for this year of 24.6p, MAYG shares appear cheap at 136p today (up 7% on this announcement). That's a PER of only 5.5, and a stonking forward divi yield of 6.2% (based on 8.4p divis this year).

I like the look of this. Will do some more digging. Any views?

That's it for the moment. See you again hopefully a bit earlier tomorrow!

Regards, Paul.

Monday, October 8, 2012

Mon 8 Oct - WTM, DAY, CWK

Good morning! Yes I'm back, after a sporadic week last week, due to being away from home and focused on other things. Not to mention the spectacular success we're having with 2 of my main picks, Trinity Mirror (TNI) and IndigoVision (IND), both of which I have high hopes for & can see considerable upside even after recent large share price rises. But as always, please DYOR! (do your own research).

Looks like a fairly quiet morning for results today, as the 30 June reporting season is now mostly behind us. Won't be long before we get busy again with 30 Sept period ends though.

I don't recall having looked at engineering consultancy, Waterman Group (WTM) before. Their mkt cap is £13.4m at 43.5p/share.
Preliminary results for y/e 30 June show turnover reduced from £74.1m to £68.8m, but profit before amortisation & exceptionals, and tax of £1.1m (slightly down on £1.2m last year). So a wafer thin profit margin there.

They talk about challenging market conditions, and the outlook statement seems to point to flat trading vs last year. Interesting to see that they have cleared their net debt by doing a sale & leaseback of property, so that should make the balance sheet much more secure (as lease financing can't be withdrawn (unless you fail to pay the rent, in which case you just get thrown out), whereas bank funding can). Although the interest cost savings are likely to be offset by the increased rental charges.

Overall, I can't see much to get excited about at Waterman. Although if you think the Govt will eventually realise that they need to ramp up infrastructure spending heavily in order to get us out of recession, then Waterman could be a beneficiary. Also, their balance sheet overall is nice & strong.
Although if you look back pre-credit crunch, it was making £5-8m p.a.. So a return to those kind of numbers would see a much higher share price, if it were to happen. At some point a cyclical recovery will happen, we just don't know when.

Business telecoms providers, Daisy Group (DAY) sparked my interest with a positive sounding trading update today. However, having looked at their most recent results, but balance sheet puts me off - huge amounts of intangibles, both goodwill and capitalised costs (they value "customer lists" at £187.7m net book value, for example!), plus a lot of debt. So that throws into question how real the profits are? Not for me. Why take the risk of investing in something with a weak balance sheet & aggressive accounting treatments.

Food producer Cranswick (CWK) puts out an in line with expectations trading statement to 30 Sept. So according to broker consensus that puts it on a PER of 10.2, with a divi yield of 3.8%. So might be worth a further look?

FTSE set to open 25 points down in a few seconds. Have a good day! I'm off to Gunwharf Quays (Portsmouth Harbour) for a long lunch with an old friend today, so should be fun! Well worth visiting Portsmouth Harbour for a day out actually, fantastic place with lots to see & do, e.g. HMS Victory. Esp easy as Portsmouth Harbour has its own railway line, easy to get to.