Friday, November 30, 2012

Fri 30 Nov - CUP, IND, RGO, ACL, HVN

I see that online dating group, Cupid (CUP) has called a general meeting to authorise buying back 10% of its own shares - a good sign. I really must find some room in my portfolio for Cupid, I've liked the company for a long time, and it is fairly rare in providing both strong growth and a low valuation (fwd PER is only 9). I suppose that's saying the market is unsure whether growth is sustainable, otherwise the rating would be much higher.

There is also the issue that Cupid's FD cashed in £1.2m of share options recently at 202p, which has dented confidence. The price is now 180p.

My friend "MrContrarian" has just Tweeted about a new free web page he's created which sorts & highlights the morning's RNSs. I've had a quick look, and it looks excellent, and I'll be using it from now on to help me home in on the most interesting results & announcements (which are highlighted in yellow). Check it out here;

IndigoVision (IND) dividends totalling 75p should be paid today. Amazing to think that I paid about half that for my original shares about 7 or 8 years ago. Reinforces my opinion that to make the really big gains from a share (hundreds or thousands of percent gains) you need to take a 5 year+ view.

The company have decided against talking to private shareholders openly, as bulletin board postings have damaged the business - competitors have abused them in competitive pitches. So I'm not able to report back in detail on my latest chat with the company. However, my general impression is very positive - the company's strategy seems absolutely spot-on to me, and with new management in place for almost a year now, many improvements have been made across all aspects of the business.

Management are fully aware that they need to get on with it & deliver growth now, and I think there's a good chance that will happen. It's all about delivery now, they've got the product right & resolved all other issues. Customers,  integrators, and employees are all happy, so should be all systems go hopefully.

2Ergo (RGO) shares have been a disaster, with the company's original business model not really working. They had to do a disastrous Placing not long ago, at a near-75% discount to the prevailing share price, which at the time I thought was scandalous (especially as Directors took a large chunk of the Placing shares themselves). But as was later pointed out to me, chances are everyone else had said no, so this was their only option.

Surely in this day & age we should be able to have an electronic system, whereby Listed companies can do Placings with all shareholders simultaneously? Or at least professional investors could pre-register for possible Placings, and then do them electronically with the shares suspended for say 7 days whilst the deal is done? It seems crazy that existing shareholders can be diluted out of sight in such a Placing, without even being given a chance to participate.

2Ergo results this morning are predictably grim, but the 2 products they are persevering with and have launched, actually look really interesting. They have enough cash to last more than another year by the looks of it, so the £6m mkt cap is really an all or nothing bet on these new products succeeding.

Their product is a small device which plugs into a retailer's till, which allows people who have a mobile phone electronic coupon (e.g. money off voucher sent by the retailer to them) to wave their phone at the device, which then redeems their coupon at the till point. Clever!

Mobile is completely where it's at, in many areas, so if this product does take off, then I could see 2Ergo shares at multiples of the current mkt cap. They have partnering arrangements with 25 EPoS system providers. It's very high risk, but I couldn't resist a small flutter, and have bought a small amount this morning for fun money. Well, everyone needs a little excitement in their portfolio!

Electronics company Acal (ACL) announces interims which look fairly weak, with turnover down 18%, but they misrepresent this by showing it as down 13% in the headline section. The excuse is that growth is shown as "CER growth" with a footnote explaining that this is at constant exchange rates. This is misleading. By all means show the CER growth to one side, but speaking as an accountant, the % change figure next to 2 numbers should always be the actual percentage change of those 2 numbers, not an adjusted figure to make it look better. Show any adjusted figures in addition, not instead of the actual percentage change please.

Underlying diluted EPS is down 15% (and not 9% as shown in the RNS!) to 8.2p, and the interim divi of 2.5p is maintained. So doesn't look horrendous, but the market has taken fright & marked the shares down 14% to 140p. That gives it a reasonably attractive PER of about 9, and the outlook sounds OK. So might be worth a further look? Very nice strong balance sheet too, this looks quite interesting, although it's a low margin business.

Finally, I note that recruitment company Harvey Nash (HVN) has put out a surprisingly strong IMS - saying that full year profit before tax is likely to be 10% higher than expected. It's been a while since we've seen statements like that! Their shares look good value, on a low PER, although it should be noted they have net debt of around 30% of mkt cap.

Have a good day & a lovely weekend y'all!

Regards, Paul Scott.

Thursday, November 29, 2012

Thu 29 Nov - DXNS, API, LTHM

It was good to get a dose of Warren Buffett on CNBC yesterday, he's still firing on all cylinders, and full of common sense as usual. He's ignoring the fiscal cliff in the US, as he just said that it's irrelevant to long-term investors. I absolutely agree, to a certain extent the same is true of the Eurozone crisis - these are issues that have to be fixed, and will be fixed, one way or another.

I rarely watch CNBC these days, as the discussion is so trivial - endless commentators lining up to talk about whether today is a "risk-on, or risk-off day!", which to a longer term investor like me is just meaningless background noise.

It's not a small cap, but I had a quick look at results from Dixons Retail (DXNS). It looks wildly over-priced to me, at almost £1bn mkt cap. Stripping out intangibles from their Balance Sheet gives net tangible assets to over negative £500m! Since most of their fixed assets are worthless too, then knock those off, and you've got a Bal Sheet knocking on the door of £1bn in the red!

The P&L doesn't look too great either - huge turnover, but negligible profits. It does generate pretty good operating cashflow though, but how long for? Electrical retail is surely one of the worst possible areas to be in, since the homogenous product is ideal for sale on the internet. I can't see how Dixons will survive in the long run with massive High Street overheads against leaner internet competitors, although the demise of Comet will undoubtedly have been behind the strong share price performance recently.

Home Retail Group is vastly better value in this sector I think, with its astonishingly strong Balance Sheet, and wider diversity of product offering.

API Group (API) is an interesting situation - a nice business, on a low valuation, that has been formally up for sale for quite some time now. Part of me thinks that if it were likely to be sold, it would have happened by now, but perhaps their pension deficit (not huge, at £7.2m) has complicated things?

They state today that "a number of indicative offers have been received", but no indication on price.

I like the look of their interims this morning, for 6m to 30 Sep. Operating profits are up 33% to £5m on turnover slightly up to £58.8m. So a solid profit margin there of just under 10%, which indicates reasonable pricing power, something I tend to look for in investments.

Basic EPS is up a very strong 39% to 5.0p.
They do state that H2 will be softer, so I'm guessing that 8.9p broker consensus looks about right. So the shares seem good value at about 70p.

I'm tempted to buy some, but might sit on my hands and wait to see if the bid process falls through. If it does, then could be a chance to buy at a usefully lower price. But then I would miss any bid if one does happen. Difficult choice!
When in doubt, do nothing is my instinct, so I'll probably sit on the sidelines for now, and watch with interest.

There's a very thorough Equity Development commissioned research note on API here.

James Latham (LTHM) interims to 30 Sep look OK - flat against last year. Not got time to go though in detail, but the PER of 9 looks about right given that they have a pension deficit, it's a low margin business, and the outlook statement sounds pretty nervous. Forecast divi yield of 3.8% looks reasonably attractive too, and I seem to recall they have property assets too?

Right that's all I found of interest today, back tomorrow!

Regards, Paul Scott.

Wednesday, November 28, 2012

Wed 28 Nov - VP., DAY, TRK, CRE, AVG

Yesterday was certainly an interesting day at the Inland Homes (INL) AGM. I posted some initial thoughts yesterday afternoon on the bulletin board, and will write up a more detailed report here later today, or tomorrow.

Interim results from specialist equipment hire company, VP (VP.) look pretty solid. This seems to me a decent company, which is riding out depressed market conditions very well. EPS is up 18.8p to 21.7p for the 6 months to 30 Sep. There is a strong H1 bias to seasonality, as you would expect for this sector, but they seem on track to deliver broker forecasts of around 32p for the full year.

So at 334p (£138m mkt cap) these look reasonable value, on a PER of about 10.5. There is a fair bit of debt, around £50m, but for an equipment hire group that is to be expected, and it's funding £114m of equipment (Balance Sheet net book value of fixed assets).

There's also a useful dividend of around 3.6% forecast, so quite a nice one, especially as I reckon there could be good upside on an economic recovery. It's too easy to get into the mindset of being in a permanent downturn, but at some point things will fire back up again, and that will drive big earnings increases at cyclical companies.

At £240m its mkt cap is a bit large for me, but Daisy (DAY) has rather bizarre accounts. They capitalise enormous amounts of costs as intangible assets (described as "customer lists", valued at £180.9m!), in order to show a large EBITDA figure on the P&L, but after amortisation is always loss-making. I don't like the look of that at all.
I'm only mentioning it here so that I can search for the name again here using the search box above, and quickly remember why the shares should be avoided!

I've had a quick skim of Torotrak (TRK) results - a relic from the late 90's technology shares boom. Their infinitely variable transmission has never really taken off, but the company is still going, and managed to deliver a £1.6m profit for the half year to 30 Sep. Although in the past profit here has been one-offs due to licence receipts, and not recurring.

I don't know the company well enough to make detailed comment, but note they are planning on ramping up costs by £2.5m p.a., which they say will be funded from license revenues. Plus they have £10m cash in the bank, so maybe there is hope yet. They also say that perceived new technology risk has put off vehicle makers from adopting their technology.

It will be interested to see if this ever does work commercially, but surely they've been trying for so long now, that the Patents are likely to have run out by the time they do manage to sell anything in volume? The £50m mkt cap makes it much too racy for me.

Marketing company Creston (CRE) has issued interims which are ridiculously complicated for such a small company - so many different measures of profits, before & after amortisation, before & after restructuring costs & changes in deferred consideration, I really can't be bothered to go through it all right now.

You would think for a marketing company, that they would market themselves a bit better in terms of producing results that can be readily understood!
I'm confused as to why the PBIT figure has gone down, but DEPS (diluted EPS) has gone up. I like this company, as the shares seem cheap, but will have to park this to one side for when I have more time to understand the figures properly. They do say that the full year will be around the same as last year, so that simplifies things a bit.

Based on broker forecasts, both the fwd PER of 5.6 and divi yield of 4.8% look very attractive though, so I will return to Creston at some point. I don't currently hold any shares in it, but did have a few up until recently.

Nice announcement from Avingtrans (AVG) about winning an £80m ten year contract with Rolls-Royce. I met the management at a FinnCap meeting earlier this year, and was impressed. The shares have had a good run already in the last 3 years, so I'm struggling to see compelling value here, as the fwd PER of about 11 looks about right for a company of this size (c.£27m mkt cap).

Right that's it for today.

Regards, Paul.

Tuesday, November 27, 2012

Tue 27 Nov - INL, PLA, AGA

A fairly brief report this morning, as I have to catch a train to Amersham, for the Inland Homes (INL)  AGM. There is expected to be a high turnout, as many private shareholders are, like me, unhappy with the excessive Director remuneration, which does not correlate with the very poor performance of the company both in terms of share price (down over 60% from the 2007 IPO price of 50p), and the poor performance in terms of NAV.

Inland have put out an AGM update statement this morning, which doesn't look particularly exciting, although I am intrigued by the last few sentences;

The Group is exploring a number of longer term funding possibilities to finance some exciting new land opportunities which it is currently evaluating.
Stephen Wicks, Chief Executive commented:
"Inland is now making significant progress in its key operating areas with an increasing number of transactions concluding or close to doing so.  I am particularly pleased that the Ashford Development Agreement has been signed after many months of negotiations. We believe that agreements such as this can enhance the returns from our land bank and we are looking at how we might develop this concept further.
The funding secured from Barclays is a significant step forward and represents a welcome return to mainstream funding for the Group".

My view is that, at present the Directors remuneration is far too high, and needs re-basing at a lower level, and their interests to be more aligned with shareholders - so bonuses only linked to meeting target increases in NAV, etc. I shall be putting that view to the Directors today & will report back with their response.
However, if they were to considerably increase the size of the company (as hinted at from their comments above), then the existing salaries would be diluted enough to possibly make more sense. (Paul holds shares in Inland Homes)

Another company I follow, although don't have a holding in currently, is Plastics Capital (PLA). Dave Stredder & myself interviewed the Executive Chairman, Faisal Rahmatallah in our first ever "Mellocast" video (more to follow, but we're being highly selective about who we want to interview! It's by invitation only basically).
Interim results this morning from PLA today look a tad soft on the top line & EBITDA, down 3% and 16% respectively. Although profit before tax is down less, at 7%, and due to R&D tax credits (which are expected to recur), EPS is actually up 4% to 5.5p. These figures are stated after adding back goodwill amortisation by the way, which I always do, as it's a pretty meaningless non-cash book entry to account for acquisitions, and has no bearing on the performance of the business.
So annualising that to 11p, means the shares look good value at 70p, a PER of just over 6. However, there was also quite a bit of debt here, although it is good to see that reducing nicely to more acceptable levels - down to £8.6m. As they point out, net debt has been reduced by £10m in the last 3 years, so if you're prepared to take a long term view, then in another 3 years' time you'll probably own a company with no debt, and hence able to pay out much more in dividends. The interim dividend has been doubled to 0.66p.
I'll speak to Faisal, and see if he wants to do an update video for the interims, which would be good.
Posh cooker company, AGA Rangemaster (AGA) has announced a deal on its yawning pension deficit, and has managed to keep the banks on-side too. Good to see, although the pension deficit will essentially suck up all profits from the business for quite a few years, so the equity has very little value in my opinion. At some point however, it would be a great turnaround stock. I've researched it in quite a lot of depth, and came to the conclusion that the extent of the pension problems is far too great to present attractive risk/reward at the current share price of 64p (£43m mkt cap). But I'll keep it on the watch list.
Right, I have to dash now - have the joys of the Victoria & Bakerloo lines to face, in order to get to Marylebone station from my pied a terre in Islington, then heading up to Amersham for this AGM. So a miserable & fairly stressful day in prospect, ah well!
Regards, Paul.

Monday, November 26, 2012

Mon 26 Nov - QED, INL, IDH, ALLG

Results from Quintain Estates (QED) always interest me, as I've traded the shares in the past (profitably) several times, and have drilled into the numbers in some depth, been to a few meetings with management, etc.

In the end I came to the conclusion that it wasn't at all clear that they're creating much (or indeed any) shareholder value. There's no dividend, and the share price has been at a substantial discount to NAV for some time. The shares are currently 54p (£279m mkt cap), and NAV (EPRA) per share has fallen again to 109p (from 116p 6 months ago, and 126p a further 6 months before that).

So with a clear downtrend in NAV, and no dividend, it's hardly surprising that the shares are at a 50% discount to NAV. Once again most of the gross profit is swallowed up in administrative costs (i.e. plush Mayfair offices & staff/Directors), so you have to question just whose benefit this company is run for? Right now, the answer seems to be its Directors & staff. Whilst shareholders provide the capital, yet get no return. Not really a happy situation, so I won't be tempted back into these shares.

Sure there is development upside on their flagship projects at Wembley and Greenwich, but I'm not convinced that is enough to make much difference to NAV in a reasonable timescale. And how do shareholders actually benefit from a higher NAV anyway, if there's no dividend? Unless someone bids for it, the money is just dead.

It reminds me a bit of Inland Homes (INL), whose AGM is tomorrow (which I will be attending & reporting back on), where Directors who have been successful in a property bull market, are floundering in a less favourable market, yet still expect to be paid handsomely for delivering negative shareholder value! Seems to me the whole sector needs a wake-up call from the providers of capital, to reduce costs substantially in order to achieve a more equitable distribution of rewards.

Immunodiagnostic Systems (IDH) interests me, as it came up on a PAS filter used on my other website,
although it didn't quite make it into the model portfolio there, as I wanted to do more research & see more up-to-date accounts, and then decide what to do.

IDH makes laboratory testing equipment, and consumables. It was a stock market darling, with good growth, high margins, and a high share price, but the shares have crashed from a peak in Jul 2011 of 1196p, to bottom at around 243p this summer. They've since recovered somewhat to around 298p (£82.5m mkt cap).

The problem is, several competitors entered their market, and have won market share, such that IDH's turnover is now falling - the nightmare scenario for any growth investor, as you get a double whammy of reduced earnings forecasts, and they are valued on a much lower multiple too.

Interims to 30 Sep show turnover down 13%, and profits sharply lower (before exceptionals) down from £8.4m to £4.8m. Ouch. In fairness though, this has been well flagged beforehand, so is not a surprise. Indeed, they confirm full year guidance, which seems to be for around 32p EPS, putting the shares on a PER of just under 10, pretty good value. They also hold £10m in net cash, so the valuation looks undemanding.

The problem I have, is what happens next? Is this now a declining business which is being squeezed by competitors, or have they stabilised things & are fighting back? I don't feel able to make an accurate judgment on that, so will pass on these shares. There might be a bit of upside on the current price though, who knows?

All Leisure (ALLG) is a company that I've owned (briefly) in the past, and looks attractive from time to time, but always seems to lurch from one disaster to another (often not of their own cause). It's a niche cruise ship operator, whose Chairman, Roger Allard, owns 60%. It used to pay out a whacking dividend, but after several tough years that's gone now.

Their pre-close statement this morning indicates they expect to make a modest profit for y/e 31 Oct 2012. If they achieve broker forecast for next year, then the shares will look very cheap indeed. But it's high risk - the balance sheet looks fairly precarious to me, and it has a "distress" Altman Z-score which I note from Stockopedia's stock report page on this share. I'm tempted, but will probably just keep it on the watch list for now.

OK that's it for now. I shall be at the Inland Homes AGM tomorrow, so might not get a chance to do a morning report. But I intend posting reports here for Wed, Thu & Fri. Have a great week y'all!

Regards, Paul.