Friday, January 25, 2013

Fri 25 Jan - GBO, TMMG, CRE, API, SAL, CDY

Good morning. First my big news! As you know, I've been looking at ways of trying to earn a bit of income from these reports, and have weighed up lots of options (advertising, affiliate marketing, charging for access, writing on other websites, etc). Thank you very much indeed for the many helpful responses - many readers have emailed me with some great ideas, and offers of help, which have helped steer me in the right direction.

The deal I've agreed is with Stockopedia. As readers might already have spotted, I'm a big fan of Stockopedia - it's a very high quality site, with minimal advertising, and a wealth of high quality data, presented in innovative ways. It's designed for investors who dig into the numbers, do proper research, and want to constantly learn & improve their analysis & investing.

As such I think it's the perfect fit for my reports. So the deal I've done with Stockopedia is that my reports (which have already been syndicated to them free for several months) will now appear exclusively on Stockopedia, and the best bit is that they will remain free! You won't even need to register with Stockopedia to read them, and you will also be free to leave comments & discussion there.
I will get paid (based on page views, so would be good if you could spread the word & help me increase the readership).

The second best bit is that I retain complete control over what I write, this is a genuine no-strings-attached deal, where I don't have to promote anything, they just like my reports & want me writing my morning reports (and other stuff) on their site.
So I'm absolutely delighted with this outcome, and hope you will be pleased too. We start on Monday 28 Jan 2013.

What will happen is this - a post will appear here on this Blog as normal each morning. However, it will just be a title, listing which companies I'm writing about that day, and there will be a link to click through to the full article on Stockopedia.

The beauty of that is it keeps this Blog alive, and you can still use the search box here to find my thoughts on particular companies - and it will throw up all the relevant articles pre-Stockopedia as well as on Stockopedia.

OK, let's look at this morning's RNSs.

Globo (GBO) is a share I've always had nagging doubts about, after reading their Annual Report. It is regularly promoted in the financial press (which rings if not alarm, then at least mild warning bells).

They divested their Greek operations in Dec 2012. It's a very lop-sided disposal deal with only E1m received on signing, and the other E10.2m sales proceeds deferred. Hmmm. The first thing I would do when scrutinising Globo's next set of accounts is to write off that E10.2m debtor!

The other thing I would look closely at, is their policy of capitalising internal costs into intangible assets. You might find that profit is nowhere near as high as they claim, once you adjust the accounts to a more conservative basis expensing all costs.

However there's no denying that the trading statement this morning sounds very good. EBITDA is expected to be E29m for 2012, up 42%. I'd want to add back the costs they capitalise though, and work out what the profit really is, rather than this inflated EBITDA figure.

Their mobile offerings, CitronGO!, GO!Social, and GO!Enterprise have all shown strong sales growth. It does look tempting, but I'm not happy with the accounts, so will pass on it (will probably kick myself when they double or triple from here).

Mission Marketing (TMMG) looks potentially interesting. I think this is a good time to be buying into cheap, cyclical shares, such as PR & Marketing companies - several of which are still on cheap multiples of earnings. They have operational gearing, which means that when the economy improves (as I believe is likely for 2013), then profits rise disproportionately fast when increased turnover is achieved (due to most costs being fixed, so extra turnover drops through to much higher profit).

They put out a nice bouncy RNS this morning, gushing about a new contract win (Harley-Davidson) for their subsidiary "Big", based in Leicester. There are no figures of course, that would just complicate the message!

Someone was telling me the other day that they never use advisers based in London, because if you use people based elsewhere in the UK, you get the same service for a much lower price. Worth considering as a general point.

TMMG is on a fwd PER of only 5.8, but it has quite a bit of debt, equivalent to just over 50% of the mkt cap, so on a crude basis that would take the PER up to nearer to 10, which is worth considering, but not amazingly cheap.

Quite low margin work too, and no dividend, but could be a nice cyclical recovery investment over the next couple of years? I bought into Creston (CRE) recently, who operate in a similar space, but the beauty of Creston is that you get a lovely 4% dividend yield whilst you wait for the shares to go up.

With interest rates so low, I think dividends are very important, and buying into high yielding shares is a key part of my investing strategy at the moment. Although I'm also mindful of the fact that we're currently in a roaring bull market for small-mid caps, and hence the emphasis will gradually shift back to aggressive ratings for growth, rather than value.

I think it's important to adapt one's strategy to prevailing market conditions, so I'm also hunting around more for early stage growth situations, so I might drop my minimum mkt cap limit from £10m to £5m accordingly, as I think the risk of de-Listings is receding, especially for companies that are trading well.

A wobbly-sounding statement from API Group has been published this morning. This company put itself up for sale quite a long time ago, and there haven't been any takers yet. Today's update says that indicative proposals have been below the current share price of 90p, and there have been no formal offers as yet.

The shares have fallen to 76p, and risk-reward doesn't look great to me, even at that price. We now know the upside is probably minimal, since bids (if any) are likely to be below 90p, and the downside case (if bid talks are called off completely) would probably take the shares back down to 60p.

It doesn't seem to have paid a divi for 12 years either, so I'm pretty sceptical on this one, but who knows, things can change & maybe a bid will emerge?

Spaceandpeople (SAL) is a £20m mkt cap company which manages promotional space in shopping centres, mobile kiosks, etc. Their trading update today says that 2012 results should be in line with market expectations. That is for just under 8p EPS, so at 95p the shares are on a PER of about 12, which is probably about right.

The divi isn't bad though, and a yield of 3.5% is expected for 2012.
They also report that net cash has risen to £391k. Not huge, but at least it's positive.

Casdon (CDY) is a tiny company, making tiny products - miniature toys.
Their interim results this morning are excellent, with profits having more than doubled to £693k. That makes the £2.7m mkt cap (even after this morning's 20% rise!) look potentially exciting.

I tried to speak to the CEO a moment ago, but he wasn't in, so I spoke to their accountant, who wasn't very helpful. Although I did glean that the Interims probably contained one-off sales which are not likely to be repeated, which is hinted at in the RNS. So unsustainable profits, and an uncommunicative company, mean I won't be investing here.

OK that's it for today, have a great weekend, and see you back here on Monday morning, for the link to my usual morning report, but on Stockopedia.

Best Wishes,

Thursday, January 24, 2013

24 Jan 2013 - KBC, RGS, JDG, GTC

Good morning. I often do this strange thing, where for no apparent reason, I start humming or singing a tune. On stopping and thinking what tune it is, the lyrics are always something directly relelvant to whatever I happen to be doing or feeling at the time. This morning, Bill Withers song "Lovely Day" popped into my head, and it was just after reading the trading update from KBC Advanced Technologies (KBC)!

Their statement today indicates 2012 ended strongly, with a $100m contract award from EP PetroEcuador (previously announced). KBC provides software & consultancy services for optimising profit from oil refineries.
Results for y/e 31 Dec 2012 are expected to be slightly ahead of forecast.

I bought shares in KBC recently, after they announced that humungous contract win. Even after an initial big surge in share price, the valuation was still cheap - as is often the case when really significant news comes out - the market takes time to digest news, people stop buying the shares after a (say) 15-25% rise in share price, yet if the previous valuation was really bombed out, and the news is really good, then that can often still be a buying opportunity even after the initial rise.

I've just bought a few more KBC at 66p this morning. The 2012 forecast PER is 10.7, falling to 8.4 for 2013. That's too low considering how well they are trading, in my opinion. They also just moved net cash positive, per today's RNS. I expect them to reinstate a divi soon, a further upward catalyst.

It's very surprising that the initial rise in SP this morning has since fizzled out, and this represents a buying opportunity at 65p in my opinion. However, please DYOR as usual. I'm adding it to "Paul's Picks" at the current offer price of 65p.

Another example of shares continuing to rise after positive trading updates,  recently was Regenersis. I flagged it here on the morning of their results in Sept 2012 as being good value at 96p, and the shares have since continued rising to 171p. Am still kicking myself on that one - I not only spotted it was cheap, wrote about it here, but for some bizarre reason it didn't occur to me to buy any shares! Proverbial wood & trees perhaps? Somebody give me a kick next time! This is also why I set up a new page here (see menu above) called "Paul's Picks" where we can keep track of shares that I've flagged as looking good value, and see how they subsequently perform.

Hopefully it will validate my investing approach, or expose me an incompetent fool, so will be interesting to see which it is!

Judges Scientific (JDG) is a lovely business. They are a serial acquirer of small companies in the scientific instruments sector, where Britain apparently is a world leader. Their model is to borrow cheaply, then make small acquisitions at very cheap cashflow multiples, then repay the borrowings from cashflow in a short time frame (typically about 2 years). Then they just repeat the process. Their charismatic and brilliant CEO, David Cicurel, just hasn't put a foot wrong. As he said himself at a Mello Central meeting, it's not about synergies, it's about making cheap, good quality acquisitions using cheap bank loans.

Their trading statement this morning indicates a positive end to 2012, achieving expectations "with a good degree of comfort"! Order book is strong too.

The shares have been remarkable performers, but the price is well up with events now, in my opinion, at around the 1000p level. Growth becomes harder to achieve, since it is compound, and a PER of 15 looks towards the upper end of reasonable, in my view.

GETECH (GTC) puts out a positive trading update for the first 5 months of their year to 31 July 2013, expecting to exceed current market expectations. Forecast was for 3.5p EPS, which at 67p would put them on a lofty PER of 19 suggests upside is already priced-in.

I'm still planning the move of my morning market reports, and think you will be pleased with the outcome. All will be revealed shortly.

Best Wishes, Paul.

(Of the companies mentioned today, Paul holds shares in KBC only)

Wednesday, January 23, 2013


Good morning. Interesting trading statement from W H Smith (SMWH). Despite reporting LFL sales down 5% for the 20 weeks to 20 Jan 2013 (which would normally be pretty disastrous for profits), they report a "good profit performance" (although not quantified in absolute, or relative terms).

This has been achieved by tightly controlling costs, and a planned strong increase in gross margin. This is pretty impressive, I've not heard of such a big (5%) drop in LFL sales being recouped through margin improvements & cost control before.

I still can't shake off the feeling that W H Smith is an accident waiting to happen - it's as old economy as you can get - books, greetings cards, travel, etc. Yet somehow it still manages to not only survive, but to apparently prosper. Perplexing.

Wynnstay (WYN) is an agricultural products group, but reading their results (Finals to 31 Oct 2012), they also have a retail division, including 21 pet stores, so a potential roll-out story there perhaps?

They report record results, with revenue up 9% to £376m, and profit up 13% to £7.8m. Note the wafer-thin profit margin there. EPS is up 16% to 35p. That is ahead of forecast of 32.8p EPS, so looks good, but a share price of 468p means the PER is 13.4, not exactly a bargain.

The divi yield of 1.8% is unexciting too (total of 8.5p for the year). It has debt  of £13.8m (compared with a £79m mkt cap), so all in all this looks fully priced to me, so not of any interest.

£10m mkt cap computer games company Zattikka (ZATT) has disappointed in its short history as a Listed company, with the shares halving after a profits warning in Nov 2012. Their trading statement today indicates that things are not getting any worse, with trading in line with the expectations set out in Nov. I generally avoid this sector, after several bad experiences in the past. These companies constantly have to run to stand still, with frequent profits warnings if new releases (which have an extremely short shelf life, but up-front costs) flop, as inevitably they will from time to time.

However, the holy grail of gaming these days is to come up with something addictive online, where silly people pay money for imaginary objects through platforms such as Facebook, and waste vast amounts of time playing games.

Last week a new friend told me that Severfield-Rowen (SFR) looked like a good short, and I'll know to listen to him more carefully in future, as SFR has served up a nasty-sounding profits warning this morning.

It's a structural steel maker, for buildings, etc. Cost over-runs on a project at 122 Leadenhall have triggered today's warning, and worryingly they don't seem to be on top of the figures either - with a review needed of its contract base. Clearly poor management, and the CEO has been kicked out.

Its funding position is also wobbly, discussions with Banks taking place over Covenants. This is the nightmare scenario, and is the reason now why I rarely touch any company with significant debt, relative to cashflows. "Gear today, gone tomorrow", as a wise man once told me (wish I'd listened more carefully!)

SFR shares are likely to be pole-axed today - halved maybe? I'm deploying my bargepole, and am not tempted to catch any falling knife where there's a risk of insolvency - been caught out too many times before.

4imprint (FOUR) puts out a "broadly in line" trading statement, so in other words slightly below. I do wish companies would stop using this trick, and just say "slightly below". It's a bit like charging £9.99 or £10 for an item. £10 is far more honest, and customers respect honesty. Although it's one of those situations where the first company to break ranks on this will probably regret it, as the market will probably over-react. But does it really matter what the short term share price is anyway? These things correct over time.

I like FOUR, it seems a steady growth company, but the price is now up with events in my opinion. Nice divi yield of over 4%, and a solid balance sheet with net cash, so it's my type of company, just not quite cheap enough for me to be a buyer now.

Finsbury Food (FIF) puts out a solid trading statement, although despite gradual reduction, there is still far too much debt for it to be of interest to me. I rarely (if ever) invest in food companies, as nearly all the profit is screwed out of them by the power of the big supermarkets.

32Red (TTR) is an online casino which has caught my eye in the past due to its very effective marketing strategy, and strong growth. Their trading update today shows continued growth with revenues up 28% for 2012. Profits are in line, so that puts them on a PER of just over 11, and a divi yield of 3.2%. Not bad for a growth company, although I don't like this sector, both for financial and ethical reasons.

Findel (FDL) issues an upbeat sounding trading statement. I don't like this one - accident-prone, and still has way too much debt. Low margins, and dreary, old-fashioned businesses. The valuation seems to already price in a trading recovery, so it doesn't interest me at all. There's no dividend either, so it ticks pretty much every box on my bargepole list.

Just to alert you in advance, my reports will probably be moving to another site as from Monday. However, they will still be published at the same time, with the same content, and will remain free. So just keep coming here as usual, and instead of the main report being here, there will be a post listing the companies covered, and a link to click on to read the report on another free website.

Why am I doing this? Because they're paying me, simple as that! We all need to earn an income, and I think it makes sense to monetise what I'm doing this way, rather than introducing a subscription model.

Please rest assured that I retain full control over what I write, and there really is no catch. They are experts in advertising, and generate revenue from ads, which they use to split between themselves & the writers of articles.
You won't even have to register to read the articles, and you will also still be able to leave comments. So no downside at all, just a bit of income for me, which is nice.

Have a good day.

Regards, Paul.

(Paul does NOT hold shares in any companies mentioned today)

Tuesday, January 22, 2013

Tue 22 Jan - LOQ, UBI, IDEA, NET, OCDO

Shareholders in virtual queuing system company Lo-Q (LOQ) will be pleased with more good news - Dolly Parton's "Dollywood" theme park has extended the duration of an existing contract, and is to also install the system in a second theme park. I was tempted to make a joke about water parks and buoyancy aids, but thought better of it.

I totally understand that LOQ is a terrific growth company, but that valuation is looking really stretched now - almost 3 times sales, for a company with a fairly standard, sub-10% profit margin. 25 times 2012/13 forecast earnings is pretty eye-watering, but the market clearly believes strong growth will continue.

Badly-worded RNS of the day award goes to Ubisense (UBI) with their schizophrenic trading update, which starts off sounding like a profits warning, gradually warms up, and then ends up sounding positive. It's just all wrong.

Take this sentence for example;

"The Group has displayed good momentum in the second half of the period but timing of some projects has led to revenue growth below market expectations and profitability in line with consensus expectations for the full year."

You start reading it and think, oh here we go, timing of projects, revenue below market expectations, so this is a profits warning. Right? Wrong!
They finish the sentence by saying that profitability is in line with market expectations.

Surely they should have inserted a full stop after the statement about revenue being disappointing? Then started a second sentence saying, "However, profitability will be in line with consensus expectations for the full year." That would have been so much clearer.

It then finished with a really upbeat commentary from the CEO, so some very muddled messages here, and I suspect they will pay the price for that with a softer share price today. The shares look priced very aggressively too, at least double the price that would begin to get me interested. I cannot see why this company has a mkt cap anywhere near £50m, given that it's only forecast to break-even in 2012, and make under £1m profit in 2013.

The ridiculous quote-driven market for small caps is just not working. Yesterday  was another example, where I wanted to buy shares in Craneware (CRW), but faced a ludicrous 15p spread to buy at 400p. So with dealing commission, I'm looking at an instant loss of over 4%. Forget it! So the trade didn't happen.

Instead we need to move to an order-driven market, where potential buyers & sellers are free to just directly put their own orders onto an electronic order book, where deals are matched. There is no need for market makers at all, they're an unnecessary link in the chain, and they impede market liquidity, and load avoidable cost onto transactions. Their neutral book policy is a contradiction in terms! Could a market trader sell vegetables if he had a nil stock policy?! It's absurd.

I fully support ShareSoc's robust submission to the LSE on their recent consultation on the trading of small company shares, which can be seen here;

It is high time that something was done about this, and many other issues too. For example Placings - why can't these just be thrown open electronically to all existing shareholders first, then outside shareholders, through an online auction process, with participants having pre-registered as capable investors beforehand? We have the technology to do this, but we don't use it. Our markets are 20 years (or more!) behind where they could be, in terms of technology & innovation, and I'm sure that holds back smaller growth companies, making it unnecessarily difficult for them to tap into sources of fresh equity.

Ideagen (IDEA) issues Interims to 31 Oct 2012. Whilst up 51%, turnover is only £2.6m (bear in mind the mkt cap is £20m), but they have a high profit margin, with adjusted EBITDA up 47% to £0.75m for the 6 months.

They also raised £6m post period end, in a Placing at around the current share price.  I don't know anything about the company, so can't value it, because smaller growth companies are all about assessing the growth potential, and then forming a valuation around that. Whereas my value investing approach is more about looking at ongoing cashflows, divis, and assets.

Things seem to be going well at Netcall (NET). We met the CEO at a Mello event some time ago, and it sounded a decent company. He sticks in my mind because he had one of the most bizarre accents I've ever heard, which I hope it's not offensive to mention - think half Geordie, half Swedish, and you're in the right ballpark!

Their trading update today for the 6m to 31 Dec 2012 reads well: trading "comfortably in line" with expectations, strong order inflows, double digit sales growth. Net cash of £8.2m also!

The valuation looks pretty reasonable, despite the shares having had a good run already. A PER of 13, for a company where a fifth of the mkt cap is net cash, is not expensive, given that they are performing well too.

Finally, I note that Stuart Rose has appeared as the new Chairman of Ocado (OCDO). What on earth is he thinking of?! Mind you, a key feature of Rose's career in the 15 years or so I've been aware of him, is that he has an uncanny skill in timing his entry into companies when the heavy lifting of a turnaround has already been done, but hasn't yet come through in the figures. So he gets the glory for the turnaround, without actually having to do much work. That's exactly what happened at Arcadia, Bookers, and M&S. So perhaps his exquisite timing is a signal that Ocado may not be the basket-case that many of us think it is?

OK, that's it for now. Have a good day, and see you same time tomorrow morning.

Regards, Paul.

(Paul does not hold any positions in the companies mentioned today)

Monday, January 21, 2013

Mon 21 Jan - HRO, BEG, SSY, RBN, RST

Another week kicks off with mostly trading statements as opposed to results.
Small top-end car dealership, H R Owen (HRO) puts out an (unusual these days) "exceed market expecations" trading update today. They flag Ferrari, Lamborghini, Rolls-Royce, and Bentley as having done well. Somewhat surprising, but perhaps good times are back for the rich, whilst the rest of the country chugs along in first gear?

There is however caution about 2013, saying H1 is expected to be quieter, due to the timing of new models, so that might limit any upside today on the shares.
The mkt cap is £16m at 67p/share. The PER on current 2012 forecast EPS of 5.8p is 11.6, so as we know they are going to exceed that figure (but don't know by how much), then the PER looks reasonable.

I'm not so excited by the balance sheet, which has a lot of debt on it, although that's par for the course with car dealers, to fund their stock. Margins are also wafer thin. There might be some merit in buying into the upturn, but on my admittedly very brief glance at it, value doesn't jump out at me.

Also I would be concerned at the impact that higher interest rates will have once the economy does improve, on a low margin business which needs a fair bit of bank debt to operate. So it's not for me.

A share in my portfolio, Begbies Traynor (BEG) issues a statement saying that it is launching "BTG Financial Consulting". I'm a bit confused as to what is actually new, it sounds like some kind of rebranding exercise, so doesn't seem to have any potential impact on the share price. Do let me know if I've misunderstood.

Scisys (SSY) is a company that has been on my watch list for some time, but I've never pushed the button and bought any shares in it. Anyway, they've put out a reassuring, in line with expectations update for calendar 2012. They also mention improved margins, and that strong cash inflows underpin their progressive dividend policy. The pipeline for 2013 sounds healthy.

Even though the shares are up about 50% in the last 6 months, from 50p to almost 75p, they still look quite good value based on forecasts for 2013 - the forecast PER for 2013 is only 8, although a 1.95% dividend yield is pretty unexciting.

It looks as if they will deliver about 7p EPS for 2012, so the PER there is just over 10, so reasonable value, especially as the balance sheet looks solid, without much debt. But in the short term I'd say perhaps the main upside has been had, so I'm not going to join the party at this stage.

Packaging company Robinson (RBN) issues an in line trading statement for 2012. With forecasts of 10.5p EPS for 2012, that puts it on a PER of just under 12, which sounds about right.

A better 2013 is expected, due to new business coming on stream, and forecasts reflect that with EPS expected to rise to 13.7p in 2013, for a PER of 9, which is starting to look a bit more interesting.

We met management of Robinson at a "Mello Central" event last year, or the year before? I vaguely recall there is a surplus property angle with this share too? Perhaps anyone who knows about this could quantify it in the comments section below?

Ceramics & homewares maker, Portmeirion (PMP) looks like a good steady growth company, I like their track record of increasing earnings & dividends in a difficult economic environment. There's also no doubting the increasing international appeal of British brands.

They report strong trading in December, and 2012 profit expectations to be in line. It has a net cash balance of £7m, and with 46.6p EPS expected for 2012, that puts it on a PER of 11.7. Not exactly bargain basement, but allowing for the good 3.7% dividend yield, and the very strong balance sheet, I'm going to take the plunge and add Portmeirion shares to my new page on this website, called "Paul's Picks", where I highlight (and keep track of the price of) my favourite value situations that arise.

I see that housebuilder Crest Nicholson announces its intention to IPO and List on LSE. A further sign that the housing market is doing well.

US markets are closed today, it's Martin Luther King Jr day apparently, so that usually reads across to the UK being quiet.

Craneware (CRW) is actually (I assumed it was something to do with cranes!) a software company selling into the American medical system. I've not looked at it before, but the growth in recent years looks very impressive indeed, as does the high operating margin.

Their trading update today shows further growth of EBITDA of 15%. Looks interesting. It's not my usual type of thing, as the PER is high at 16.9, but given that it has net cash, and a terrific growth record, plus high margins, this might actually be a reasonable price as a GARP share. Looks worthy of a further look at least. Horrible Bid/Offer spread though, which deters me from buying any shares in it.

Had a very quick look at Restore (RST) trading update, but can't see anything interesting in there, at their current valuation.

My DryAthlon is going great, not touched a drop of alcohol all month, and seeing considerable benefits in weight loss, good mood, energy, etc. So thanks for the generous sponsorship from readers here to Cancer Research, very much appreciated! The total (including side donations outside of JustGiving) is now over £700, which I think it terrific, thanks again!

Have a good week.

Regards, Paul.

Of the companies mentioned today, Paul only holds shares in Begbies Traynor.