Friday, December 7, 2012


Good morning, am back from Paris now, and full of praise for the Eurostar service. I'll definitely be using it more often for short breaks. It's so quick & convenient, and my return fare only cost £69! Combined with a great quality hotel deal on Expedia, and eating out cheaply from sandwich shops, and with decent champagne only £9 a bottle from Carrefour (yes that was the reason there was no blog update yesterday!) you can't go wrong really. Plus of course any visit to Paris reminds you that customer service in the UK really is marvellous in comparison!

Long-suffering shareholders in brownfield regeneration company Inland (INL) finally have some good news today - as expeted, planning permission has been granted on the old Pilkington Tiles site in Hamworthy, Poole for a mainly residential development. Whilst house prices in the poshest parts of Poole can be astronomical (e.g. Sandbanks), Hamworthy is a dump. However, since the site is right next to Poole Harbour then Inland's development might begin the gentrification of the area?

I bought a few more Inland shares yesterday, on a small dip. Underlying NTAV is probably now at least 32p a share, so buying at 19.5p seems good value, especially as the Banks are now beginning to lend again in this sector, as reported at Inland's last eventful AGM, where many of us went along to protest at excessive Board Room pay, and unjustified bonuses.

Results from Artilium (ARTA), a telecoms software group, look pretty awful, and their financial situation precarious. So that's going on my bargepole list, as it looks moribund without another fund-raising.

Talking of which, someone told me something interesting the other day. I've often wondered why some fund managers continue supporting companies which are obviously rubbish, with repeated fund raisings (Earthport springs to mind). The answer I'm told is because it's to save their own careers - i.e. by supporting a rescue fund-raising, they can pretend that the company will deliver on its business model, so it kicks the can down the road for a year or two. Whereas if the fund manager admits it's been a rubbish investment, and writes it off, then his own job is on the line.

Makes sense now doesn't it?! I've always thought that people make much bettter decisions with their own money, than with other people's money.

Belgravium (BVM) puts out a profits warning, so expect a sharp drop there today. The maker of rugged portable computers says that orders have been delayed, impacting on sales & profits for y/e 31 Dec 2012. Although dividends are expected to be maintained at the same level as last year, so not all bad. That means at 0.1p the yield is 2%. If it's a fundamentally sound company, then warnings like this can provide a cheap entry point. Although share prices usually take quite a few months to recover from profits warnings. The mkt cap at Belgravium is too low for me, at £5m.

Several readers emailed me yesterday to point out that I'd got the ticker wrong for Silverdell, which is actually SID, so I have corrected Weds blog entry. If you ever do spot any mistakes here, then please let me know, it's very helpful. I try my best to be 100% accurate, but being human, the occasional error will slip through.

Also, someone pointed out that broker forecasts for SID are much more appealing than the historic figures, due to having a full year of their acquired business. So might be worth me revisiting the numbers there, and thank you to the reader who kindly emailed me the Edison research note on SID.
I like the mgt at Silverdell who we met at a FinnCap/Mello Central evening last year. They seem honest, straight-forward, hard working people, which is what you want.

A very quick glance at Photo-Me (PHTM) results looks impressive - profits up, and tons of cash. Might be worth a further look when time permits? However, bear in mind that it's a seasonal business, with H1 the much stronger half, so don't make the mistake of assuming that you can double interim profits to estimate the full year! (as that would generate a falsely optimistic result).

I note that Berkeley Group has put out very strong results, which gives hope that activity in the house building sector might increase, which we certainly need, given the scarcity of housing, especially in the South East, caused by factors such as an ageing population, increasing number of single person households, and of course unrestricted immigration for the last 15 years. 

Funnily enough, if you let in 10 million people, and don't build any new houses, then you end up with a housing crisis! An intelligent 10 year old could have predicted that, but sadly not our last Government!

On that scathing note, I shall sign off & bid you a good day, and a pleasant weekend.

Regards, Paul.

Wednesday, December 5, 2012


Good morning from le gai Paris! Apologies for missing yesterday morning's report, but I was swishing under the English Channel on a Eurostar. What a convenient & pleasant service, and so nice to be able to walk to your hotel on arrival, with no hanging around waiting for bags, passport control (done efficiently at St Pancras).

There were several important announcements yesterday for shares in my personal, and portfolios (which heavily overlap), so I will cover those first.

May Gurney (MAYG) is an out-sourcing company for the public & regulated sectors, providing largely recession-proof services such as road maintenance, refuse collection, etc. Specific problems with several contracts have trashed the shares, but gave me the opportunity to buy in cheaply at 138p, as detailed here in my article a few months ago.

That proved a shrewd purchase, as they are now around 174p to buy. The interim results yesterday provide no surprises, with underlying EPS and full year outlook all in line with expectations. They should generate around 25p adj EPS this year, so clearly the PER is still attractively low at 7 times.

The interim divi has been maintained at 2.79p, so 8.4p for the full year looks sustainable, giving a yield of around 5%, very nice! Cash generation & order book both look fine, as does the balance sheet, where all bar £3m of the net debt is underwritten by customer contracts (£74m in finance leases for vehicles & plant). So a nice situation where I'm happy to hold. In time I believe the PER should rise to at least 10, which implies a share price of 250p+.

Vianet (VNET) also reported interims yesterday, which were solid. Turnover was slightly down, as expected since they exited some low margin cellar audit business last year. My preferred measure of performance is adjusted (i.e. pre-exceptional & amortisation) EPS, which rose strongly to 5.3p. However it should be noted that the utilisation of tax losses resulted in no tax charge for this 6 month period, hence that figure is correspondingly flattered. Underlying profits are pretty much flat against last year.

There is an extremely informative video results presentation here, which if you have time is well worth a listen. I went through it last night, and am very excited about Vianet's prospects in the next year or two. It sounds like they are running a little behind plan this year, so I have mentally trimmed my expectations from 13.2p EPS to around 12p for this year.

Next year's 16.4p looks achievable though, and management comments about expansion into the USA for their core iDraught product sound tremendously exciting, and mean this company should get a re-rating to a growth company PER at some point in 2013. At present investors are worried that their core product (the beer monitoring Brulines product, which is primarily used to monitor adherence to the "tie" in UK tenanted pubs) is in a declining market due to the conntinued pub closures in the UK.

However, the rate of pub closures has slowed, and the launch of the iDraught product in the USA in 2013 is expected to initially be for national bar operators with 2,000 sites. So that launch will increase the company's total installed base by over 10% in one fell swoop! Trials have been underway in Colorado for 2 years, and they are now ready to launch nationally, using a large US distribution partner called Micro Matic.

The plan for the USA is a 3-year growth to 5,000 installations, yielding $12m p.a. in recurring revenue! That's serious growth, and would only be scratching the surface of the US market which is reckoned to be 300,000 bars.

Vending solutions is the other part of Vianet that really excites me. As I understand it, this is a fairly cheap (about £120, and then around £10 a month) after-market product which links vending machines to wireless networks, and enables the owner to monitor all aspects of the machine's performance remotely via the internet. Machine owners have seen big increases in profitability from using this product. There is also a contactless payment product too, enabling machines to become cashless, which was trialled successfully by Coca-Cola & VISA at the London Olympics.
A large contract win is "imminent" according to the results presentation video, so some excitement there too.

I really like Vianet's products, as they give clients such obvious advantages in profitability, hence should be relatively easy to sell, and generate good growth.

Interestingly, management say in the results presentation that iDraught launching in the USA "will step change the group's earnings", and they also use the same phrase about vending, saying it is "on the verge of major contract wins". Pretty exciting stuff, so I'm very happy to hold here, especially as we're being paid over 5% dividend yield whilst we wait. The interim divi was raised slightly to 1.7p. The CEO certainly believes his own story, as he spent his divis on buying more shares - £317k spent in the last year in fact, a serious vote of confidence there! He holds 15% of the company, just right.

I am hoping to speak with management on my return from France shortly, and continue to believe that this is one of the most interesting, undervalued growth stocks out there. The market has not yet latched onto the seriously good growth prospects developing here, and is pricing it as a mature business. There are no guarantees of course, but it looks attractive to me.

As I suspected, it looks like there is an overhang of stock in Vianet, with a recent RNS showing that an HSBC Nominee account has sold over a million shares, and now has just over 3m shares (11%) remaining. Hence it seems likely that the share price might mark time until that is cleared, assuming that they intend selling all, which they may or may not. In any case, I see that as an advantage, as it's allowing us to buy as many as we want without chasing the price up.

Things always seem to happen in threes, and the third trading announcement from yesterday in my portfolio was from internet TV set-top box maker, Amino Technologies (AMO). They indicated in line trading, which puts them on a PER of 12, based on fc EPS just above 5p.

However, the most interesting thing about Amino is its balance sheet stuffed full of cash, which has now reached £17m (bear in mind the mkt cap is only £31m). They made a very bullish statement about dividends, as follows;

In line with guidance at the full year results for 2011 when the Company announced its maiden dividend, the Board now intends to introduce a progressive dividend policy. The Board is pleased to be recommending a full year dividend of 3p for the year ended 30 November 2012, a 50 per cent increase year on year, with an expectation to provide both an interim and full year dividend moving forward. Furthermore, the Board expects this dividend to grow by no less than 15 per cent per annum for each of the next two years.  

That suggests that AMO shareholders will do very nicely from divis over the next few years, although as they don't indicate the quantum of the interim divis, it's difficult to know what the yield will be. But based on the final divi, it's going to be at least 5%, so an attractive situation. I may buy more if they slip back a bit after yesterday's rise.

Looking at today's RNS, I see that Silverdell (SID) has issued finals for the y/e 30 Sep 2012. I like the management here (have met them at a FinnCap meeting), but what put me off investing was the cash-hungry nature of the business, in that they have to pay wages to contractors promptly, but then customers wait 60 days to pay Silverdell. So they function almost like a bank for their customers!

Revenue & profits are up strongly, due to the acquisition of EDS, although the increased number of shares from their equity fundraising means that EPS is only up marginally to 1.5p. So the shares are on a PER of 9 at 13.5p, which is maybe slightly low, perhaps a fairer range would be a PER of 10-12, indicating small upside to the 15-18p range. However I can't see any reason for a premium PER, so not enough upside on the share price to get me excited.

Maiden dividend of 0.175p is payable in Mar 2013, and is good news. 2 years' dividends should cover the bid/offer spread!
The outlook statement sounds positive.

A cleverly worded trading statement from K3 Business Technology (KBT) could be read as bullish or potentially bearish, saying that they need to close "a number of key deals" to underpin expectations for this year's trading. So by implication if they don't close those deals then...
I held these shares briefly, but decided I don't like the treatment of intangibles, so sold out.

Both Home Retail Group (HOME) and Trinity Mirror (TNI) have continued to rise after I sold out too early in both cases. Can't see any company specific news other than a new Non-Exec being appointed for HOME to justify their near-10% rise so far today. Anyway, in both cases I banked a terrific profit & moved on, so can't complain. There's still a huge short position in HOME, so perhaps there is a continued squeeze there? And the hacking story has gone quiet again at TNI, although it's bound to rear its ugly head again at some point, and with trials expected in June 2013 I think that's a story that's not likely to go away. I was prepared to gamble on it when the shares were 25p and on a PER of 1, but not now they are almost 90p. What a staggering recovery though, and just goes to show that sometimes the stock market does throw free money at you. Not too often though, sadly!

Right that's me done. Time for some croissants & sight-seeing!

Regards, Paul.

Monday, December 3, 2012

Mon 3 Dec - SIM, VNET, MAYG, TCN

Here we go again, Monday morning! Not much in the way of results within my remit, but will glance at a couple.

Simigon (SIM) is not something I've looked at before. They are a £7m mkt cap (at 15p/share) Israeli company, which makes flight simulators for civilian and air forces. Their trading statement this morning looks strong, and most of the mkt cap seems to be supported by net cash (NB their accounts are in US dollars though).

Personally I don't invest in overseas companies on the AIM market any more, as it seems to me the motivation to List your shares in one of the world's least regulated small cap markets abroad is likely to be questionable in some cases.

Also I have bad memories of losing a hefty wad on an Israeli company called Vigilant Technologies, where I held about 3% of the company, but when things went wrong it proved impossible to speak to anyone in Israel. All of a sudden calls & messages were ignored, and everybody simultaneously lost the ability to speak English. Whereas had they been in the UK, I could have got in the car and paid them a visit.

Tomorrow should be an interesting day. Interim results are due from Vianet (VNET), one of my largest holdings, and the joint largest position in the model portfolio of my SmallCapValue website. They issued an in line trading statement on 30 Oct, with lots of positive-sounding details (such as previously loss-making subsidiaries moving to breakeven or profit).

Vianet is a classic low PER, high divi yield value situation, but with good growth prospects thrown in for free as well, hence why I am so keen on it. The company has disappointed before, so perhaps that explains the low rating for the moment. There is also a persistent seller in the market, feeding stock out at the end of the day to balance up the market makers. Still, that gives me the opportunity to load up with cheap shares, so it's an opportunity rather than a problem. Hopefully.

May Gurney (MAYG) is also reporting tomorrow, another low PER, high divi yield favourite of mine, which I wrote about here.
The crux with MAYG will be whether they are able to draw a line under various problems in the past, which they have stated are now ring-fenced. So I am hoping no more bad news, if so then the re-rating should continue there.

I'm going to Paris tomorrow morning for a short break on the Eurostar, so if Vianet or May Gurney results are bad, then I could end up getting a margin call whilst underneath the sea, which would be a first!
Updates here might therefore be a little erratic for the rest of the week, but I'll have laptop with me & wifi, so will do what I can.

I'm continually amazed at the number of really tiny companies on AIM. It cannot possibly make commercial sense for companies with negligible turnover and mkt caps of sub-£5m to have a stock market listing. Yet so many do.

Tricorn (TCN) publishes interim results, which look pretty solid, with a higher operating margin more than compensating for a fall in turnover. Adjusted EPS is up nicely from 1.66p to 2.07p for the 6 months.
The outlook statement indicates a weaker H2, with the full year expected to be similar to last year, which was 3.78p adj EPS.

That means that at 16.9p the shares are on a PER of only 4.5!
Also, they have net cash of £1.1m, which is for a company with a mkt cap of only £5.6m. Strip out the cash, and you're on a PER below 4, which looks great value to me.

Divi yield looks stingy though, at just over 1%.

Tricorn calls itself a "tube manipulation specialist", whatever that means. They are opening a facility in China, which one imagines should improve margins, providing they navigate the operational minefield of overseas operations alright.

It's too small for consideration in my portfolio, but looks worthy of a further look for people who do look at micro caps below £10m mkt cap.
I'm wondering if there are any "nasties" lurking, which I've not spotted, as the valuation looks too cheap here. Can't see a pension fund deficit. I do note however that the company has borrowings of about £2m, and associated interest cost of £82k last year in the P&L. This seems odd. Why have debt, and more than that amount in cash, thus wasting £82k p.a. in unnecessary interest costs? Makes you wonder if the y/end figures have been window dressed? Although there is a healthy surplus of working capital overall.

(EDIT: a friend has just emailed me to say that the reason why Tricorn looks cheap is because they are losing their lucrative aerospace contracts, which might be difficult to replace. So that's the area to research for this share).

Right, that's it for today.

Best wishes,
Paul Scott.