Like many investors, I find selecting companies to invest in far easier than deciding when to sell a holding. I have clear criteria and rules that I try to follow when buying shares but I’m less certain about the right time to sell. This selling dilemma has cropped up a couple of times this month, as I shall explain below.
Firstly though, it’s a dilemma that hasn’t troubled me where Avesco is concerned. Avesco released their 2011 interim results in mid June, and my personal expectations have been exceeded for this six month period. Given that Avesco benefits from the even year effect (Olympics, World Cup etc.), I wasn’t expecting such a great improvement in overall and underlying performance compared to 2010. Whilst the third quarter results for 2011 will be up against the tough comparator of last year’s World Cup, the overall full year results are shaping up to be far stronger than 2010 which is extremely encouraging as they enter London Olympic year 2012.
When the interims were released, the shares initially dipped on the news that the Disney court case may take longer than some traders had hoped. However, two recent research notes have picked up on the fact that this company is worth £2+ even without any Disney windfall and the shares have risen again since. The two notes are posted on the ADVFN AVS thread.
Avesco is still undervalued on many valuation measures, and it’s an easy decision for me to continue holding.
The day after Avesco’s interims, I was faced with a dilemma when, totally out of the blue, Indigovision issued an unwelcome and unpleasant profits warning. Given their encouraging interim results, I was hoping that trading was still robust. The trading update gave few details other than to say that revenues would show some improvement on last year, but profits would be significantly below expectations. Given the terse nature of the update and the scant detail, my impulse was to sell the remainder of my holding, which I duly did.
The profit warning had been issued on Friday morning, and I did spend part of the weekend agonizing over my decision to sell. I can see both a bull and bear case for indigovision which I have mentioned on the ADVFN IND bulletin board. However, since buying in 2004 for around 60p and with subsequent sales at prices of £9+ and £6+ respectively, my investment returned 750% overall (annual compounded return of 36%) and I am more than happy.
Indigovision will remain on my monitor. Is the company now good value or a bit pricey? The full year results should paint a clearer picture, but we’ll have to wait until September for those. This will be the second year that earnings have disappointed despite a pick up in the global economy. Whilst world economic growth couldn’t be described as strong, I would have expected Indigovision’s performance to at least be improving. The bulls argue that it’s operational gearing in reverse (and temporary), but you can’t ignore the fact that, whilst margins are still excellent, they are falling and overheads are increasing. Indigovision may have to start ‘peddling faster’ just to stay still?
The biggest dilemma that I had was about three weeks (or so) ago.
In previous blogs you will see that I picked up a holding in Surgical Innovations for under 2p less than a year and a half ago. After their last set of results, I had decided that this company was almost certainly a long term hold. However, as the share price broke through 10p again and up towards 11p, I did sell.
Why did I sell? Two reasons really. Firstly, a five bagger in such a short period of time is an extremely healthy return, and secondly I believe (rightly or wrongly) that the chances of SUN multi-bagging again in such a short time frame have fallen quite considerably.
Surgical Innovations have done exceptionally well over the last year or so, and I can easily imagine that the business will continue to boom in the forthcoming years. The company is currently valued at around £40m on revenues of £7m and profits of £1.8m. The forecast EPS figure for 2011 is 0.6p giving a forward P/E of around 15. SUN doesn’t look expensive given future growth prospects, and I can see further upside in the share price if they continue their momentum. However, I believe the potential upside in the near and medium term is now more limited and better opportunities may present themselves. I shall keep SUN on my monitor just in case any price weakness tempts me back in.
Densitron is a more recent purchase, and today they released a very upbeat trading statement. Given their broker forecasts (2011(E) EPS – 1.49p and 2012(E) EPS – 2.17p) and DSN’s confident statement about meeting 2011 estimates, a near term share price of around 20p looks entirely possible. Their forward looking statements look very promising, and there is a nice dividend. Just like Avesco, I am more than happy to keep all of my holding.
I’m currently scouring the market for further potential investments, and will update my blog when I make any new purchases.
P.S. I see that Indigovision’s broker (Brewin Dolphin) is predicting EPS for 2011 around 18p/19p. Forward P/E for 2011 is therefore about 15. Not expensive if growth resumes next year, but if the market isn’t convinced by IND’s forward looking statements then it could attract a single digit p/e ratio which will put the shares below £2 (2009 - EPS 34p, 2010 - EPS 26p, 2011(E) - 19p). They will stay on my monitor, but I’m not in any rush to leap back in.
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