Regrets I have a few but then again...........

I last wrote about Densitron following their annual results, and I mentioned that the company could be a recovery play and that I intended to hold my shares. After this week's trading statement, I decided to sell.

I have made a fairly hefty loss on my investment in this company, but sadly they can't all be winners and you have to take the rough with the smooth. The key thing is to ensure the winners outweigh the losers and stick to a strategy.

I sold my investment in Densitron for two reasons. Firstly, the trading statement stated that :-

"The difficulties in closing business that were encountered during the second half of 2012 have continued into the first half of 2013. At present the level of sales are in line with those achieved in 2012. A number of projects have moved forward and, while noting the on going protractions in closing business, we expect to see revenues from them during the second half of the year and into 2014."

Not great, but not disastrous either. More worrying is the protracted legal action against the company:-

"As also explained in the 22 May 2013 Preliminary Results announcement we are working to find a solution on the writ that the Company received in relation to the property occupied by a former Group company. The situation remains largely unchanged and we continue to work to bring this matter to a resolution as soon as possible."

This is dragging on too long for my liking, and I think Densitron could eventually take a considerable hit.

As I mentioned in my last blog about Densitron, much of the bad news might already be priced in and
I'll keep them on the monitor, but another good reason for selling was to free up cash to invest in other opportunities.

It's never nice selling at a loss, but it's your overall portfolio that counts. The multi-baggers more than compensate for the losers.

In fact show me an investor that always picks winners and I'll show you a liar.

Looking back my biggest investment mistake by far was investing in a company called DCD Media. A real jam tomorrow outfit that I have mentioned on my blog a few times. I sold out a little over a year ago, and if you're interested you can read my comments in post 72 on the advfn thread below:-

 http://uk.advfn.com/cmn/fbb/thread.php3?id=27683272&from=58

I notice that DCD's recent results were released around a couple of weeks ago. Same old story, the usual loss making dross with another share consolidation thrown in for good measure. If the share consolidation was 1 to one trillion, I'm pretty sure that in a few years they would still manage to  bring the price back down to a penny again.

The only positive from owning shares in DCD Media was the invaluable lesson it taught me in what to look out for in the future and avoid at all costs.

As mentioned above, it's never nice when an investment goes against you, but if you have a reasonable ability to pick out the hidden gems amongst the micro-caps (mostly AIM listed) then the rewards from the winners more than negate any losses incurred elsewhere.

As a scenario, let's say that you buy a portfolio of ten micro-caps at £1000 each. Two five bag, six lose half their value and two go bust. Not particularly good stock picking, but your original £10000 investment is now worth £13000 and you've made a 30% profit.

Unless you've proven to yourself that you can pick potential multi-baggers then of course the strategy above isn't going to work for you, but if you've got a proven track record in stock picking and are confident in your own ability then you're likely to do far better than the scenario detailed above. With an added bit of luck you've also got the chance of picking an ASOS or LO-Q for instance that will multiply your original investment manifold times.

As ever, no advice is intended or given, these are just my musings based on personal experiences.

Avesco interims and Disney windfall

Avesco released their interim results on Thursday including details of the Disney pay-out. Remarkably the share price dipped by more than 10% at one stage. I can only imagine it was a knee-jerk reaction by some investors anticipating a greater return of cash directly to shareholders. In my opinion this provided a fantastic opportunity for savvy investors to pick up shares at a truly bargain basement price.

As an investor in any company you effectively own a percentage of the business and are a part-owner of that business, however large or small that percentage is. In my mind there was a simple calculation to do following the pay-out details. Avesco have received a whopping £44.6m (far more than originally anticipated) from Disney and the current market cap. is approximately £53m. Effectively a profitable, cash-generative, dividend paying company with quality tangible assets is valued at £8.4m. That's less than the value of Fountain Studios!! At one point on Thursday the market cap had fallen to around £48m and it was no surprise when value hunters quickly pounced. The shares recovered even further yesterday.

An alternative way of looking at it is that the current NAV without the Disney cash is £1.53, add in the Disney cash and it's £3.31.

Whilst some investors may have been disappointed with the £1.10 pay-out they would receive (odd in itself??), it appears they have neglected the fact that the £14m that Avesco are keeping in the company will be used to pay down debt and effectively grow the business to keep the dividends rising and flowing in the future.

This has been a fantastic investment for me, and continues to be so. The company remains considerably undervalued in my view.

In another development for one of my investments, the takeover of Datong has now been confirmed at 50p which gives me a 31% profit within a few short months. I was hopeful that the offer would have been a lot higher than this, but at least it's a decent profit and provides some useful cash to invest elsewhere.

In wider issues markets are pretty volatile at the moment, and we are experiencing a few dips. Nobody can predict the direction of the market with any certainty, but I've stated before that I believe the current bull run may have considerably further to run. Interestingly I noticed a strong bout of Director buying this week in a whole range of companies which clearly provides some food for thought. After all they are insiders.

Anyway, as a stock picker I'm far less concerned with the direction of the markets than the price of individual companies, and if a price is a bargain then it's a bargain whatever the market direction.

As ever, no advice intended or given.

Massive payout from Disney. What next for Avesco shareholders?

Well it's finally arrived a massive windfall for Avesco from the Disney litigation via a third party. From my calculations it will work out at about £1.69 per share. If you take this amount away from Avesco's current share price of £2.21 then currently the shares are closer to 52p or a market cap. of £13m. Laughable really. 52p is about a third of Avesco's NTAV and, on an average of it's previous two years underlying earnings (Avesco does better in even years because of its reliance on major events), it puts the shares on a p/e ratio of 4. I expect they will continue to maintain or improve the current dividend pay-out which effectively gives a yield of around 7.7%-9.6% (based on a 4p pay-out last year and a 5p pay-out this year).

The Disney windfall is more than the anticipated $60m, and should be closer to $66m. This probably took some investors by surprise but I did mention this possibility back in March:-

http://michae1mouse.blogspot.co.uk/2013/03/its-finally-over-disney-ordered-to.html

"I've read some absolute drivel on the BBs about this prospective payout with some posters speculating about possible scenarios on the negative side of any payout. Here are some things to consider on the positive side:-

Disney will already have paid tax on the profits that they made on the show, so this immediately clouds the picture, I would also be surprised if there wasn't nearly three years of interest to add to the payout since the case was won in 2010. However, I know nothing about these matters and clearly neither does anybody else.

In conclusion, the eventual payout will be substantial. Make no mistake."

The only negative in the update was that they may not meet market expectations for 2013.
Whilst that's unwelcome news, the material effect is negligible given the figures I've quoted above. Also, this is a highly cash generative business that should be viewed on a two year cycle, and 2014 sees the Winter Olympics, Commonwealth games and Football World Cup. As mentioned before, Avesco is sensitive to economic conditions, and has done remarkably well over the past two or three years. I fully expect conditions to improve over the next two or three years and Avesco to prosper.

Interim results will be published on Thursday 13th June and shareholders should receive more details about the Disney pay-out then, but they have always indicated that the majority of the monies would be distributed to shareholders and given that Taya and Richard Murray hold 50% plus of the shares between them, you wouldn't really expect them to renege on their promises. Unless of course they decide to bid for the entire share capital, which is something Taya have done in the recent past. See my previous comments below:-

 http://michae1mouse.blogspot.co.uk/2013/02/interesting-development.html

Anyway, I am looking forward to what Thursday brings!!