Saturday, January 12, 2013

Sat 12 Jan - Request for assistance

Good morning,

This is off topic, hence can wait until a Saturday.

I want to develop this Blog in 2013, since it's clearly popular, but it's taking up an increasing amount of my time for very little reward (under £100 per month income from the Google ads).

Also, I would like to merge this site with my investing website to make it look better on WordPress, add new features, and put all my stuff in one place, so it's easier to administer.

Finally, I'd like to recruit some guest writers, so that we can cover more companies each day in more depth, with a handful of other experienced investors writing pieces, and me acting as Editor, reviewing & publishing (or rejecting!) such articles. Clearly I'd have to pay people to do this.

Therefore I either need to move to a subscription model (which I don't think will work, as people expect to read things free), and would be counter-productive since it would decimate my reader numbers - and what's the point in writing stuff if hardly anyone reads it?

So the solution I'm looking at is finding out how to maximise advertising revenues from this site, but it's an area I have little experience in, and very little interest in.

So am looking for help from any readers who are knowledgeable in the area of online advertising for websites, and who can help me maximise my income from the site, which would allow me to spend some money recruiting the guest writers that I'd like to bring on board.

Given that the readership here are all investors, hence are all by definition more than averagely affluent, I would have thought the revenue potential from ads should be fairly good, if I knew how to unlock it. But it's not a good use of my time spending a lot of time managing advertising, so ideally some sort of time-effective method would be best.

Finally, if anyone likes the idea of becoming a guest writer here, then get in touch. What I'm looking for is people with a proven track record (ideally from TMF bulletin boards) of analysing & interpreting shares intelligently, and who can express that in a readable form, and above all who is a canny & successful value investor.

What I envisage is having a small team of writers (5 or less), including me, who liaise at 7am, and each pick 2 or 3 company results/trading statements to write about. Each author then writes their pieces, puts them on the website in draft form for me to review (probably with a paragraph comment from me added at the bottom), and then published. So that by say 9am, we'll have a series of articles covering hopefully all of the non-resource sector, >£10m mkt cap, UK companies reporting on that day.

I think that will build into a really valuable resource, as over time it will become an online encyclopedia of small cap shares, where you can quickly search for incisive comment on any company.

Please let me know if you can help, and have the necessary expertise in either advertising or guest writer area.

Many thanks & enjoy the weekend!

Regards, Paul.

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)

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.

Wednesday, January 9, 2013

Wed 9 Jan - SBRY, TED, GRG, ZTF

Sainsbury's (SBRY) is my favourite of the Listed supermarkets, simply because they seem to be executing better than the others. Also, it's intangible, but as a customer when shopping at Sainsbury's, I just somehow feel positive (maybe it's the colour scheme, store layouts, staff attitude, the product, who knows?). When I shop in Tesco, it feels the opposite - somehow more stressful and unpleasant. Can't explain it, but there has to be a reason for that.

With a positive Xmas trading update issued this morning, with LFL sales up 1.5%, it's put SBRY back on my shopping list at 329p, so have picked up a few. The forecast yield is almost 5%, and the PER 11, so those figures look attractive to me. Always the possibility that the Qataris, who own 26% might bid for the whole thing at some point, so I like SBRY as a nice each-way bet.

Fashion group Ted Baker (TED) once again shows how it's done, with an excellent trading update for the 8 weeks to 5 Jan. Retail sales rose 20.9% vs last year, and with sq footage up 13.9%, that means LFL sales are up roughly 7%, a remarkable performance in the current climate.

It just goes to prove what I've always said - if you get the product & the price right, it will sell, regardless of market conditions.

Profits at TED will be in line with expectations. The share price already reflects this strong performance, with a PER of just over 20. It's not for me, as it only takes one season's range to go wrong, and a profits warning, to trigger a 30% plunge in share price. So for me the potential reward does not justify the risk.
But I'll be the guy buying 30% lower if they do warn on profits at any point!

Today's rant has to be about market makers, and their ridiculous spreads again. Take Vianet (VNET), a share which I'm very keen on, as it's the ideal mix of value (fwd PER of 6.7 times next year's fc EPS of 17p, and 5% divi yield, with a sound balance sheet) and good growth potential thrown in for free.

There has been a fair bit of volume lately, typically 100-200k shares traded each day, if not more. So the market spread should be maybe 1-2% right? Wrong! Despite having 5 market makers providing quotes (of just 1,000 shares!), their resting position is a bid/offer spread of 7p. On a share that is just over a quid. Absolutely crazy.

Moreover, they don't compete with each other, they just rush to match each other's stance, leaving the spread so impossibly wide that they have effectively almost shut down the market in VNET shares. Nobody is going to trade if they have to absorb a 7% bid/offer spread, plus dealing costs. Get a grip please market makers! Either quote sensible prices, or don't bother quoting prices at all!

What makes it worse, is that the actual price of trades going through is well within the quoted spread. So why do they insist on quoting prices which are far wider than the actual prices they are prepared to deal at? It just creates hassle, and deters people from dealing. So instead we have to go to an online broker, put in dummy trades, to see what the price on the RSP actually is. A ridiculous waste of time.

My preference would be to have ALL stocks on the market as  SETSmm stocks, so that investors can place orders directly on the order book (if you have DMA), or instruct your broker to do so, by-passing the market makers altogether.

This is a serious issue, where the status quo is massively holding back the market in small caps. We need much tighter spreads, and more liquidity (which will flow naturally from tighter spreads). The market makers current strategy of extreme caution is greatly holding back the small caps market in my opinion. Action is needed!

Gregg's (GRG) didn't have a great Xmas, with LFL sales down 2.9% against strong 2011 comparatives. Although they do say full year results to be broadly in line with expectations. PER is 11, and divi yield 4.6%, but growth prospects look limited. So probably priced about right.

High performance foams maker, Zotefoams (ZTF) puts out a positive trading statement, with Q4 sales up 8%, and expectation of 2012 being in line. The valuation looks about right for a steady growth company, with a fwd PER of about 15.

Oh, just a quick plug for an investor London event next week, which I shall be attending. It's a similar format to Dave Stredder's "Mello" investment evenings, in that 3 Listed companies will be giving short presentations, followed by Q&A. Then drinks/canapes & networking afterwards. It's all free, and is being organised by Equity Development, who are sharpening their focus on private investors, hence why they are organising this event.

Should be a good evening, as the 3 companies are excellent growth small caps: Tracsis, Regenersis, and VP Group.

Details are here for anyone interested, as there are still some spaces left;

Right, I have to dash, so that's it for today. Back tomorrow.

Regards, Paul.

Tuesday, January 8, 2013


The year-end trading statements are starting to flow now, with about 16 issued this morning. So I will review 4 or 5 that look the most interesting to me, with a small cap and retailing leaning.

Allocate Software (ALL) has an unusual 31 May year-end, so their H1 trading update this morning relates to the 6m to 30 Nov 2012. They say that H1 is in line with expectations, but split between a slow Q1 and a "much stronger" Q2. The outlook statement is pretty upbeat, so might be worth a closer look? Although with 5.5p EPS forecast for 2012/13, a share price of 78p prices it on a PER of 14.2, which doesn't excite me. As a value investor I'm looking for decent growth and a PER well below 10.

Majestic Wine (MJW) shares have done very well, rising 4-fold in the last 4 years. Their Xmas trading statement is pretty solid - total sales up 5.1%, with like-for-like ("LFL") sales up 1.1% for UK stores.
(Explanation of "Like-for-like" (LFL) sales - this is a method of reporting sales, used particularly by retailers, which shows the underlying performance of the business. So it strips out any newly opened or closed stores, and only reports on the stores which have been open for the full period both this year, and last year. Therefore the total % LFL change in sales gives the most meaningful figure to judge performance on. So in the example above, Majestic Wine achieved +1.1% LFL sales in their shops which were open both last year and this year. However, total sales for the whole business rose 5.1%. This indicates that they have opened new stores equating to 4% additional sales (so 1.1% LFL + 4% new stores = 5.1% total sales growth).

There is no reference to profit vs expectations, but given that Xmas trading was slightly ahead of the year-to-date (they report 0.8% LFL sales growth for the 39  weeks to 31 Dec), then one assumes they are in line with expectations. But this should have been made clearer from the RNS.

Interestingly, Majestic do note that many shoppers left purchases to the last minute, an increasing worry for shops at Xmas time. This behaviour may be explained by the fact that shops rarely run out of things these days, so by being good at logistics, in a way they've shot themselves in the foot?

Dominos Pizza (DOM) trading updates are always a pleasure to read, and yet again they've delivered good growth, and say that profits are in line with expectations. The shares are certainly not cheap, with a fwd PER over 20, but what a great business.

Interesting also that they flag good overseas growth, particularly in Germany. This might have some read-across to long-suffering shareholders in DP Poland (DPP), the separately Listed franchisee for the new Domino's stores in Poland, which recently completed a fund-raising to continue its expansion.

I was pleased to see the overhang from seller New Solera finally cleared in Vianet (VNET) yesterday, with the stock popping up 15% to 117p. Market makers are doing their best to inhibit trading though, with a ludicrous 5p spread. I wish we could move to a SETS order book on every stock, where anybody can effectively become a market maker, and spreads narrow.

I highlighted the great value (low PER, high divi yield) and strong growth prospects thrown in for free with Vianet shares here on my Small Cap Value website back in Nov, where the stock overhang gave many of us the chance to buy as many shares as we wanted, without moving the price. So I tend to view a stock overhang (where a large holder is gradually liquidating their position in the market) as an opportunity, rather than a problem.

Another of my stocks coming alive in the last few days, is STV Group (STVG), although I haven't seen any news, or reason for the rise. If anyone knows why it is rising strongly, please let us know on the comments section of this post.
I value interesting reader feedback, and do my best to respond to most feedback, if time permits.

Debenhams (DEB) had a very good Xmas by the looks of it - LFL sales up a whopping 5% in the busiest 5 weeks to 5 Jan 2013. Very impressive. I hope that has some read-across for French Connection (FCCN), a potential turnaround share which I hold.

Topps Tiles (TPT) Q1 IMS looks OK, with LFL sales up 1.6% (although that is against soft comparatives of down 4.2% the prior year).

Dunelm (DNLM) has also had a good Xmas, with H1 LFL sales to 29 Dec 2012 up 2.2%, against a 1.1% rise the prior year. Although they do note that strong H2 comparatives will be tough to match.

There are a few more, but that's as many as I can cope with before my first cup of tea of the day! Just a quick word of thanks also to the many generous donations made yesterday to my 2 charitable causes (see box on top right hand side of this page). It is hugely appreciated, and spurred me on to do another 5 mile training run last night after the markets closed. They are definitely getting easier the more often I do them.

Regards, Paul.

(of the shares mentioned today, Paul holds VNET, FCCN, and STVG only).

Monday, January 7, 2013

Mon 7 Jan - STAF, NPT

Good morning! Here is my usual trawl through the morning's RNSs, looking for the undervalued and overlooked.

Recruitment/outsourcing group Staffline (STAF) has issued a short & sweet trading statement, saying that 2012 earnings will be in line with market expectations. They reiterate they are, "well placed to continue to capitalise on a number of strategic opportunities that exist across our business", the biggest one of which is the  Govt's welfare to work programme (which could become pretty lucrative for STAF in the next 5 years).

Morningstar shows the broker consensus EPS as 33.6p for 2012, so that puts STAF on a fairly cheap PER of 8.9 times 2012 earnings. There is also a 8.3p forecast divi, giving a yield of 2.8%. So it's no longer amazing value, but certainly good value. However, if EPS grows as forecast to 40p (with a 9.5p divi) then the 2013 forecast PER falls to 7.5, and the yield rises to 3.2%, which is looking a lot more interesting.

STAF has been heavily tipped by the Mail on Sunday, so I suspect that pulled in a lot of the recent buyers, so personally I shall sit this one out, and look to buy back in any significant pullback to say the 260-270p area.

On 4 Sep 2012 I published a report here following a private client broker lunch I attended with Staffline's Directors, and was very impressed. I bought shares at 226p, although have recently sold them at c.300p, in order to recycle the money into something that hasn't yet moved up (Vianet), but looks like it will once the overhang from a large seller is cleared.

Incidentally, I also made Staffline the "share of the month" for Sep 2012 on my sister site, Small Cap Value, which I'm pleased to say is now up & running again after some major IT problems (had to recreate the website from scratch, but have installed proper automatic backups now, so should be fine in future).

Netplay TV (NPT), the interactive gaming company, puts out a strong Q4 & full year trading statement, indicating that they are confident of exceeding full year market expectations. So that means they should deliver over 1p EPS for 2012, therefore these look potentially good value at 12.2p.

They note that mobile/tablet is a strong area of growth (isn't it everywhere?!).
I'm not terribly keen on gaming companies, as they are essentially preying on people with addictive personalities, so it's not for me. But purely based on the numbers it looks like a potentially interesting growth company.

OK, that's it for today. Not much else to report, other than that my training runs for the Brighton Half Marathon on 17 Feb are going well - am going out 3 or 4 times per week now, and managed about 5 miles last night with relative ease. Thank you to everyone who has sponsored me for either MacMillan cancer care, or the Sussex Beacon charities. The Justgiving link is here if you wish to donate. I'm at 59% of target funds raised so far ...

Also, I'm doing the DryAthlon for Cancer Research, which is to renounce alcohol for the whole of January. People who know me acknowledge that I (harrumph, coughs!) enjoy a drink occasionally, but so far so good. If you fancy sending me a virtual diet coke (for the benefit of Cancer Research), then please click on this different Justgiving link. Thank you to "Ajay" who kindly donated £20, much appreciated!

Have a good week!

Regards, Paul.