Thursday, November 8, 2012

Thu 8 Nov (part 2) - IND

Hello again. Oh dear, today is not panning out quite as I had hoped.

Taken in isolation, the AGM Statement from IndigoVision (IND) is reasonably positive - Q1 sales up 6% vs last year, and order intake up 10%.

However, on the negative side, gross margins have reduced (doesn't say how much) due to product mix (which is what they always say when margins fall!), which was not expected.

Furthermore, by stressing that this will be an H2-weighted year, they are effectively delivering a mild, veiled profits warning for H1, which is what has triggered a sharp fall by about 50p to 350p a share.

I think that's a tad overdone, as there really wasn't much (if any) premium built into yesterday's share price for out-performance anyway. This only puts the shares on a forecast PER of about 10 for this year, hardly demanding.

Although I do think that IND could have managed shareholder expectations better. Giving away their cash pile in a special dividend (never been done before by IND) is naturally taken as a sign of confidence - which was reiterated in the Scottish press not long ago.

Furthermore, the last results announcement talked of 20% market growth, and planning on achieving at least that growth rate, so they talked up expectations to a level which have not been met in Q1.

I apologise for calling this wrong in the short term, but believe that my reasoning was logical, based on the facts available. They are talking positively about new product launches for H2 but the fact remains that sales at IND are difficult to predict, with relatively short visibility - something they've admitted before. Hence the shares being volatile - they shoot up on positive news, and shoot down then the news is less positive.

Bottom line here though, is that the valuation is modest (only 7.5m shares in issue remember), so mkt cap only about £25m. Hardly demanding for a profitable company that has potential to out-perform. Just frustrating that, yet again we return to taxiing along the runway, with another attempted take-off aborted! But on a PER of about 10, I think the downside risk is very modest, hence am happy to park this on the back-burner.

Thu 8 Nov - TNI, DPP

Good morning. Busy day today, with trading statements from several companies I follow. Firstly, Trinity Mirror (TNI) report on the 17 weeks of H2, to 28 Oct 2012.

The most important line is this one;

"...adjusted operating profit performance for the current year to be broadly in line with 2011 (£104.5 million)."

I also like this comment on cashflow & net debt reduction;

"The Group's robust operating profits and strong cash flows during the period enabled a further £19 million reduction in net debt, giving a total reduction of £59 million for the year to date, to £162 million."

The trends on advertising & circulation revenues are said to be improving, but the headline figures don't look good - group revenues show that advertising is down 12% and circulation down 16% in the 17 weeks. Although prior year comparatives are tough, because it covers the period when NotW had been closed, but before the Sun on Sunday had been opened, I think.

Adjusting for this factor shows circulation revenues down a more sensible 4% at the Nationals division.

The only mention of phone hacking is to say this (which seems odd - why did the lawyer concerned publicise the issue of legal action, if he hasn't actually filed the claims?

"Following the extensive publicity given to recent claims of alleged wrong doing by Trinity Mirror journalists, the Board can confirm that no such claims have yet been served, nor have any particulars of such claims been provided. As a result, we are today issuing notices requiring claim forms to be served."

Overall then, TNI's valuation still looks very cheap on fundamentals, with them being on track to have repaid net debt pretty much in full by some point in 2014.

The big unknown of course is the phone hacking issue, and what it will cost them. Information in the public domain suggests that TNI were heavily involved in phone hacking, and the Police are investigating, with prosecutions expected in 2013.

So it remains to be seen whether the dam will break, and what information comes out. But the reality is, that TNI has a lot of potential liabilities for phone hacking compensation which have not been provided for on the balance sheet. Until we know what the likely cost is, the shares are difficult to value.

I do not currently hold TNI shares, and am awaiting clarity on the phone hacking issue before considering whether to reinvest.

Excluding an acquisition, digital revenues are going nowhere, so they clearly need to come up with a better digital strategy.

The pension deficit has reared its ugly head again, with the fall in long term interest rates meaning that it has risen by £73m at the half year to £283m just 3 months later, at 30 Sep. Not helpful, but typical of final salary schemes, as QE is playing havoc with pensions by pulling down Bond yields (hence inflating pension liabilities' present value liability calculations).

Overall I'd say this IMS is mildly negative for TNI, although its valuation on a PER basis is so low, that arguably it already accounts for the negatives such as declining turnover, net debt, and pension deficit.

I see that DP Poland (DPP) has refinanced, with a discounted Placing at 15p. This is the Dominos Pizza operation in Poland, which has yet to prove that it has a viable business model. But this £10.5m fund-raising gives it a pretty credible pot of cash to keep trying.

Might do a 2nd report later if not too busy.

Regards, Paul.

Monday, November 5, 2012


Good morning! A bit earlier than usual today, as a busy day planned.
Firstly, some comments on existing positions.

May Gurney (MAYG) is performing very well indeed, delighted with that one. It was flagged here less than a month ago at 138p, and has already risen to 173p Bid/180p Offer, so a rather ridiculous spread there, but a mid-price of about 176p, so that's a pretty impressive 27% gain already!

I double-checked the figures again, and in my opinion it still looks good value. EPS is forecast for about 25p, so I cannot see any justification for a PER of less than 10, or 250p a share. That relies on no more significant bad news coming out, of course. There could be more bumps in the road, although management did recently say that their 3 problem areas are ring-fenced, implying that the bad news is out.

With a dividend yield still over 5%, and not looking under any threat, I'm very happy to hold until the price gets to my 250p target. But as usual, this is just my personal opinion, not advice, and you should DYOR*

The trading statement from Sarantel (SLG) intrigues me, as I've followed this company for years, and remember speaking to the CEO a long time ago. It's a micro cap (c.£2m) that makes specialist, high performance aerials for mobile devices. It's consistently loss-making, and its finances look precarious (need for another fund-raising soon I'm guessing). So extremely high risk. However, sales  do seem to be in the early stages of taking off - full year sales 35% up at £3m. Doesn't say what the loss is, although they only have £0.8m headroom left on a loan facility. But military customers in particular, are making repeat orders. Intriguing, might be worth a further look, with fun money only, given the very high risk.

I have high hopes for the IndigoVision (IND) AGM statement this Thursday, 8 Nov. Since they are in the process of giving away virtually all their cash pile through a Special Dividend, it seems inconceivable that their current trading statement this week will be anything but excellent. The shares are now ex-divi, and in my opinion this could be a favourable entry point at around 410p a share, which is only around £31m mkt cap - not much for a company which could be heading for £3-5m profit this year, and is in a market now growing at 20% p.a. compound.

I suspect 50p EPS is more likely than the broker forecast of 32p, based on the details given in the last trading statement (targeting sales growth of at least 20%). On 60% gross margins the operational gearing is remarkable. Time will tell whether my theory is right or wrong.

There is also an IMS from Trinity Mirror (TNI) on the same day, 8 November, so that will be a busy & exciting morning, although I no longer hold shares in TNI.

Have had a quick look at results from £13m mkt cap SWP (SWP), but can't see anything to get excited about.

Similar with Active Risk Group (ARI) - interims to 30 Sept look pretty poor - turnover is up a bit to £3.8m, but a £0.8m operating loss. Difficult to see how that is a viable business.

That's it for this morning.

Regards, Paul.

* For anyone not already aware, DYOR means "do your own research!"