At heart I would describe myself as a value investor, and over recent years I have tried to identify what I perceive to be value shares with good growth potential in the micro-cap sector. If you get the sums right, management prove to be competent, and you throw in a little bit of good fortune then the results can be spectacular.
Two relatively recent examples for me have been Avesco and Indigovision. Both have been multibaggers (I still hold Avesco), because I was fortunate enough to spot their potential whilst their shares traded below asset value. Whilst there were no guarantees that the companies would prosper (both made losses when I originally picked them up), I always felt that they had the potential to become profitable and show good growth with a medium to long term view. Fortunately in both instances that was exactly what happened.
I am hoping that I have now identified a similar opportunity, and in recent weeks I have been acquiring a holding in a company called Datong (DTE). There is a rather excellent article posted by 'hastings' on the ADVFN thread for the company which summarises all of the key details which made the company attractive to me. I am re-posting it below:-
http://www.cambridge-news.co.uk/Business/Private-Punter/Intelligence-on-Datong-shows-profits-wont-stay-under-cover-19022013.htm
The only details I would add are that current assets minus all liabilities amounts to £6.45m against a market cap. of only £5.2m (the company is debt free). NAV is almost twice the current market cap. at £10.3m. Cash on the balance sheet is £2.5m and the company is profitable and generating cash. In fact, if my calculations are correct, on last years figures the market cap. is less than five times the Free Cash Flow.
Add in the fact that the company announced in December that it had just secured a two year contract worth £7.5m then the company does appear to be very cheap. I'm not sure what proportion of that revenue will be booked this year, but given that total revenues last year were just £9.7m, it's certainly a significant contract.
To add some balance it's worth noting that results will probably be second half weighted for 2013, they don't pay a dividend (at the moment) and the p/e ratio (based on 2012 results) is about 13.
Their AGM is at the end of this month (28/02/13) and it will be interesting to see if there is any news about current trading.
As ever, no advice is intended or given and this is a micro-cap and all the usual caveats apply.
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