The very little research, but are these really hopeless cases? portfolio vs. FTSE-250

Regular readers of my blog will remember that, for a bit of fun back in 2011, I decided to see how the share prices of eight companies, which had recently taken a bit of a battering, would compare over time to the fortunes of the FTSE-250. I suppose it would be fair to say that one or two of the eight companies could be considered high risk. Indeed one of the companies was Game Group which subsequently went bust.

You can read my original blog here:-

http://michae1mouse.blogspot.co.uk/2011/08/very-little-research-but-are-these.html

My last update was in March of this year where I reported a good turnaround in the fortunes of the hopeless cases portfolio, but with the FTSE-250 still well ahead in terms of it's performance (21.4% against 41%):-

http://michae1mouse.blogspot.co.uk/2013/03/remarkable-turnaround-in-fortunes-of.html

So what's been happening since March?

Well, you may or may not be surprised to know that the FTSE-250 has now gained 48.5%, but more remarkably the hopeless cases portfolio is now showing a 46.6% gain. This is despite a right off in the virtual capital invested in Game Group.

The two biggest stars of the portfolio are Thomas Cook and ITV. In August 2011 their share prices stood at 43.55p and 55.85p respectively. Currently TCG is 150.1p and ITV 167.6p, gains of 244.7% and 200%.

Should we have expected these gains and risked the house with an investment? Well retrospectively it  seems obvious that these were potential multi-baggers in the making. Both companies are huge brands, and if they weren't going to go bust and could be turned around, then subsequent share price gains now appear inevitable. The power of hindsight is wonderful.

However, at the time there were no guarantees that either company wouldn't go the way of Game Group. In fact both TCG and ITV share prices did fall into the teens at one stage, and I think I'm right in saying that both have more than ten bagged since those dark days. Well done to the investors that got in at those levels. Fantastic returns.

The other companies that have posted gains include Vodafone (+21%), Cable and Wireless Communications (+26.4%) and Aviva (+16.5% and +13.8% respectively). There are two figures for Aviva since I reinvested the profits from Cable and Wireless communications into more Aviva shares. See March blog above for reasoning.

The only loser in the portfolio at the moment (apart from game Group) is Man. Group (-61%).

Over the past two years I do find it interesting that this 'hopeless' portfolio is less than two percentage points below the FTSE-250, given that GAME went bust and MAN has lost more than 60% of its value. Apart from TCG and ITV, the other picks have underperformed the indices so far. Neither TCG or ITV were bought anywhere near their lows.

It does bring me back to a point I made in a previous blog:-

http://michae1mouse.blogspot.co.uk/2013/07/a-week-of-mixed-fortunes-for-two.html

"Some investors would argue that the preservation of capital is the most important dictum in investing and I'd agree. However, if you're a stock picker I'd strongly argue that it's the whole portfolio of shares that you look at and you shouldn't get too hung up about any individual stock losses."

and

http://michae1mouse.blogspot.co.uk/2013/06/regrets-i-have-few-but-then-again.html

"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."

P.S. I notice that the New Pistoia Fund is slowly increasing it's holding in Indigovision shares. I'll stick my neck out and say that a bid looks likely in the medium term at around £4 possibly?

As ever no advice is intended or given and I simply write the blog for enjoyment.

Angle - prelims

Angle released their preliminary results this morning, and apart from confirming the excellent progress that they have already made this year, there were no big surprises.

Just reading through the report does fill me with cautious optimism for the future of this company and the success of its Parsortix PR1 system.

The outlook statement summarises as follows:-

Garth Selvey, Chairman, commented:

 

"In a highly successful year, ANGLE not only completed the key development phase for its Parsortix system for capturing circulating tumour cells (CTCs) but also developed a new capability to harvest intact CTCs from patient blood for DNA analysis.  The Parsortix system has already been well received by our research partners and is now being evaluated by key opinion leaders in the fields of cancer diagnosis and treatment.  ANGLE is now focused on securing regulatory authorisations to allow it to address the multi-billion pound clinical market for the treatment of cancer patients."  

 

Indications suggest that revenues should start to flow and be meaningful towards the later part of 2013 and into 2014 and beyond.

 

At the moment Angle still has £1.8m cash on the balance sheet (at year end at least), and there was no cash call to accompany the preliminary statement this morning. I think it's fair to say that they will need more cash in the not too distant future, but I am hopeful that this will now be possible to raise through the sale of Geometrics or from a fund raising at a substantial premium to the current share price.

 

I notice that Geometrics appears to be prospering  "Enlighten has now become recognised by leading customers as the best lighting solution for the next generation platforms and sales are significantly up on the prior year. " From what I can ascertain, Angle's 31% holding in Geometrics has a book value around £4m? Although I am happy to be corrected on this.

 

I continue to hold, and no advice is intended or given. For any potential investors they are producing a webcast today which may be of interest:-

 

See below:-

 

 

"A meeting for analysts will be held at 11.30am today at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN.  For a webcast of the analyst meeting, please log on to the following web address about 5 minutes before 11.30am:

 

http://mediaserve.buchanan.uk.com/2013/angle310713/registration.asp.

 

A recording of the webcast and presentation will be made available on ANGLE's and Buchanan's websites, www.ANGLEplc.com and www.buchanan.uk.com, following the analyst meeting."

 

 

 

 

Reach4entertainment - an apt name for an entertaining investment?

On the face of it, shares in Reach4entertainment, an Aim listed company look very cheap with a current market cap. of around £3m. The company which recently released an in-line trading statement has turnover around the £70m mark and a p/e ratio of less than 4.

Shares this morning have jumped by around 7% on a renegotiation of it's debt repayment:-

"Heads of Terms Agreement
r4e, the transatlantic media and entertainment company, today announces that it has entered into a Heads of Terms agreement with Allied Irish Bank to restructure the existing loan facility which is due to expire in May 2015.
This agreement, subject to contract, establishes a six year term from date of contract and a new interest rate of 3 per cent over LIBOR."

r4e, describes itself as a transatlantic media and entertainment company, and in recent times looks to have entered a period of uncertainty regarding it's future viability as a going concern. Hence the lowly share price.

The company has substantial debt and for investors with little appetite for high risk, this is certainly one to avoid since there is no margin of safety whatsoever. In fact if trading were to stall or worse suddenly deteriorate, then there is a chance that the company will go bust. The balance sheet shows that r4e has negative net assets despite £18m of goodwill on the balance sheet.

However, on the other side of the coin this is one of those companies that could multi-bag if they can keep costs under control and maintain trading momentum. Gross margins are reasonable (25%) and have improved 2% from last year.

Thomas cook are a good example in recent times of what can happen when heavily indebted companies begin to improve trading and are able to sort out their balance sheet. At one point TCG was trading at around 14p per share.

These "recovery play" situations are extremely risky but can be very rewarding indeed, and I'm certainly not averse to taking a punt from time to time. Ashtead was a really good example some years ago. I did buy Ashtead shares for about 15p if I remember rightly, but sold far too early. Currently the share price is 702p. Unbelievably at one point you could have bought the shares for 1.5p when it looked odds on that the company would go bust.

Will I buy r4e? It's certainly a dilemma! It would certainly be an entertaining if not nail-biting ride.

Indigovision disappoints again

Those of you who regularly read my blog will know that I have been a holder of Indigovision shares on two separate occasions. The first time I held shares I was lucky enough to crystallise profits of 750%. Relatively recently I took a more modest 50%. I've kept the company on my monitor, but haven't felt inclined to buy back in. I gave my reasons for selling the shares back in November, and after today's trading update I feel justified in having sold when I did. You can read my reasoning below:-

Trading statements and cashing in a 50% profit.

http://michae1mouse.blogspot.co.uk/2012/11/trading-statements-and-cashing-in-50.html

The shares slid back 12% today following the trading statement, and I have to say that I won't be buying back in unless the price falls substantially from here.

Back in 2004 when I first bought shares in Indigovision (for about 62p) and they went on to multi-bag, it looked very possible that the company would be a very long term hold for me. However, circumstances changed and it appeared to me that the company had lost their competitive advantage.

This statement today from Marcus Kneen, Chief Executive is very telling :- "We have made progress towards our goal of repositioning IndigoVision to achieve market rates of sales growth..."

There was a time when Indigovision aspired to and briefly did achieve more than the market rates of growth with what appeared to be a market leading position. The company now gives the impression of a being a "me also" company in its sector. Although that may be a little harsh.

The positives for shareholders are that Indigovision is profitable and boasts a strong balance sheet with no debt. It also pays dividends. It's highly unlikely that you're going to lose your shirt with a holding in Indigovision, and I certainly wouldn't dismiss a future bid for the company given the above.

However, it now looks like a company struggling to find momentum for growth, and I don't consider the company is cheap enough to have multi-bagger potential at these levels and so I'll sit on the sidelines for now.

Of course circumstances do change and I'll remain vigilant.

As ever, no advice intended or given. All opinions expressed are my own personal musings.

Nanny doesn't always know best when it comes to Aim

Anybody who invests in companies listed on the Aim market will no doubt be elated that from 5th August these shares will be eligible to be held in tax free ISAS. There's a great article written in today's Sunday Telegraph by Tom Stevenson that echoes my sentiments entirely:-

"Nanny doesn't always know best when it comes to Aim"

http://www.telegraph.co.uk/finance/comment/tom-stevenson/10205683/Nanny-doesnt-always-know-best-when-it-comes-to-Aim.html

A good balanced article I would suggest. He's quite right that a large number of companies listed on Aim are not worth a second glance, but if you're a stock picker with a reasonable eye for sifting out the potential disasters from the possible winners then it is an exciting market with opportunities to multi-bag your money.

Is Aim listed Angle (AGL) one to stick into an ISA?

I've mentioned before that this is a speculative investment for me, and full year results will be released on Wednesday of this week. I'm not expecting the figures to be impressive at this stage in it's development, but I will be looking carefully at the narrative.

News to date has given cause for encouragement, and on Thursday 25th July they released news relating to a positive evaluation of the Parsortix System from the Cancer Research UK's Paterson Institute for Cancer Research.

Whilst I won't pretend to understand  the significance of the Parsortix System being "Cell marker (epitope) independent", I am encouraged to read the comments from

The Paterson's Genomics Group Leader and Deputy, Clinical & Experimental Pharmacology, Dr Ged Brady, who commented:

"We see great promise in the Parsortix system with the possibility that it may help broaden our understanding of cancer patient blood borne biomarkers which may in turn eventually help us guide and improve therapy. The major attractions for us are the potential for the system to deliver an increased range and number of CTCs along with simplicity of execution. Initial positive results have resulted in the inclusion of the Parsortix device in our ongoing efforts to deliver personalised medicine."

It's incredibly difficult to say with any certainty what lies ahead for Angle. How much additional funding will they require and how will it be raised? how long will it be before we see significant sales of this device? etc, but if the Parsortix System does live up to it's promises then potentially it could be a very bright future for investors, although I might add the caveat that it's still early days relatively speaking!

I look forward to Wednesday with interest, and as ever no advice is intended or given.

Access Intelligence - interims

Access Intelligence released an encouraging set of figures in their interims this morning with revenues up 6% to £4.2m, contracted revenue not yet invoiced up 25% to £5.5m, and recurring revenue up to £3.0m from £2.7m being 72% of total revenues.

They also recorded a small operating profit of £28,000 before taxes against a loss of £198,000 in the previous half-year.

Cash balances have decreased slightly since the year end to £2.3m from £2.8m due to their previously stated intention to invest in accelerating the growth of the business. Operating activities did generate £0.3m in cash.

Gross margins came in at an impressive 73% up from a healthy 67% last year.

Current trading reads as follows:-

"Despite challenging market conditions, the Group has maintained a strong position in the public and private sectors, with H1 2013 contracted revenue not yet invoiced up 25% to £5.5m (H1 2012: £4.4m), and recurring revenue now representing 72% of the total (H1 2012: 68%).

 

Product innovation remains core to our ability to drive growth in the individual brands, both in their respective markets and as an integrated enterprise solution. This, combined with continued pressure on companies to meet the requirements of external regulators and internal cost management, will continue to drive sales pipeline growth for the Group.

 

The consistent increases year on year in contracted revenue not yet invoiced, our recurring revenue base and investment in innovative product development, demonstrate the Group's long term stability and provide a solid foundation for continued growth."

 

In summary, good solid growth is being achieved and I fully expect the benefits to flow through and become apparent in the medium and long term.

 

I'd expect the company to make a small profit at year end on revenues approaching £10m, if they continue to build revenues in future years then the lion's share of these revenues should fall through to the bottom line and profit growth should be impressive.

 

I feel very comfortable with my investment here, and similar to my investment in Trakm8, will wait patiently for the market to eventually realise the potential.

 

As ever, no advice is intended or given.

 

A week of mixed fortunes for two speculative investments

As I have mentioned in previous blogs, I have made two very speculative investments. One in a company called Angle and the other in Avanti Communications.

This week both reported news on progress.

On Monday, Angle informed the market that

"ANGLE plc (AIM: AGL), the specialist medtech company, is pleased to announce successful results from third party testing of its Parsortix non-invasive cancer diagnostic product on colorectal cancer patient blood."

This validation from the University of Surrey Oncology Group (Surrey) is another key milestone in their pursuit of selling their Parsortix device for research purposes and ultimately for clinical use.

The share price rose in response to the news and continued to rise over the next few days.

According to the milestone chart, next up should be validation from the Paterson Institute for Cancer Research with lung cancer patient blood.

Whilst this is a highly speculative investment, it does appear that things are progressing on track at the moment, and I'll continue to hold.

Preliminary results should be released this month.

If this device does turn out to be as effective and cost efficient as it appears to be then the future could be very promising indeed, not least for the patients that may ultimately benefit from its diagnostic capabilities.

On Wednesday (a day before they had recently announced a trading statement would be released), it was not such good news from Avanti Communications, although the initial pounding that the share price took was more than a bit harsh.

A revenue shortfall of £10m for their year ending the 30th June appears to be the main reason for the sell-off, but the company did become cash flow positive at the operating level in June and has signed contracts with major telecoms and media companies including Vodafone, Technicolor and CNN.

The main worry with Avanti is the large amount of debt that it carries, but the company "is conservatively financed, with a very long term repayment profile on its debts and remains in full compliance with all covenants."

I bought shares in Avanti around the £2.60 mark, and this investment has fluctuated between profit and loss since I have held them.

With this type of company (just like Angle) you have to accept that it's a highly speculative play, a long term game and that you could lose all or most of your money. The hope is that either or both might multi-bag.

As long as you don't bet the house on these type of investments then they can provide an exciting ride.

Some investors would argue that the preservation of capital is the most important dictum in investing and I'd agree. However, if you're a stock picker I'd strongly argue that it's the whole portfolio of shares that you look at and you shouldn't get too hung up about any individual stock losses.

I will remain a holder of both these two companies and would love to see both of them succeed over the long term. Firstly from a selfish point of view, but also both companies have already achieved significant milestones from humble beginnings which is testament to their innovation and entrepreneurship.

I wish both companies well, and will continue to monitor their news flow with interest.

OMG!!!! Murray wins and is this a good AIM opportunity?

OMG!!!! Andy Murray currently holds the US open and Wimbledon titles. Well done Andy!!!!

OMG again!! Is this aim listed company (OMG) worth backing following a recent reversal in it's share price.

I don't own shares in OMG, but it has come to my attention over the weekend through an article in the 'Money' section of the Daily Telegraph and recent Director purchases.

Firstly the article is essentially about AIM shares being eligible for ISAS by the Autumn, and it then goes on to say that Paul Mumford who runs the Cavendish Aim Fund (and formerly the hugely successful Cavendish Opportunities Fund) is a fan of OMG, and he will be backing the recently announced £9m fund raising.

To quote from the article he says "The real reason I get quite excited about this one is that it has developed intelligent, wearable camera technology".

"It's the first camera in the world that's been made like that and will be sold exclusively through Amazon. Remember what happened when Amazon sold Kindle exclusively?"

I also noted that Directors bought £205,000 worth of shares in the fundraising at 29p (the current share price is around this figure).

It would appear that the shares have suffered a bit of a hit following the dilutive placing and open offer, and the mild profits warning that OMG issued with their interim results.

I haven't researched the company properly, and have only had a superficial glance at the moment but it may be worth researching further.

The fundraising was for an acquisition and "to exploit opportunities in the Autographer market".

The interims did show a small loss, but the company was profitable last year with diluted EPS at 1.47p (p/e around 20) . The company seem to be generating cash and have paid a steadily rising dividend since 2005, although the current yield is only around 1.2%.

Cash on the balance sheet was around £4m at the interims and if you strip out intangibles and goodwill then tangible NAV is about £7m. The current market cap. is £21m.

Not a screaming buy for me with those figures, but it certainly merits further research and with the price hovering around the fundraising mark it might just have hit its low point?

I'll put OMG on my monitor and keep a close eye on developments.

TRAKM8 final results

I last wrote about Trakm8 at the end of April following a very positive trading update. This is a small company that is well below the radar of most investors and valued at just £3.3m.

They released their final results on Monday, and they are certainly very encouraging. I am becoming increasingly confident that this small outfit is a hidden gem that will prosper in the short, medium and long term.

As mentioned in my last report, as expected revenues for the year came in below last year's figures at around £4.75m (2012 - £5.22m). The group made a small operating profit and diluted EPS was 0.78p, slightly above last year despite lower revenues. This puts the shares on an historic p/e ratio of 22 which makes the shares look expensive on first glance.

However, in my view, the company is extremely cheap. Firstly, Trakm8 have invested heavily for growth this year, and despite an increased overhead of around £50,000 per month, the company have remained profitable. This is due to their robust financial model that now places a greater emphasis on their high margin solutions and engineering services divisions rather than their product division where revenues are less predictable and margins far tighter. Products are still an important segment, but not the most strategically important segment.

Gross margins improved from 64% in 2012 to 72% this year due to continually improving recurring revenues. The company is generating healthy amounts of cash and cash balances increased 29% during the year to £1.41m at year end. Net assets increased to GBP2.52m (2012: GBP2.38m).

The important point with Trakm8 is that it is generating cash and profitable with a healthy balance sheet. Moreover, their investment in growth is already making a large impact with revenues already up by 23% on last year. The full effect should start to show through in the second half and in future years.

As revenues improve year on year, operational gearing will really kick in. For example, if revenues were to remain 23% ahead (although the suggestion is that the second half may see an even larger upturn) then full year revenues would be around £5.84m. If margins remain around 72% and assuming admin. expenses are around £3.8m then diluted EPS comes in at 2.1p putting the shares on a forward p/e of around 8. Projecting further forward then even a 10% improvement in revenues doubles the EPS figure and puts the shares on a forward p/e of 4.

I like what I see with Trakm8 and have in recent times considerably increased my holding. (Please note that a good broker will easily pick up decent amounts of stock at a discount to the quoted offer price).

The outlook statements make encouraging reading, and they have also announced the appointment of a new Non-Executive Director, Keith Evans.

John Watkins had this to say,""I am delighted to welcome Keith to the Board of Trakm8. His extensive experience and knowledge gained as a senior partner with PwC will prove invaluable in the next phase of our growth and investment plan and as Trakm8 evolves into a leading player within the international telematics industry".

Ambitious plans indeed, but so far they seem to be delivering on their promises.

As ever, no advice intended or given.