For those of you who like growth companies, here's an interesting story. Cupid is essentially a global on-line dating company achieving rapid growth through acquisition. The company, which joined AIM in June 2010, released it's half-year results today and exceeded market expectations. Revenues were up by 189% at £25.4m with 53% of the total achieved outside the UK. EBITDA increased to £5.7m, a rise of 137% and they have £8.4m cash on the balance sheet and no debt.
Cupid are building a truly global presence, and establishing a strong foothold in the North American market.
Monthly revenues now exceed £4.5m per month, which projecting forward should produce a figure in excess of £52.4m for the full year. EPS at the interim stage was around 4p, and broker's forecast's come in at about 9p for the full year. However, I could easily see them achieving 10p+ for 2011 giving a forward p/e of around 24.
The Chief Exec's statement is very bullish:- "We are in a very strong position and remain confident that we will grow value for shareholders in 2011 and beyond. The market for our services is global and growing and we are well placed to take advantage of the numerous opportunities that exist".
It's a truly impressive growth story so far, and I will be keeping a careful eye on the SP and future developments. However, I shan't be buying at the current share price.
At heart I 'm a value seeker, and my issue with growth companies is that forward p/e ratios of 20+ don't leave any room for mistakes. Essentially growth has to continue at the heady pace expected by the company and the market. Cupid currently has a market cap. of £200m which is about ten times its net asset value (including intangibles). Without a dividend and/or sufficient asset backing then any hint of slowing growth can have a catastrophic effect on the SP. I'm not that brave.
That said, if I was to have a punt on a growth company in the expectation that they could continue to produce impressive figures, then Cupid would certainly be of interest. The very nature of their business appears ripe for consolidation and rapid growth, and I can see the story running for many years to come.
In conclusion, and perverse though it may sound, whilst I can't justify buying Cupid's shares using my strict (largely value based) criteria , a gut feeling tells me that I might be missing out on the next ASOS like growth story here?
If any readers wish to make a comment about this or any other article I have written then please go to the ADVFN bulletin board and use the thread "michaelmouse's blogspot. Any comments thread?" ticker MM. It appears too difficult to add comments on blogspot.
Tuesday 30 August 2011
Thursday 25 August 2011
The very little research, but are these really hopeless cases? portfolio vs. FTSE250
Just for a bit of fun, I thought I'd pick a few companies whose share prices look a little battered and bruised and compare their performance against the FTSE 250 over the next two/three years. I haven't done any research on these companies, and all I'll do is make a few cursory observations in their favour. I don't currently hold any shares in the companies I shall mention. Those of you who do read the blog from time to time will know that I tend to concentrate my efforts on trying to find bargains in the small/micro cap sector (see previous blogs).
For simplicity, I am going to allocate an equal (but fictional) investment in each of the eight companies.
The companies and their respective share prices at the close of play today are as follows:-
Aviva 318.8p
Cable and Wireless Worldwide 34.44p
Cable and Wireless Communications 32.12p
Game Group 23p
ITV 55.85p
Man Group. 206.1p
Thomas Cook 43.55p
Vodafone 162.85p
The share prices are the mid-prices given on the ADVFN monitor at the time of posting (17:40 Thurs. 25 Aug 2011).
The FTSE-250 finished the day at 10,021.39.
Starting with Aviva. Well known Life Insurer that pays a dividend of over 8%. If it holds the dividend for the foreseeable future then that's a pretty good return when you compare it against other investments.
The two Cable and Wireless companies. Proof that performance after a demerger can be as unimpressive as it was before, so far investors have had the opportunity to be disappointed twice as often. However, the yields from both companies are quite high (again if they can maintain them), and aren't both companies possible takeover targets?
Game group. Is this company seen in the same light as HMV? Looks to have better prospects to me, and a cursory glance seems to indicate that it is adapting and fighting back with a growing online presence.
ITV. Can still attract huge audiences for popular shows e.g. around 20m for the X-factor final and hence still attracts the advertisers. Apart from the BBC, does it really have any credible opposition in the UK? Just re-instated a dividend payment. Possible takeover target?
Man Group. Nice dividend. Possible takeover candidate.
Thomas Cook. Pessimists think TC could go bust or at the very least need to issue more equity. However, TC will be merging with the Co-op to make it the biggest UK tour operator. Despite the many issues facing TC, Russian acquistion looks promising, the Brits still love their package holidays and the chaos caused by the ash cloud should benefit companies like TC in the long run. At today's share price the yield is about 25%. Market obviously believes a cut is imminent, but if it isn't or it returns to the same levels in a year or two then what a fantastic return. Directors have been buying at current levels.
Finally, Vodafone. Dividend yield must be over 7% with the special dividend in January. Will the special dividend be a one off? Probably not.
You can clearly see that I haven't done much research, but I am interested to see how the performance of this portfolio pans out against the FTSE250 over the next two or three years. Just to stick my neck out, my guess is that this portfolio will out perform the FTSE250, but I'm not recommending it and I certainly haven't done this myself.
As I said at the beginning, it's just a bit of fun that fits in with my value and contrarian instincts, and on a monthly basis I shall return to compare performance.
For simplicity, I am going to allocate an equal (but fictional) investment in each of the eight companies.
The companies and their respective share prices at the close of play today are as follows:-
Aviva 318.8p
Cable and Wireless Worldwide 34.44p
Cable and Wireless Communications 32.12p
Game Group 23p
ITV 55.85p
Man Group. 206.1p
Thomas Cook 43.55p
Vodafone 162.85p
The share prices are the mid-prices given on the ADVFN monitor at the time of posting (17:40 Thurs. 25 Aug 2011).
The FTSE-250 finished the day at 10,021.39.
Starting with Aviva. Well known Life Insurer that pays a dividend of over 8%. If it holds the dividend for the foreseeable future then that's a pretty good return when you compare it against other investments.
The two Cable and Wireless companies. Proof that performance after a demerger can be as unimpressive as it was before, so far investors have had the opportunity to be disappointed twice as often. However, the yields from both companies are quite high (again if they can maintain them), and aren't both companies possible takeover targets?
Game group. Is this company seen in the same light as HMV? Looks to have better prospects to me, and a cursory glance seems to indicate that it is adapting and fighting back with a growing online presence.
ITV. Can still attract huge audiences for popular shows e.g. around 20m for the X-factor final and hence still attracts the advertisers. Apart from the BBC, does it really have any credible opposition in the UK? Just re-instated a dividend payment. Possible takeover target?
Man Group. Nice dividend. Possible takeover candidate.
Thomas Cook. Pessimists think TC could go bust or at the very least need to issue more equity. However, TC will be merging with the Co-op to make it the biggest UK tour operator. Despite the many issues facing TC, Russian acquistion looks promising, the Brits still love their package holidays and the chaos caused by the ash cloud should benefit companies like TC in the long run. At today's share price the yield is about 25%. Market obviously believes a cut is imminent, but if it isn't or it returns to the same levels in a year or two then what a fantastic return. Directors have been buying at current levels.
Finally, Vodafone. Dividend yield must be over 7% with the special dividend in January. Will the special dividend be a one off? Probably not.
You can clearly see that I haven't done much research, but I am interested to see how the performance of this portfolio pans out against the FTSE250 over the next two or three years. Just to stick my neck out, my guess is that this portfolio will out perform the FTSE250, but I'm not recommending it and I certainly haven't done this myself.
As I said at the beginning, it's just a bit of fun that fits in with my value and contrarian instincts, and on a monthly basis I shall return to compare performance.
Tuesday 23 August 2011
A doubled dividend works wonders
A very encouraging set of interim results from Densitron this morning. Caught me a little bit by surprise, since I wasn't expecting anything until September.
Revenues have increased by 31% and operating profit by 260%. The Chairman's statement indicates that these results were ahead of internal forecasts and that they are confident of meeting market expectations for the full year (EPS 1.49p) which puts the shares on a forward p/e of less than 8 (share price currently 11.6p). Seems far too low to me. Significantly the interim dividend has been increased 100% to 0.2p. I expect a further payment of 0.3p following the finals giving a yield of 4.3% for the full year.
I like their current focus on organic growth and growing the operating margin. India looks like it might provide a further substantial growth opportunity.
All in all, despite the uncertain global economic outlook and market gyrations, I see no reason to alter my views on my investment in Densitron, and shall enjoy the dividend payments whilst patiently waiting for what I hope will prove to be substantial capital growth in the medium to long term.
Surgical Innovations' share price continues to rise, and the market cap. is now around £50m. As mentioned before I took healthy profits from my investment here, but did I take them too soon? Clearly in the short term the answer is yes, although part of my reason for selling was that I couldn't see it multibagging in such a short period of time again.
The present market cap. is currently more than 7 times last year's revenue with a forward p/e of over 20. The shares look pretty fully valued to me. However, it will be interesting to watch. There is always the possibility of a takeover approach or a huge contract win etc. Besides, as I have often mentioned before in this blog, valuations of growth companies can get very heady indeed. Time will tell.
Revenues have increased by 31% and operating profit by 260%. The Chairman's statement indicates that these results were ahead of internal forecasts and that they are confident of meeting market expectations for the full year (EPS 1.49p) which puts the shares on a forward p/e of less than 8 (share price currently 11.6p). Seems far too low to me. Significantly the interim dividend has been increased 100% to 0.2p. I expect a further payment of 0.3p following the finals giving a yield of 4.3% for the full year.
I like their current focus on organic growth and growing the operating margin. India looks like it might provide a further substantial growth opportunity.
All in all, despite the uncertain global economic outlook and market gyrations, I see no reason to alter my views on my investment in Densitron, and shall enjoy the dividend payments whilst patiently waiting for what I hope will prove to be substantial capital growth in the medium to long term.
Surgical Innovations' share price continues to rise, and the market cap. is now around £50m. As mentioned before I took healthy profits from my investment here, but did I take them too soon? Clearly in the short term the answer is yes, although part of my reason for selling was that I couldn't see it multibagging in such a short period of time again.
The present market cap. is currently more than 7 times last year's revenue with a forward p/e of over 20. The shares look pretty fully valued to me. However, it will be interesting to watch. There is always the possibility of a takeover approach or a huge contract win etc. Besides, as I have often mentioned before in this blog, valuations of growth companies can get very heady indeed. Time will tell.
Friday 19 August 2011
Miserable Mr Market
I see Mr Market is still feeling depressed at the moment, and undoubtedly he will create some bargains. However, quite a few company share prices that I have on my monitor seem resilient despite the recent sell-off. Early days yet though and Mr Market may get even more depressed and start handing out cheap shares on a plate. You can never predict market tops or bottoms with any confidence, and subsequent rises and falls generally take you by surprise. There's a great quote from Peter Lynch that I've included at the end of this blog.
In my opinion trying to second guess the market is a sure way to lose money, and as a stock picker I think the best you can do is to time your buying activity when you believe that the stock is cheap. Of course in markets like these there is always the risk that the stock gets cheaper still, so if you have the cash and are confident in your valuation methods then why not just buy some more. If you've used all your cash then just wait patiently for the real value to be recognised by the market.
Here's just one personal example. In 2002 I bought shares in Clarkson for around £2. The price looked a snip for a low p/e, debt free company with a healthy balance sheet paying what looked like a safe 7% dividend. However, Mr market got very depressed and decided that he would sell Clarkson for around £1.30 a few weeks later. If you take a look at Clarkson today you will see that the SP is around £11.35, and has been over £13. In other words the shares were cheap at £2, it's just that I didn't get in at the very bottom of the range, which is almost impossible to do on a regular basis due to the often irrational Mr Market and his moods.
At the time I was a relatively inexperienced investor, and I eventually sold my holding for around a 75% profit . Not bad, but given the capital appreciation and dividend rises over the years since, it would have been nice to just hold on for a while longer.
Anyway, here's Lynch's thought's about market timing (bear in mind that he's one of the best investors ever achieving a compound rate of 29.2% per annum.
"Every year I talk to the executives of a thousand companies, and I can't avoid hearing from the various gold bugs, interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers. Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack......All the major advances and declines have been surprises to me"
In my opinion trying to second guess the market is a sure way to lose money, and as a stock picker I think the best you can do is to time your buying activity when you believe that the stock is cheap. Of course in markets like these there is always the risk that the stock gets cheaper still, so if you have the cash and are confident in your valuation methods then why not just buy some more. If you've used all your cash then just wait patiently for the real value to be recognised by the market.
Here's just one personal example. In 2002 I bought shares in Clarkson for around £2. The price looked a snip for a low p/e, debt free company with a healthy balance sheet paying what looked like a safe 7% dividend. However, Mr market got very depressed and decided that he would sell Clarkson for around £1.30 a few weeks later. If you take a look at Clarkson today you will see that the SP is around £11.35, and has been over £13. In other words the shares were cheap at £2, it's just that I didn't get in at the very bottom of the range, which is almost impossible to do on a regular basis due to the often irrational Mr Market and his moods.
At the time I was a relatively inexperienced investor, and I eventually sold my holding for around a 75% profit . Not bad, but given the capital appreciation and dividend rises over the years since, it would have been nice to just hold on for a while longer.
Anyway, here's Lynch's thought's about market timing (bear in mind that he's one of the best investors ever achieving a compound rate of 29.2% per annum.
"Every year I talk to the executives of a thousand companies, and I can't avoid hearing from the various gold bugs, interest-rate disciples, Federal Reserve watchers, and fiscal mystics quoted in the newspapers. Thousands of experts study overbought indicators, oversold indicators, head-and-shoulders patterns, put-call ratios, the Fed's policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can't predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack......All the major advances and declines have been surprises to me"
Wednesday 17 August 2011
All that glisters is not gold
I spotted this on the London Stock Exchange website today. I see the experts are predicting the gold price will rise to infinity and beyond: $2000/ounce by this time next year and $5000/ounce by 2020. Wonderful news, I’ll just nip down to the Westfield
It’s probably just me, but I don’t really get gold and its safe haven status. Come Armageddon how much use will a stock pile of relatively useless yellow metal really be? Stuck down inside my bunker I can’t really imagine exclaiming “Thank god I bought all those gold bars before everything kicked off”, although I can imagine saying “I’m glad I stockpiled all those Bailey’s chocolates” ;o) (see Zetar)
On a slightly more serious note, it is beginning to look like gold is entering bubble territory, although predicting when the bubble will burst is a bit of a mug’s game. However, I did read somewhere that Anthony Bolton had already sold his gold investment.
That reminds me, I wonder when I’ll get my money for the golden pin I recently sent to “webuyanygold.com”.
Whilst I’m in a slightly frivolous frame of mind, if any of you are getting fed up of all the gloom, doom and despair that’s constantly in the news at the moment, here’s my all time favourite phrase:-
Bu da geçer
No prizes for translation.
Tuesday 16 August 2011
The Great Investors
Has anything been happening whilst I’ve been away?
Actually my family and I have just returned from a wonderful holiday in sunnier climes, and I’m currently suffering from post holiday blues. Normally I feel ready to return a few days before our holiday is due to end. Not this time though, fabulous hotel with first class facilities and service and the whole family felt that we would have liked to have stayed longer. Not cheap admittedly, but excellent value for money.
During the holiday I did occasionally switch on the TV to catch the BBC world news only to witness our feckless, indolent, and dysfunctional members of society rioting and looting. I haven’t felt quite so ashamed to be British since we regularly had to endure scenes of our football hooligans causing havoc with their moronic drunken behaviour and mindless violence.
However, I did raise a wry smile when the riots appeared to fizzle out due to rain!!!! Probably didn’t want to get their newly acquired designer trainers wet.
I was also acutely aware of the global stock market gyrations. Whilst I am happy with all my current holdings (incidentally, I don’t check their prices or look for news whilst on holiday), I’d be surprised if Mr Market hasn’t thrown up a few bargains during his current negative state of mind. I shall be scouring the market avidly over the weeks and months ahead. Already one or two interesting candidates have made it on to my monitor.
Whilst I was on holiday, I did take a couple of books to read which included “Investing against the tide” by Anthony Bolton and “The Great Investors” by Glen Arnold. Both books provided a fascinating read. Whilst I am very familiar with the ideas of Ben Graham and Warren Buffett (“The intelligent investor” by Ben Graham is a must read), I was less familiar with the likes of Bolton , Soros, Neff, Templeton, Fisher and Lynch. Not surprisingly, although they have all adopted their own particular styles; you can easily pick out a great deal of commonality in their strategies. Although I am a huge fan of Graham and Buffett, it was the chapter about Peter Lynch that may me sit up. I’ve never read anything about Lynch before, but from the relatively brief details in the book I can see more parallels in my investment strategy with Lynch’s than any of the others.
The book “One up on Wall Street” by Peter Lynch has been mentioned before on the ADVFN bulletin boards (possibly by the poster called “Cockney Rebel”?) and it is certainly the next book on my reading list.
When we did return home, I did naturally check the share prices in my portfolio, and although each had suffered a minor retrace there was no new company news either good or bad. Some short term traders may find the thought of not checking share prices and company news for over two weeks unthinkable, but for long/medium term investors like me, I would be questioning my judgment about a share purchase that I was nervous about leaving alone for several days. In fact, before buying into a company I always ask myself: - “Would I be happy to invest and only look at the share price again in two years time?” If the answer is no then I wouldn’t buy it.
One company that did release some news not long before I went away was DCD Media. (Incidentally, my investment here has taught me some invaluable lessons in identifying companies to avoid in future). DCD Media released a trading statement which was quite unique in that the statement didn’t refer to current trading once. In fact it merely stated that the Finance Director had stepped down (not a great sign!), they were looking to recruit further members to the board of directors (for goodness sake please recruit somebody at least half-competent!!) and they are still exploring funding (£1m for working capital).
As mentioned before, DCD is priced to go bust. Whilst I am sure that they have some very talented employees on the creative side, it appears that their management/business skills are somewhat lacking and to be frank I suspect that they couldn’t run a p*ss up in a brewery. The main hope for investors is that TAYA provide the capital and install a team that can provide the necessary business acumen. It is just possible that this could then be a ten bagger or more from here, but I won’t hold my breath waiting.
There was a trading update from Indigovision (a company I no longer hold shares in). This followed on from their recent profit warning and added a bit more meat to the bones. It pretty much confirmed what I suspected, that the company appears to be encountering a difficult period in its evolution from a small scale operation to a far larger concern. As a consequence the SP has now fallen well below the price I sold my remaining holding for after the initial profit warning. Profits should come in at around £1.2m which on a diluted EPS basis gives a current P/E around 14 (share price 205p).
On a p/e basis alone it doesn’t look cheap, and given that margins, operating profit and cash balances have all fallen since the interim period the shares may have further to fall? The balance sheet is strong, but as I mentioned here and on the ADVFN bulletin board, the market may allocate a single digit P/E ratio to this one. Even at 10 times earnings (15p EPS) this gives a share price around 150p. Given the balance sheet I would say that the shares would be extremely cheap again at these levels, but market valuations are often wrong otherwise we’d never be able to find bargains. Indigovision will remain on my monitor, but I’m not in a hurry to repurchase.
Finally, returning to my recent holiday (now that would be nice!) it was interesting to note that the hotel was fully booked and that there were a very high percentage of Russian, Eastern European and Asian guests who were staying at this 5 star hotel. Despite all of the concern about the current state of the global economy, looking further ahead I strongly suspect that any hiccup in global growth will be temporary and that the full scale of growth in Eastern European and Asia is still yet to emerge. Anyway, as an ordinary “Joe Soap”, perhaps I should just leave it to the army of economic experts to get it wrong for me!
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