Thursday, January 10, 2013

Thu 10 Jan 2013 - AFN, HFG, DIA, TSCO, JD., INS, GOAL, AVS, APC, TTG

Shares website Advfn (AFN) issues a nice marketing statement, explaining how its content continues to grow in the areas of mobile, books, and newsletters. No financial details of course, as results normally show how all the hype is achieving no return for shareholders, and no growth in profits (it barely scrapes into the black at the cashflow level). Good, and useful website, but the £30m mkt cap is bonkers. Based purely on the financials, and ignoring the perpetual hype from its RNSs, I cannot see why advfn is valued at more than £5-6m. So it's a 1p share in underlying value, by my calculations. No idea why the market values it at 4.7p.

Hilton Foods (HFG), a £205m mkt cap (at 290p a share) meat packing group, announces a solid trading statement for y/e 31 Dec 2012, saying they have traded in line with the Board's expectations, which one always has to assume are also the same as market expectations? But it is an ambiguity when companies talk about the Board's rather than the market's expectations.

It looks a sound company, on a PER of 11 (looks about right), and a decent divi yield of 4%.

Stellar growth is once again reported by LED lighting company Dialight (DIA). Earnings for 2012 are in line with expectations, so that means around 40p EPS, putting the shares on a PER of 25 times, at 1012. Racy stuff, but the growth justifies a high rating, if you think it's likely to continue. I don't have a view on that, so cannot value it.

Tesco (TSCO) issues a Xmas trading statement, which is pretty solid - LFL sales up 1.8%in the UK, the best performance for 3 years. Its PER of 10.4 and 4.4% divi yield are in the same ballpark as the other Listed supermarkets, although worth bearing in mind Tesco is carrying a lot of debt on its balance sheet.

I'm not a Tesco fan. Their pricing strategy of constantly raising & lowering their prices is dishonest, and creates a feeling that they are trying to trick you into overpaying, thus alienating customers. You build a business by behaving in a way which leads your customers to trust you, not by playing a game of cat & mouse with them.

JD Sports (JD.) always looks cheap on a PER basis. They have had a good Xmas, with LFL sales up 3.2% in the busy 7 week period ending 5 Jan.
The group is still suffering indigestion from the acquisition out of Administration of Blacks Leisure (outdoor, camping, hiking shops), but that's to be expected, and should benefit future years as the losses are eradicated.

The shares are illiquid, and 57% owned by Pentland Group, which is a major drawback - nobody likes investing in companies where there is one controlling shareholder. That said, on a PER of just 6 times next year's forecast earnings, it does look tempting, and the divi yield is good at around 4%.

The trading statement from Instem (INS) looks potentially interesting, although I don't know the company. It's a £10m mkt cap (at 84p) software company for the pharmaceuticals industry. They say trading for 2012 is in line with market forecasts (6.1p EPS, so that's a PER of 13.8), which is not cheap enough to spark my interest. Although they do refer to recent contract wins with big name pharmas.

Goals Soccer Centres (GOAL) has always intrigued me, although the growth has stalled, with new openings on hold until high levels of debt are reduced. Trading for 2012 is in line with expectations, and LFL sales for the year were up 2%. The PER of 14 is not attractive, particularly considering there is a lot of debt. Although it starts to looks a lot more attractive when you add back depreciation charges, and look at cashflow. But for the time being think I will sit on the sidelines.

Correction: Thank you to David, who emailed me to say that forecast EPS for GOAL is 14p, which gives a PER of 8.8 at 123p a share. I switched the PER and EPS figures by mistake, and wrote above (in grey) that the PER was 14, which is wrong. Apologies for this error.

Avesco (AVS) often crops up on cashflow filters that I run, as it seems to generate a lot of cash, but this is due to capex with very high depreciation rates (i.e. short lifespan). At first glance the results for y/e 30 Sep 2012 announced this morning look very impressive, but I've been confused by this company's accounts before, so whilst it may be worth a further look, will proceed with caution.

Reintroduction of dividends is a good sign though, with a 3p final, giving 4p total for the year, a yield of about 2.3% - not bad going if, as seems likely, it could be raised in future. Although they do say that the Olympics gave them a boost in 2012. Of all the results this morning, this is the set that I will probably spend the most time delving into.

Advanced Power Components (APC) shares have shot up 30% on the back of a £2m contract win with a UK retailer for energy efficient LED lights. Look potentially interesting, so I might do some digging on this company.

TT Electronics (TTG) says that the last 2 months of the year were in line with expectations, with margins up on 2011 as expected. They also give details of acquisitions and disposals.

The valuation looks reasonable, on a PER of about 10, and an attractive 3.9% dividend yield.

Ok, that's it for today. Just to say that on my DryAthlon (renouncing alcohol for January in aid of Cancer Research), all is going well, and I haven't touched a drop for 2 weeks now (started early). Have lost nearly half a stone, and feel great, so it is recommended! Doing training runs every 2 days too, so all systems go.

One very kind reader has offered to match any new donations to my DryAthlon pound for pound, up to a total of £200 - what a star, thanks!
So if you feel like sending a virtual diet coke for the benefit of Cancer Research, then it will have double the benefit due to the matching donation above. The link to my JustGiving page is here. Cheers!

Regards, Paul.


  1. Hi Paul

    Thanks v. much for your take on DIA. I'm a late joiner of the party and they do seem to be a terrific company, but seen through your beady eyes perhaps too exciting a valuation!

    1. Hi,

      Well it depends on whether you think DIA can continue delivering stellar growth. If revenues are likely to continue growing at 70%, then a PER of 25 is cheap!

      But I know nothing about the company, so have no idea whether growth is going to continue, so I can't value it.


  2. Paul,
    Your reservations about Tesco echoes the market's reservations about Vianet.

    1. Hi Red,

      Sorry, can you explain?

      I don't see any read-across from Tesco to Vianet whatsoever!


    2. Pub companies love it but pub tenants seem to hate it. e.g.
      Go to any pub tenant discussion board and the main topic of conversation is their dislike of brulines.

      Easy to dismiss the tenants unless they organize and bring pressure on the government, like so:
      and so:

      May still be good value but I don't think the bull case is an uncomplicated one.

    3. Ah, I see what you mean now.

      The difference is the the Pub cos are Vianet's customers, and they quite rightly want to ensure that their tenants comply with the Tie.

      I've seen the discussion about Pubcos treating tenants badly, and whilst I have some sympathy with them, they enter into tenancies through their own free will, and the Tie is a key part of that - it's how the pubcos ensure they get a return on their capital.

      I don't see how the Govt can really do anything much about this - it's not the job of Govt to intervene in free market contracts agreed between pub landlords and their tenants.

      So if the brulines product is unpopular with Pub tenants, frankly it's not any concern to investors in Vianet, since the tenants are not the customer. The Pub cos are the customer.

      Regards, Paul.

  3. I like your confidence. We'll see how this one plays out.


  4. "Avesco (AVS) often crops up on cashflow filters that I run, as it seems to generate a lot of cash, but this is due to capex with very high depreciation rates (i.e. short lifespan)."

    I'm confused! Can you add a little colour to this statement please? For a start I don't quite get why depreciation is adding to cashflow - something to do with depreciation having been taken off operating profit so it's added back since it's not a cash item.. have to sleep on that.. but I'm looking at today's cashflow statement: I see the capex pulling the cash generated down, but I can't see the depreciation added back?
    And then, why does the rate of depreciation matter, since over time the capex will be equalled by the accumulated depreciation..? I wonder if all these bits of ignorance are connected?? Thank god for anonymity!

    And what about the court case? [never heard of the company before today so know nothing about the detail of this] Disney are making a last ditch appeal, AVS are apparently in for ~150p a share if Disney lose, and the sp is 170p..

    also, what are 'Shrewdies'?