Friday, January 18, 2013


Back to normal, apologies for yesterday's failure to produce a report, just ran out of time in the end.

I did however attend an excellent investor evening, arranged by Equity Development, which followed the tried & tested format used by David Stredder's excellent "Mello" investors evenings.

Three companies presented last night, being Regenersis (RGS), VP Group (VP.), and Tracsis, then we had excellent canapes, drinks, and networking courtesy of the hosts, legal firm Fasken Martineau in Hanover Square, London.

I was very impressed with all 3 company presentations. It's so useful to meet management, and get a feel for the people who actually run companies that we can invest in.
If anyone does a write-up of the presentations onto a bulletin board (I don't have time, on top of the time it takes me to write these reports), then please let me know, and I will happily provide a link from here.

But very quickly my impressions were these;

Regenersis (RGS) - sensible strategy to target high margin growth from emerging markets. Shares have performed very well recently, and in my opinion are probably getting close to being up with events. I could see upside to 200p, but at 169p that doesn't give me enough % upside to jump in now, so regrettably it's one where I've missed the boat. Which is a pity, as I actually flagged it here on 25 Sep 2012 as being good value when the shares were 96p! A bit annoying that I didn't follow up my own analysis with a purchase, but never mind.

VP (VP.) - Another company that I was already aware of & liked, they are a niche equipment hire business. The CEO really impressed me with his strategy (proven to be very effective, in how they have coped well with a major Recession), and a keen focus on shareholder value. They have never cut their dividend in over 30 years! It would make a terrific share to just tuck away & forget in a long-term portfolio, being reasonably priced on a PER of about 10, and with a 4% dividend that's likely to just steadily grow each year. so much better than a Bond, as you have in-built inflation protection, which is why I think equities generally are under-priced compared with Govt Bonds.

It was also interesting to note that VP said the Banks are lending, but by implication only to businesses that are low risk. Which is surely what Banks should be doing?!

Tracsis (TRCS) - This share is intriguing. They have had a very good year or two, and the share price rise has been underpinned by repeated above expectations trading statements, and excellent results. I have a nagging doubt as to whether those results are sustainable though, as a lot of the out-performance was from hardware sales rather than recurring revenue, if my memory serves me correctly.

The valuation looks a lot more interesting when you consider that about a quarter of the mkt cap is net cash. Also it has very high margins, so the price of 4x sales is not particularly relevant. Pricing power means they have something special, and have hoovered up pretty much all the main train operators in the UK as clients, so the product is clearly dominating its niche - a very nice strategy. They are acquiring other companies very cheaply. It all sounds intriguing. It's high on my watch list, but again don't think I can buy after such a big run up in the share price.

As someone quipped afterwards, what a pity we hadn't had this meeting & met these companies a year ago! But thanks again to ED for organising this, immensely useful, and let's hope there will be more such investor evenings with high quality companies presenting in future.

OK, turning to this morning's RNSs next.

Games Workshop (GAW) have issued a solid set of interims to 2 Dec 2012. Selling action figures to nerds is clearly a Recession-proof activity!
There is a striking jump in operating profit pre-royalties received, from £6.5m to £10.6m. Although their royalties received has plunged from £2.6m to £0.4m, so that needs looking into.

The interesting thing here is that GAW pays out the bulk of its earnings in dividends, so you get a whopping 6.7% divi yield. Although personally I like to see divis better covered than this. It also has a very solid balance sheet, with net cash. But the PER of around 13 means it's priced about right, so not of interest to me.

Shares in K3 Business Technology (KBT) have plunged 17% to 110p today, on the back of a profits warning. Can't say I'm surprised, as I've previously commented here before (on 18 Sep and 5 Dec) of the potential for a profits warning with this company. So I hope everyone steered clear, as I did.

There is far too much debt on its balance sheet, and now with a profits warning on top, it's not something I will revisit. Why take the risk when you don't have to? I'm convinced that long-term investing out-performance is best achieved by avoiding highly geared companies. After all, a company with cash in the bank that under-performs (like French Connection) has time to sort things out, and break-up value. A company stuffed full of debt which under-performs is at the mercy of the Bank manager, who can pull the plug any time they like, rendering the equity worthless.

Another strong housebuilder statement, from Bovis (BVS), gives me increasing confidence that my shares in Inland (INL) are overdue a re-rating, although they have been quietly ticking up in the last week or two, at long last!

Finally, I see that Home Retail (HOME), an old favourite of mine here, which I was very bullish about at 70-90p last year, put out a positive trading statement yesterday, although I feel the price is now well up with events at 140p.

The interesting thing here is that the short position has actually been rebuilt (led by aggressive hedge funds apparently), who must be smarting at their losses, as they've got it fundamentally wrong - Argos & Homebase are good businesses, with a bullet-proof balance sheet, which will not only survive the downturn, but will gain market share from rivals that go bust. The new head of Argos is brilliant, and has an excellent turnaround plan for Argos, which is working.

Of course, I sold too early (always do with my best ideas), at 105p.

Although I am intrigued at how all these shorts are going to square their positions when they eventually give up? According to Markit, there is a short position of 180m shares in HOME, which is a staggering 22% of the total shares in issue! There could well be an almighty short squeeze, which conceivably could take HOME up to 200p or more, in my opinion. I can't be the only person who gets a warm glow at the prospect of hedge funds making huge losses?!

Finally, can I just say thanks to the many people who have emailed me in response to my request for help & ideas last weekend. I have a big backlog of emails to reply to, which I'll plough through this weekend, and it's great to get so much positive feedback from many people who tell me they find this Blog useful. It's good to be appreciated!

Best wishes, Paul.

Of the shares mentioned today, Paul holds shares in Inland only.


  1. Thanks for the write-up Paul. I'm a holder at TRCS and have been for a while- great company.

    To me it feels like continued growth would come from either overseas expansion, or more acquisitions. Was any mention made of overseas opportunities (I know they've been doing a bit in Sweden, and I believe in New Zealand as well)?

    1. Hi Marlint,
      The CEO of Tracsys just mentioned overseas very briefly. He said they hadn't really looked at what competition there was internationally, if I remembered correctly.

      I recall him also saying that they wanted to deepen their business in the UK, as there are still markets to get into here, relatively easily, whereas a UK co trying to sell into (say) Germany or France public sector services, is very difficult.

      So it didn't jump out as being a priority for them, based on what was said last night.

      Cheers, Paul.

  2. Hi Paul

    May I echo all the positive, and appreciative, comments from other readers.

    What are your views on Hydrodec (HYR's) update this morning? I'm a holder - bought in at just over 12p - and I wondered if it was on your radar?

    Keep up the great work!

    1. Thanks Harry.

      Hydrodec isn't my thing at all - oil, overseas, and perpetually loss-making.

      I'm looking for UK-based cos, on cheap multiples of cashflow, i.e. value plays.

      Cheers, Paul.

  3. re TRCS - 'hardware sales and recurring revenue'

    Paul - from the final results I found this re revenue streams
    1. Application software
    2. Professional services
    3. Condition monitoring and data logging equipment

    It seems to me that 1 and 3 relate to software sales (applications) rather than hardware. And software normally attracts recurring revenue by way of support and maintenance.

    TRCS seems to be in a growth sector with a product in demand and therefore should be able to leverage this recurring revenue.

    I wonder if TRCS shared the revenue spilt between the 3 ares last night? That would help us gain a sense of likely recurring revenues.

    1. Hi melody,

      The CEO specifically said last night that item 3 above IS hardware, but they call it something else because they don't want people to think, "oh it's just hardware", which rang a small alarm bell in my mind.

      He went on to say that item 3 is 45% margin, and talked a bit about what the products are - black boxes which monitor things like Points, on railways, in real time, and flag up degradation BEFORE they fail, thus preventing accidents.

      So all good stuff, but it's non-recurring hardware revenue, hence why I'm a bit nervous about whether they can maintain the exceptionally big jump in profit last year. I suspect at some point this company might have a bump in the road, and disappoint. So that is the time I'd be looking to buy shares, at a much lower price.

      Bit too much froth in the price for my liking at the moment, but still a very interesting company, and very impressive CEO.

      Cheers, Paul.