Friday, November 16, 2012


We seem to be in profits warning season, as some companies begin to realise that they're not going to hit their forecasts. Given the softness in the Eurozone, and UK economies, then one imagines we're likely to see more profits warnings that usual this year. So might be a good time to review the portfolio and trim back a bit on things that look vulnerable to warn? Handy to have a bit of spare cash on the sidelines too, so one can move fast to grab opportunities that arise.

One such opportunity that I spotted yesterday was a special situation called Security Research (SRG), a very interesting small cap that won an enormous & highly profitable contract from the MoD to provide detection equipment for bombs for use in Afghanistan. The earnings are not sustainable, which they freely admit, but it has brought in a one-off cash boost, which they are returning to shareholders via a tender offer at 225p. The shares can be bought for about 125p, so I picked up a few, with the intention of tendering 1 in 5, but getting almost double the money for each share tendered.

I also wonder if there is the possibility of repeat orders? You never know. DYOR as usual on this one, it does need careful thought, as it's such an unusual situation. But a tender offer at almost double the share price seems a pretty bullish signal to me.

Computer games company Zattikka (ZATT) is one of today's casualties, saying that proforma 2012 revenues will be $10-11m. Stockopedia shows that broker forecast is for $12.8m turnover in 2012. So that looks like a 10-20% share price fall on the cards for today.

Things are not going well at Stadium Group (SDM), a £15m mkt cap electronics company. I see that broker forecasts have already been lowered considerably throughout 2012, but they've warned today that H2 profits will be below H1, and therefore the full year will be "significantly below current market expectations". Not good that, so a sharp drop likely here too.

Although they do say that a Hong Kong property disposal will realise a £3m one-off cash inflow, and £2.2m exceptional profit, and that they are confident of an improved 2013. So I might put this on the watch list, to consider once the dust has settled.

Ooh, I forgot to mention, a reader emailed me to ask if I could approach Stockopedia and see if they would give a special offer on subscriptions to my readers. So I did, and they said yes!
I think it's a cracking offer, they've set up a special deal for readers of this Blog to claim £50 off an annual subscription (reduces the price from £180 to £130) for the first year, if you apply by 31 Dec 2012 deadline. You also get a 2-week free trial, and 2 free ebooks.
I've been using Stockopedia premium for a few weeks now, and have to say I think it's excellent. Well worth £130 if you spend much time researching companies. Some really useful valuation & screening tools too.

(for the avoidance of doubt, I am not getting any commission, or any payment at all from Stockopedia for anything, I'm recommending it purely because I think it's good!)

Bioquell (BQE) has been on my watch list for a while now, as I like the company but never quite pushed the button on buying any shares, because they never really looked cheap enough.

Their IMS issued today reads well, with the order book up 16% in the "period" (which I presume means 4 months?) to 31 October, with good growth coming from new products. That sounds great, although the benefit to turnover will mostly fall into 2013 (and beyond possibly?).

Bioquell's IMS provides lots of other detail, but unless I missed it, they've missed out the most important point, which is how profits are panning out compared with expectations. So annoying when this happens - lots of blurb in an IMS, but they don't tell you what you actually want to know, i.e. what the profit is going to be!

Financial PR companies please take note - the vital data that investors want above all else from an IMS, is how profits are compared with market expectations. Everything else is background noise.

I was surprised to see that Ultrasis (ULT) is still soldiering on, a relic from the Dot.Com boom in the late 90's. Their results today for y/e 31 Jul 2012 are absolutely dreadful, with turnover plunging from £2.8m to £1.1m, and going from breakeven to a £1.4m loss.

They look to have enough cash left to last maybe another year, but it looks pretty terminal to me. Their products have never really taken off, and surely there comes a point where you just give up & move on to do something else?

Headlam (HEAD), a £259m mkt cap flooring distributor, says that they are on track to meet internal targets for 2012 providing Nov & Dec pan out as planned. Shares look priced about right on a fwd PER of 11.5, and I note they have net cash, and a rather tempting 5% dividend yield. Bearing in mind those figures are being achieved in depressed markets, it could be an interesting cyclical  recovery play?

OK, that's it for now. Have a great weekend y'all!

Regards, Paul.

Thursday, November 15, 2012


Good morning. A share that I previously held (but currently do not, as I felt the valuation was starting to look a tad stretched) is Snoozebox (ZZZ) - an innovative company which turns standard metal shipping containers into portable hotel or lodging accommodation.

They have raised £8.4m (before costs) at 55p a share, not bad considering that's a 13% discount to a fairly buoyant market price. Before the Placing the mkt cap was £34m. After the Placing the enlarged share capital will be 66.6m shares, so if they ease back to say 60p, that will be a £40m mkt cap. That looks a bit scary considering the company is still in its first proper year of trading, and  profits are as yet unknown.

So I shall continue watching from the sidelines. My experience of exciting small growth companies is that it nearly always takes longer and costs more, to get where they want to go. Hence at some point a buying opportunity will probably arise from a profits warning. So Snoozebox is currently on my watch list, but I'm not interested in paying up at this price. Halve it to 30p or less on some bad news, and I'd look again.

A share I do hold is Scottish TV outfit STV Group (STVG). It's a typical old media type of company - on a very cheap forward PER (of only 3!), but has lots of debt & a pension deficit.

I'm a bit rusty on the numbers, but from historical & broker forecasts, I came to the conclusion that the debt is manageable, and that the shares could easily have a nice run from around the 100p level to say 150-200p if we're lucky. Hence why I bought some around the current price.

They've put out a Q3 IMS this morning which sounds reassuring on every KPI that they mention, apart from the most important one which they don't mention, namely profit! So not a very well constructed IMS at all. It should have been shorter, and just said whether or not they're on plan with profit expectations. However, I suspect enough can be inferred from this IMS to assume that profits are on track, so could see a bit of a lift in STVG, although the futures are pointing to another down day overall, so not sure if STVG can fight against that headwind today? I'm happy to hold anyway.

Specialist recruitment company, Hydrogen (HYDG) has put out a profits warning, so expect a sharp fall there today. They say that their stronger trading period, from Sept-Nov has disappointed, and therefore full year profits, "will be significantly below current market expectations". Ouch. That looks like a fairly serious warning, so my guesstimate is that will probably hit the share price by around 20%.

My favourite pick in the recruitment sector remains Staffline (STAF), because it's fairly recession-proof, supplying mainly low wage, blue collar staff to essential sectors like food production & retail. Hence less likelihood of a profits warning there in my view (famous last words!).
Incidentally, STAF shares have had a good week because they were tipped in the MIDAS column of last weekend's Mail on Sunday, hence the flurry of buying on Monday morning.

Another small cap profits warning, from Swallowfield (SWL), a UK company involved in cosmetics & personal care products. They say that due to various factors their Board, "expects full year earnings to be significantly below current market expectations". So I would have thought that's probably a 20%-ish share price fall too. Although they do say that things are improving in H2, so the market might possibly give some credit for that?

Profits warnings can provide a good chance to buy good companies at bargain prices, on temporary setbacks, but you need balls of steel, and an ability to sort the wheat from the chaff. Also I tend to find that sitting back and waiting for the dust to settle (sometimes weeks, or months later) is the safest strategy.
In these unsettled times, not many shares bounce back immediately from profits warnings, and often a second fall follows after the initial dead cat bounce.

I don't like the look of either Hydrogen or Swallowfield, so am not interested in trying to catch those falling knives.

Opsec Security (OSG) interims look pretty good, with adjusted operating profit up from £1.4m to £3.1m, although driven by a large contract, and an acquisition. So it would need more time that I have available to delve into the numbers there.

That's it for now.

Regards, Paul.

Wednesday, November 14, 2012

Wed 14 Nov - INL, SBRY, SDY, BLNX

Good morning. Nice and early again today. Please note my new article last night on excessive board room pay at small, AIM-listed property company Inland Homes (INL). Should be an interesting AGM on 27 Nov, I'll be attending to make these points in person. Directors really do need to think more carefully about aligning their rewards with shareholder value, and not simply using the company like a personal slush fund.

I regard good corporate governance, and fair executive pay, aligned with shareholder interests, as being of absolutely paramount importance. If that means having the occasional scrap with Directors, then so be it. Let's hope these Directors are sensible, and listen to shareholder concerns, making the necessary reductions in pay.

Turning to today's results, although I don't usually do large caps, I do have a long position in Sainsbury's (SBRY), as the valuation seems undemanding, and as a customer they just seem to be executing so well. Whilst Tesco are a shambles from a customer perspective, and have in my opinion completely lost the plot.

Sainsbury's interim results to 29 Sept show sales up 4%, and LFL (like-for-like) sales up 1.7% (this measure strips out the distorting impact of new shop openings & closures). Underlying EPS is up 9.4% to 15.2p, and the interim divi is up 6.7% to 4.8p. That looks a bit ahead of forecasts I think, so could be good news for the share price today, hopefully.

The shares look attractive to me, with a 4.8% forecast divi yield, and steady earnings growth, combined with a PER of about 11-12. There is some debt & a pension deficit, but all looks under control to me.

There's probably not that much short term upside on the share price, maybe 10-20%, but as a long term hold for the divis, it looks pretty attractive to me.

Had a quick look at Speedy Hire (SDY) interim results, which look pretty encouraging, with a 37% increase in adjusted PBT to £6.6m.
EPS is up 23% to 1.1p. According to Stockopedia, the forecast PER is 14 this year, falling to 11 next year, so that looks about right.

Also had a quick look at results from Blinkx (BLNX), but I have absolutely no idea how to value it. Great top line growth, but not much profit. So the £255m mkt cap looks very racy to me.

That's about it for today. Lots more results, but larger caps & resource stocks, which I don't cover here.

Please check out my sister website, which is pretty much finished now. It's a value investing website that I've set up using a proprietory stock screening system called Performance Analysis Scores (developed by an eminent UK Business School Professor), which I have exclusive access to.

I pick a "share of the month" and am running an online model portfolio to track performance of the small caps picked using the PAS system & my interpretation of it. The deal is that the site is free, but to get the password to access the most recent article, you have to register for the email newsletter.
I'll then earn a small income from occasional (less than 1 per week, and indeed none so far!) emails of financial-related things that I think are interesting. No spam or scammy things, I promise, just genuinely interesting investment ideas.

You can of course unsubscribe from the email list any time, and I will never sell or pass on your email details to anyone else. Anyway, do check it out & let me know what you think! To save me having to do another mail out, as a one-off, the password for the Nov 2012 share of the month article is: timegets
As always, please always DYOR.

Regards, Paul.

Tuesday, November 13, 2012

Inland Homes (INL) - Directors salaries/bonuses

There is a potentially ugly situation developing at AIM-Listed brownfield site developer, Inland Homes (INL).

It's a fundamentally good company, which buys and re-develops brownfield sites, and then typically sells them on to developers for a profit, once planning permission has been secured. It also develops some sites itself.

Their website is here;

The Directors presented at several investor meetings which I attended, and impressed by them, a number of us bought shares in the company (I only have a small number myself, but have friends with considerably more).

However, a problem has developed over Directors remuneration. This is a small, AIM Listed company, which trades at a big discount to NAV, and where by any measure shareholder return has been very poor. The company Floated in April 2007 (admittedly happier times) at 50p a share, and yet today the shares are languishing at just 18p.

They have paid nothing in dividends, until a negligible dividend of 0.067p a share was recently declared. With 183m shares in issue, I calculate the total cost of paying the maiden divi is just £122,610.

However, the Annual Report for 2012 shows that the 3 Directors helped themselves to £246k in bonuses, more than double the total dividends paid to all shareholders!

There is absolutely no information given in the Annual Report that I can see which explains what performance targets were met to trigger these bonuses, so the only conclusion I can come to is that the Directors just fancied helping themselves to some of our (shareholders) money!

It is impossible to justify any bonuses to Directors when the shareholder return has been so poor, indeed heavily negative.

The advfn bulletin board for this company contains many negative comments from shareholders who are unhappy with the Directors remuneration and corporate governance at Inland Homes.

If Directors want to run it as a private slush fund, then buy us out! But as it's a Listed company then Directors are subject to scrutiny & challenge from shareholders who are unhappy with the situation here.

The 2 main Directors, Stephen Wicks and Nishith Malde, seem competent. But their total remuneration, including benefits, bonuses & pensions, are £458k and £453k respectively, the latter for a Finance Director!! (that is before employers NIC, which adds a further £114k cost to the company).

Remember that this is a small (£34m mkt cap) AIM Listed company which has only ever paid one derisory dividend, and where the share price has lost over 60% of its value since the company Floated over 5 years ago.

One has to ask the question, what planet are they on?!

One also has to ask the question, for whose benefit is this company actually run? It's clearly not shareholders, is it? We are paying these fat salaries to Directors who seem to have no link between shareholder value and their remuneration.

That needs to change. Myself and other shareholders will be attending the Inland Homes AGM and putting these issues to the Directors. A previously supportive shareholder base is turning against management, because of their greed over pay.

At the very least there needs to be a proper bonus scheme put in place with sensible targets, linked to shareholder value, explained to and agreed by shareholders.

Of course this is only the stuff we see. What about expense accounts? I hear that many Listed company Directors use their expense accounts to travel and entertain in lavish style, which of course is never reported to shareholders. So the total cost of Directors is often a lot higher than even the disclosed remuneration. I don't have any specific information on the expenses of Inland's Directors, so this is more a general point.

AIM, and the London market generally, has become a cesspit of greedy, self-serving Directors who brazenly milk the companies they run for personal benefit. The zeitgeist has changed, and shareholders have had enough, and are now prepared to challenge errant Directors and remove them if necessary using an EGM or AGM. It's not just private shareholders who feel like this, but Institutions too. There should be no rewards for poor performance.

In my opinion Inland Homes is fundamentally a sound company, but the Directors are now the wrong side of the line in terms of remuneration, and this issue needs urgent attention.

The undeserved bonuses for 2012 should be repaid to the company, and if they want bonuses in the future, then a proper scheme should be drawn up which links reward to achievement, and in particular, long term growth in the share price. So share options are the best route for this, with a challenging uplift in the share price necessary before any benefit accrues.

If the Directors want to carry on using Inland Homes as a personal slush fund to dip into when they fancy paying themselves a bonus, then they should buy out external shareholders and de-List.

I loath the property sector normally, as it is full of people with inflated egos and a sense of entitlement, who have become used to excessive pay during the boom years, and are now refusing to moderate their greed.

Action is needed here at Inland Homes to get things the right side of the line, with Director pay reduced to more appropriate levels for a small company, undeserved bonuses repaid, and a better structure put in place for the future so that shareholders can regain confidence in the management.

If things are not sorted out, then I'm considering launching a Shareholder Action Group website to bring together unhappy shareholders, and to demand/force change. Hopefully that won't be necessary once we discuss these issues with Directors at the AGM;

Annual General Meeting of the Company will be held at 10.00 a.m. on 27 November 2012 at theoffices of the Company, 2 Anglo Office Park, 67 White Lion Road, Amersham, Buckinghamshire HP7 9FB

Please feel free to comment below, and/or on the advfn bulletin board linked to above.

I also urge all shareholders to come along to the AGM and join the discussion with the Directors over this issue. Contact your broker for details on how to attend the meeting if your shares are held in Nominee, they might need to give you a letter to enable you to attend.


Good morning. Apologies for slightly erratic service lately, should be OK to do a report every day for the rest of this week hopefully.

I hold shares in Walker Greenbank (WGB), a luxury interior furnishings group that looks a good value situation to me, on a fwd PER of about 8. Slightly irritated with their RNS this morning which just mentions them having won a magazine award, with no financial information mentioned at all. The RNS is not for PR, it's for proper financial news!
However, I shall forgive them providing they keep delivering good earnings growth as they have done for the last 3 years.

Troubled regional newspaper group, Johnston Press (JPR) has issued an IMS which says that they expect full year operating profit performance for 2012 to be broadly in line (i.e. slightly below) market expectations.

That's all very well, but they are really not making much inroads into their gargantuan debt pile at all, which has only reduced from £352m at the start of the calendar year, to £336m at 31 Oct. Just servicing the debt seems to be absorbing the lion's share of their cashflow.

When you take into account the declining nature of the business, I remain of the view that the equity of Johnston Press is probably worthless - as I don't believe that the business will generate enough cashflow to ever repay its debt. Therefore these shares do not tempt me at any price - why take the risk?

Whereas Trinity Mirror (TNI) is a much more convincing newspaper story, with debt reducing so fast that it looks set to eradicate its net debt by 2014 (although a big pension deficit will remain there, but largely offset by freehold property assets).

(I hold neither long nor short positions in either JPR or TNI).

Interim results (6m to 30 Sept) from international fastenings group, Trifast (TRI) look pretty respectable, with underlying EBITDA up 50% to £4.6m, and adjusted EPS up 25% to 2.3p.

The full year forecast (per Stockopedia, which I am now using for my fundamentals data, and have to say am finding it an excellent reference site) is for 4.5p EPS this year, rising to 5.2p next year, so at 42p a share that puts the PER on about 9 falling to 8 next year. Given that they have £7.7m of net debt,  and that it's an unexciting low margin business, that valuation looks about right to me. The divi yield is under 1% too, so not of interest to me when 5%+ divis are available elsewhere for similar companies.

The maker of Triton showers, and Johnson Tiles, is a group called Norcros (NXR). I like the value characteristics of these shares, with a PER of about 6, and they fixed their debt problems a few years ago, which is now under control.

Their interims to 30 Sep look solid - underlying PBT is up 11% and underlying EPS up 22% to 1.1p, so assuming no seasonal bias that equates to 2.2p for the year, not bad considering the shares are only 12.5p to buy, and looks to be a bit ahead of broker forecast.
There's also a decent 4% divi yield.

On the downside, they have a pension deficit that has grown to £22m, due to the discount rate being reduced (a problem with almost all pension funds right now, as a spin-off from QE). However, with that representing only a small percentage of the £366m scheme assets, it's not difficult to see that deficit just melt away once interest rates normalise in the future. Depends on your point of view.

Their South African business has moved back into profit. They also have some surplus property pending disposal. There is net debt of £20.2m, but as they point out, this is only 1.1 times EBITDA. Which makes the mkt cap of £72m look pretty tempting when you consider that their cashflow should pay down net debt pretty rapidly. I like Norcros as a long-term value play.

Interesting to see that the retail bond market is going from strength to strength, with Stobart (STOB) being the latest Listed company to offer a bond to retail investors, with a 5.5% rate of interestm repayable in 6 years.
I can see the attraction, given that deposit accounts pay peanuts in comparison.

Still, with banks reluctant to lend, then surely retail bonds are a useful way to help our economy grow out of recession, so a positive thing.

The headline numbers from Real Good Foods (RGD) don't look at all good. I've never understood why this company has such a large & enthusiastic private investor following, cannot see the attraction at all myself. Seems to be a high turnover, very low margin business, with rather a lot of debt.

Right that's it for today. See you back here tomorrow!

Regards, Paul.