Hopeless cases portfolio takes the lead!!!

Time to re-visit the battle between the FTSE-250 vs. the hopeless cases portfolio which I started back in August 2011:-

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

Whilst the FTSE-250 has done well with a current return of 48.9%, I can reveal that the hopeless cases portfolio has now taken the lead with a gain of 51.6%.

The two top performers (by far) in the portfolio remain ITV and Thomas Cook with gains of 215% and 239% respectively, then comes Vodafone with a gain of 33%. Vodafone has recently risen on the back of it's Verizon Wireless disposal, and shareholders will have had and will still receive substantial amounts of cash back from dividend and special dividend payments.

Next up is Aviva with gains of 26% and 24% respectively. As mentioned in previous blogs I reinvested the profits from the Cable and Wireless takeover into more Aviva shares.

Cable and Wireless Communications is up 22%, leaving Man Group as the worst performer in the portfolio, down by 58% (not forgetting that Game Group went bust).

I don't hold shares in any of the hopeless cases portfolio, and it was started just for a bit of fun. It will be interesting to track it's performance over the next two years though and see what lies in store for the remaining six companies. Please note that I have not taken into account any dividends paid in my calculations, and the comparison is strictly on capital gains.

On another note, there is a great article by John Lee in the FT Money section today on small cap investment. He writes as follows:- "I believe there are two key prerequisites for investment: common sense and patience. When stock selecting, I seek six characteristics: a stable, experienced board with significant directors' shareholdings; cash positive with low levels of debt, and preferably good asset backing; profitable companies with a record of paying a dividend; firms registered in the UK with British governance and audit standards, but with global turnover; a trading activity that I can understand; and optimistic recent comments made by the chairman or chief executive."

Couldn't agree more John. I can't say that I always follow the above criteria to the letter, but for me to make a substantial investment in a company then most of the above is an absolute must.

I've just noticed that John Lee has a book coming out in December entitled, "How to make a million - Slowly". Certainly one that I will buy. It's a shame that he doesn't write a regular column anymore.

Angle rumours and further Director buys at Avanti

It's been a fairly quiet week regarding news stories for shares that I hold, but considerable excitement was generated by a story in 'The Times' on Tuesday, suggesting that potential suitors were circling Angle with the possibility of making an offer(s) in the region of £2 plus.

http://www.thetimes.co.uk/tto/business/columnists/article3871158.ece

"London’s “hot money”, those fast chaps who hunt lucrative takeovers, think they have found an angle.
Angle plc is a small, AIM-quoted, biotechnology company that largely flies under the radar. However, there were whispers yesterday that it had been tapped up, so far informally, by more than one potential bidder. No names were mentioned, but any number of bigger healthcare players may be interested.
As well as specialising in foetal health, Angle owns a subsidiary, Parsortix, which has developed a clever technique to separate blood cells to test for cancer and which already has a patent in America. Angle bulls expect Parsortix to be granted regulatory approval there by the middle of next year, about six months after it receives the green light in Europe.
Though the shares edged a ha’penny lower to 73p yesterday, they have jumped by nearly 25 per cent since the start of this month. At about the same time, trading volumes, the number of shares changing hands, also spiked, itself often a signal that something may be afoot.
The rumoured price that potential buyers have indicated they may be prepared to pay is above 200p, still some distance north of where Angle shares are trading now."

The share price currently stands at 81p. I mentioned Angle as one of my speculative buys back in December 2012, and certainly it appears to be paying off handsomely at the moment.

http://michae1mouse.blogspot.co.uk/2012/12/a-new-angle.html

It seems highly unlikely that the Times would publish the above article without some reliable information, and the company's silence since the article was published appears to speak volumes. Whilst £2+ would be a massive premium to my 27p purchase price, the greedy part of me says that if big healthcare players are prepared to pay £2+ now, what would Angle be worth in a few years time. Many, many multiples of this I expect. However, this assumes that the product will be a raging success and that Angle have the wherewithal and clout to bring shareholders maximum returns by going it alone. Also, regulatory approvals have not been won just yet and validation of the Parsortix device's capabilities are still being awaited from the Paterson Institute.

If the rumours are true, it is a difficult decision for Angle's Directors. Either way it is beginning to look like shareholders will be richly rewarded, although "never count your chickens", as they say.

In other news I noticed that there was a further Director purchase at Avanti Communications on Friday where John Brackenbury, Chairman, bought a further £85,000 worth. The share price has risen well above it's recent lows, but if the company can retain momentum then the shares still have considerable upside potential.

Updates - Avanti, Avesco and ISG

It's been a busy week for news flow from some of the companies that I own shares in or have written about in the past.

Firstly, starting with Avanti Communications. This is one of my more speculative investments, and I have mentioned it several times on my blog. The shares nosedived following their most recent trading statement, but after publication of their prelims this week, the shares have bounced back by over 30%. You need a strong stomach to invest in these type of stocks since at the early stages in their development, the share price movements can be volatile and highly unpredictable. I try generally to think long term, and I'm talking several years not months.. I try to buy when the risk/reward ratio looks favourable and just hold on unless I feel the story has changed so much that I have lost all faith in the company.

In Avanti's case, I have held on and now believe it could be a multi-bagger from these levels. The key to my cautious optimism is that they have recently turned cash-flow positive, they are picking up blue-chip customers and from the finals:-

"with £39 million of cash on the balance sheet at year end and operating cashflow positive reached in June, we have the comfort of sufficient cash to cover debt repayments for two years.  We plan to meet those obligations from cash generated from operations and with Backlog in FYE 2014 of £42 million, we expect to generate strong positive cash flow from operations this year."

Directors picked up around a quarter of a million pounds worth of shares between them following the results, and have been consistent buyers over many months. This further adds to my renewed confidence.

Next up, Avesco. This has been an outstanding investment for me, not least with a bit of good fortune from the Disney pay-out which they intend to distribute to shareholders in December. Whilst their third quarter trading update wasn't great, the balance sheet more than makes up for it.

I still believe that Avesco is significantly undervalued with the shares standing at £2.13 and  NAV of £3.09 made up of quality assets. This is a cash generative company that is yet to benefit from improving conditions in the world economy. If you couple that with the even year effect then shareholders might reasonably anticipate (as indicated) a progressive dividend policy. Strip out the £1.10 cashback to shareholders in December, and I expect this year's dividend to be around the 5% mark and rising in future years. I still believe that you are pretty much getting one of the market leaders in it's sector for nothing, and merely paying for it's assets. Many sector peers are priced at a premium to NAV, Avesco at a significant discount. I also wouldn't discount Private Equity interest in Avesco at some point in the not too distant future.

It's worth noting that trading profit for the 9 month period was £3.8m compared to £4.1m in 2012 (Olympic year). The shortfall in operating profit against last year is due to a one off cost of just over £3m from payments to LTIP holders and bonuses in connection with the Disney settlement.

Finally, 2014 is an even year which should boost profits substantially. Quite frankly in more than ten years of investing on the stock market I can't remember a situation where a profitable, cash generative and growing company(long term) with a NAV of £80m (mostly quality tangible assets) and £48m of cash on the balance sheet is valued at just £55m.

Finally, just a brief mention about Interior Services Group which I reported on last year:-

http://michae1mouse.blogspot.co.uk/2012/10/interior-services-group_4968.html

They also released their finals this week with improved underlying profits, net cash and order book.

The outlook is encouraging. From the CEO :-

"ISG has delivered an improved performance and growing order book.

 

In the UK, we have seen signs of improvement in the London office fit out market and have maintained our market leading positions in the office fit out and retail sectors.  We have had considerable success in the data center sector.  Our UK Construction business has increased its level of repeat work through its focus on key customers and frameworks.  

 

Overseas, our businesses are performing well and we are entering new markets and strengthening our existing presence through selective acquisitions.

 

We are looking forward to the future with growing confidence."

 

The dividend is 9p for the full year. I mentioned the shares at around £1.35 and they currently stand at £2.29 (up 70%). 

 

Right, I'm off to watch Dragon's Den.

 

As ever, no advice intended or given.

 

Avation - a trading buy? and Belgravium Technologies

I might be missing something but Avation (AVAP) looks overlooked and extremely undervalued?

The company, which is essentially an aircraft procurement and leasing company, released their results at the end of August where they significantly beat market expectations with earnings of $23.25 per share or around 15p. This means that the shares are currently trading on a p/e ratio of around 6. The outlook for 2014 is very positive, and the company have just introduced their first dividend alongside plans for a progressive dividend policy. Directors have been helping themselves to the shares in the open market and the company appears to be highly cash generative.

The company boasts a NAV above the current market cap of around £40m, and whilst there is significant debt on the balance sheet given that it’s a capital intensive company, I do like everything else about them and have bought the shares.

Unusually for me I felt that this was a trading buy and believe the shares have possibly 50% or more upside in the short term.  This is based on a very reasonable 8/9 times this year’s 15p earnings.

As I said there may be something I have seriously overlooked, but the Director’s confidence suggests otherwise.

Belgravium Technologies also released their interim results on Wednesday, and I am encouraged by the narrative which hints at an improved performance for the full year, and cautious optimism for the future. The EPS figure for 2012 was 0.33p which puts the shares on a p/e ratio of 10.6. This looks cheap given any growth this year and in future years.  The company also pays a dividend around 3%. They have stated in the interims that a dividend is highly likely to be paid again this year given that cash generation is good, and despite having used funds for a recent acquisition. This is a long term hold for me and I have previously commented on BVM below:-

http://michae1mouse.blogspot.co.uk/2013/08/13-rise-for-belgravium-technologies.html

Needless to say, no advice is intended or given and please do your own research.