Friday, January 11, 2013


Good morning! Many thanks for all the charity donations that have been pouring in this week, for both my Half Marathon (for MacMillan & Sussex Beacon) on Feb 17, and my Dryathlon (alcohol-free) for January, in aid of Cancer Research. Very much appreciated!

More trading statements this morning. Firstly I'll look at European newspaper group, Mecom (MEC). I wrote a detailed piece about it here on 18 Jul 2012, which generated a quick 30-40% gain, but I sold on the next set of results, as it was rather difficult to predict what the company would be worth in the future, due to sales & ad revenues declining rapidly at some of its titles.

Mecom is now effectively breaking itself up, and the various parts are up for sale, details of this are given in today's RNS. It remains strongly cash generative, with ongoing EBITDA for 2012 expected to be around E89m.
At 82p the mkt cap is £97m (NB. the mkt cap is in sterling, but accounts are in Euros).

A bit like Trinity Mirror, cashflow is strong since the cost base is largely variable, so as revenues decline, they strip out more cost. There is good news in that a fine from Dutch authorities has been negotiated down from E20.6m to E2.2m. Year end net debt was E130m.

The problem remains that revenues are declining so fast, that the whole thing could become worthless in a relatively short period (within 5 years) if those declines continue. Q4 ad revenues were down an alarming 17%, which I feel is too steep a decline to make the shares investable - that's far more than a cyclical downturn, it's a rapid structural shift away from newsprint advertising (probably towards online & mobile advertising). So this one is not for me - it's too messy, and looks to be in rapid decline. There might be one last puff on the cigar butt, but it's not clear cut enough to be worth taking the risk.

AGA Rangemaster (AGA) is another share I briefly held in 2012, until the full enormity of the pension fund problems sank in with me. It's a nice cyclical company, making posh cookers, and their new energy saving model looks interesting.

They have £5m net cash left, after putting £20m into the pension fund towards the deficit, and £5m in German litigation costs.
Market conditions remain difficult, with revenues down 2% (same as during the Interim period), but cost cutting means profits will be up (but they don't say by how much).

AGA peaked at 700p a share in the last (credit-fuelled) consumer boom, so at 85p (£59m mkt cap) there should be good long term upside. For the moment however I'm not convinced the shares offer any value on current performance.
The pension fund is still a major problem. It will stay on my watch list though as an eventual recovery play - I could see this recovering to 200p in a more buoyant consumer environment. There is further cost-cutting planned for 2013.
Banking & pension fund agreements are in place now until 2015, so risk seems under control.

Building services group T.Clarke (CTO) issues an in line trading statement.
It's in a competitive, low margin sector, and forecasts are quite low, for EPS of only about 4p for both 2012 and 2013 (well down from the 12.4p and 7.5p EPS figures in 2010 and 2011 resepctively).

So whilst the shares don't look cheap at 58p on a PER basis (that works out at 14.5 times 4p forecast EPS), this might be bottom of the economic cycle earnings, such that a cyclical recovery might see EPS return to the 10-20p range, which would make the shares look good value in the long run.

I feel we are clearly now in an equities bull market, with more optimistic assumptions being made. Hence it might be worth pushing the boat out a bit on some of these things, and anticipating earnings rises, which is what bull markets tend to do, 6 months ahead of the fact. Although TCO doesn't strike me as the best opportunity out there, by an means.

Small housebuilder MJ Gleeson (GLE) is not something I've looked at before. The mkt cap is £92m at 173p. Their trading statement today reads well, with H1 performance (it's a 30 June year end) expected to be "significantly ahead of last year".

What caught my eye is that they say, "The Govt's FirstBuy scheme, which provides support to first time buyers by way of a 20% equity loan, has been very popular with our customers."

And that, "demand for green field residential land in the South of England from the major housebuilders remains strong."
This seems to have positive read-across for one of my shareholdings, brownfield regeneration company, Inland Home (INL). The row over excessive Directors pay there may have obscured increasing value in the shares, hence I am hoping to see INL shares re-rate from 20p to perhaps nearer 30p in 2013, or maybe be taken over at a premium?

Online marketing company dotDigital (DOTD) seems to be doing well, judging by their trading update this morning. The rating is too racy for me, on about 20 times forecast EPS for y/e 30 Jun 2013.
However, it looks a quality business, with a great client list, high recurring revenues, and decent margins.

Trouble is, a lot of these technology companies have a very short shelf life - they hit a sweetspot with some product or service, but then 2-3 years later everyone has switched to using something else. So I'm reluctant to pay high multiples for anything that is hot at a particular time, but may be old hat in a couple of years time. But each to their own.

Philatelist Stanley Gibbons (SGI) announces that 2012 trading was in line with market expectations. Personally I wouldn't touch these shares with a bargepole, as the whole concept of valuable stamps is complete nonsense, and people who attribute sky-high value to little squares of paper from the past need their heads examining!

Since young people rarely (if ever) use stamps these days, in 50 years' time, people will probably attribute very little value to something that is totally irrelevant to their lives (stamps from the past). So these silly valuations of today are a bubble that inevitably will burst at some point, in my opinion.

Although the crass stupidity of the mega-rich never ceases to amaze me, so perhaps they will keep paying up for things that have no intrinsic value?

Right, that's it for today. Have a great weekend & see you on Monday morning!

Regards, Paul Scott.

(of the shares mentioned today, Paul owns shares in Inland Homes (INL) only)


  1. Hi Paul

    I agree with your analysis of AGA. Terrific cookers but I've sold my shares this morning after their underwhelming update (no mention of their push into China), luckily still making 35%.

    I was emotionally attached to the company because of my love for my own Aga, I know this is a mistake and should be resisted!

    Have a great weekend yourself - I hope sitting on even more profits than last w/e!


  2. Thanx for your blog Paul , good daily read for me , much appreciated.




    This may be the reason for movement in your STV.