It's probably just as well that I never use spread bets (as mentioned in my last blog re:Angle). I was anticipating bid news from the company this week, and a sharp rise in the share price. At the very least I thought that a trading update may materialise today. The AGM is scheduled for 2pm. As yet the company have issued nothing, although the day is young!
I suspect that the company may make a bland "we don't comment on market rumours" statement at the AGM if questioned, but it does seem odd that they haven't made an outright rebuttal since it's a very small company and bid rumours aren't normally a daily occurrence for these small caps. Why not just state outright that "the company is aware of the persistent rumours printed in the Times, but can categorically deny that the company is not currently in bid talks". It's not that difficult surely. This isn't Vodafone where rumours of a sale of Verizon Wireless cropped up quite regularly. Although of course they did prove to be well founded in the end.
It will be interesting to see if the days events do shed any light on either bid interest or further developments re: Parsortix.
I certainly haven't changed my view about the bid rumours though, until I hear a flat denial by the company I continue to believe it may just be a matter of time.
Needless to say, I remain a long term holder, and await further developments.
Thursday 31 October 2013
Wednesday 30 October 2013
Servoca - 40% rise today
Servoca Plc describes itself as a leading provider of specialist recruitment solutions to the Education, Healthcare and Criminal Justice sectors. Its Security division offers security services to the public and private sectors.
Today (30th Oct.) it released a trading statement saying, "The Company is pleased to report that results for the year ended 30 September 2013 will be significantly ahead of market expectations and the Board is encouraged by the continued performance of the Group." It goes on to say that, "The September period, which is important for the Group's Education recruitment businesses
, was positive and a marked improvement on the prior year. Trading in the second half and the platform established from our Education activities give the Board confidence on further growth in 2014."
A very positive statement indeed, and as a consequence the shares have risen 40% today in response, valuing the group at £8.2m.
Forecasts for this year came in at 0.3p on revenue of £45m. Looking at performance in 2009 diluted EPS came in at 2.78p. Clearly if they can return to those levels on the back of an improving economy then even after the substantial rise today the shares might look cheap.
The shares have traded as high as 48p/49p, but not for some considerable time. Net assets come in at just over £7m (mostly intangibles). The company has clearly been well under the radar of private investors and needless to say professionals, but it might be an interesting punt for some.
I don't own shares in Servoca, and it doesn't fit my selection criteria, however if economic recovery does take a stronger hold in the next year or two then I'm sure the share price has far farther to climb.
As ever, no advice intended or given.
Today (30th Oct.) it released a trading statement saying, "The Company is pleased to report that results for the year ended 30 September 2013 will be significantly ahead of market expectations and the Board is encouraged by the continued performance of the Group." It goes on to say that, "The September period, which is important for the Group's Education recruitment businesses
, was positive and a marked improvement on the prior year. Trading in the second half and the platform established from our Education activities give the Board confidence on further growth in 2014."A very positive statement indeed, and as a consequence the shares have risen 40% today in response, valuing the group at £8.2m.
Forecasts for this year came in at 0.3p on revenue of £45m. Looking at performance in 2009 diluted EPS came in at 2.78p. Clearly if they can return to those levels on the back of an improving economy then even after the substantial rise today the shares might look cheap.
The shares have traded as high as 48p/49p, but not for some considerable time. Net assets come in at just over £7m (mostly intangibles). The company has clearly been well under the radar of private investors and needless to say professionals, but it might be an interesting punt for some.
I don't own shares in Servoca, and it doesn't fit my selection criteria, however if economic recovery does take a stronger hold in the next year or two then I'm sure the share price has far farther to climb.
As ever, no advice intended or given.
Monday 28 October 2013
An irrational fear of picking dogs
Over the weekend I wrote an article about the current bull run in the UK stock market and shared my personal thoughts regarding its likely duration. In truth, guessing the direction of stock markets is a bit of a mugs game. Not dissimilar to predicting the weather.
Whilst I am sure much of the UK has suffered from the much hyped storm this morning and last night, where I live it's a nice sunny day with a light breeze. Of course it's possible that the storm is currently making it's way towards us, but I won't hold my breath. Interestingly, although forecasters are rarely able to accurately predict even a few days in advance, it never seems to deter them from predicting the outcome for a year or even further out. It wasn't so long ago that climate change experts were predicting that Britain would soon have a climate akin to the South of France and that mild winters would prevail for years to come. Well this summer wasn't too bad, but if the past three winters have been mild then I'm not looking forward to a severe one.
Anyway, I digress.
In the article I wrote over the weekend, I mentioned again that the Financial crisis and subsequent recession had provided the investing opportunity of a lifetime, a view I expressed at the time.
I noticed today that Pendragon released a trading statement. It's a good statement which says that profitability for this year is materially above expectations, and that they are cautiously optimistic about 2014. The shares are currently around 40p.
Of course during the height of the panic, unbelievably the shares were driven down to 1.5p. A £1000 investment at that point would now be worth around £26,600.
This brings me to a more general point about investment strategies. It appears to me that many investors are too fearful and cautious about individual losses whilst ignoring the possible exponential gains from buying a small basketful of such shares.
Consider buying shares in ten companies that looked like basket cases at the height of the crisis when they were at or close to their nadirs. Let's imagine you bought PDG, JSG, HRG, TCG and AVS(a share I currently hold). A £1000 investment in each when they were at or close to their lows would now be worth £26,600, £11,000, £16,000, £10,000 and £11,000 respectively (please note that I haven't checked the exact lows, but I am quite sure that the figures are pretty accurate from memory). That's a whopping £75,600 from a £10,000 investment. Let's assume that the other five picks went bust and you lost £5,000. In reality, with reasonable stock picking ability and common sense, you are unlikely to pick five companies that go to the wall.
In fact it appears to me that many investors are totally irrational regarding risk.
Put simply, imagine tossing a coin 10 times, and it's £1000 per go, Heads you win £5000 and tails you lose your £1000 stake. You only need to win twice to break even. Nobody in their right minds would offer you such good odds where the chance of winning is 50%. If you have proven yourself to be a reasonably good stock picker then of course your chances are undoubtedly greater than 50%.
Psychologically it's difficult to take a loss, no matter how small, but actually with a small basket of such shares the fear of loss is totally irrational.
Whilst I am sure much of the UK has suffered from the much hyped storm this morning and last night, where I live it's a nice sunny day with a light breeze. Of course it's possible that the storm is currently making it's way towards us, but I won't hold my breath. Interestingly, although forecasters are rarely able to accurately predict even a few days in advance, it never seems to deter them from predicting the outcome for a year or even further out. It wasn't so long ago that climate change experts were predicting that Britain would soon have a climate akin to the South of France and that mild winters would prevail for years to come. Well this summer wasn't too bad, but if the past three winters have been mild then I'm not looking forward to a severe one.
Anyway, I digress.
In the article I wrote over the weekend, I mentioned again that the Financial crisis and subsequent recession had provided the investing opportunity of a lifetime, a view I expressed at the time.
I noticed today that Pendragon released a trading statement. It's a good statement which says that profitability for this year is materially above expectations, and that they are cautiously optimistic about 2014. The shares are currently around 40p.
Of course during the height of the panic, unbelievably the shares were driven down to 1.5p. A £1000 investment at that point would now be worth around £26,600.
This brings me to a more general point about investment strategies. It appears to me that many investors are too fearful and cautious about individual losses whilst ignoring the possible exponential gains from buying a small basketful of such shares.
Consider buying shares in ten companies that looked like basket cases at the height of the crisis when they were at or close to their nadirs. Let's imagine you bought PDG, JSG, HRG, TCG and AVS(a share I currently hold). A £1000 investment in each when they were at or close to their lows would now be worth £26,600, £11,000, £16,000, £10,000 and £11,000 respectively (please note that I haven't checked the exact lows, but I am quite sure that the figures are pretty accurate from memory). That's a whopping £75,600 from a £10,000 investment. Let's assume that the other five picks went bust and you lost £5,000. In reality, with reasonable stock picking ability and common sense, you are unlikely to pick five companies that go to the wall.
In fact it appears to me that many investors are totally irrational regarding risk.
Put simply, imagine tossing a coin 10 times, and it's £1000 per go, Heads you win £5000 and tails you lose your £1000 stake. You only need to win twice to break even. Nobody in their right minds would offer you such good odds where the chance of winning is 50%. If you have proven yourself to be a reasonably good stock picker then of course your chances are undoubtedly greater than 50%.
Psychologically it's difficult to take a loss, no matter how small, but actually with a small basket of such shares the fear of loss is totally irrational.
Sunday 27 October 2013
Access Intelligence
Access Intelligence Plc (AIM: ACC) is a leading supplier of Software-as-a-Service (SaaS) solutions for the full life cycle management of a company's governance, risk and compliance. They issued a profit warning at the end of September stating that current trading and anticipated results for the year ending 30 November 2013 would be below expectations.
The share price dropped as a consequence, but has subsequently returned to the level it was before the announcement. The current market cap of the company is just below £7m.
Whilst profit warnings are unwelcome, I believe it's crucial to keep a perspective and consider the medium and longer term potential.
Even though trading was reported below market expectations, revenues will come in 5% above last year's at £8.4m and EBITDA is also ahead of last year. This is hardly a disaster or a company in trouble.
The company has recently made a substantial investment in a Development Centre in York on product innovation that is expected to drive growth for 2014 and beyond, and cash flows remain robust with the year-end cash expected to be approximately GBP1.2m.
Gross margins are very healthy at this company, and a high percentage of revenues are recurring.
There is a report on their website from Merchant Securities (March 2013) stating the investment case for ACC with a target price of 7p.
http://www.accessintelligence.com/downloads/07032013_accessintelligence_initiation.pdf
Hopefully, the missed expectations this year will prove to be a blip, and I can't see anything to suggest prospects for the medium and long term have materially changed. I continue to hold, and may add on any further weakness.
of a company's governance, risk and compliance. They issued a profit warning at the end of September stating that current trading and anticipated results for the year ending 30 November 2013 would be below expectations. The share price dropped as a consequence, but has subsequently returned to the level it was before the announcement. The current market cap of the company is just below £7m.
Whilst profit warnings are unwelcome, I believe it's crucial to keep a perspective and consider the medium and longer term potential.
Even though trading was reported below market expectations, revenues will come in 5% above last year's at £8.4m and EBITDA is also ahead of last year. This is hardly a disaster or a company in trouble.
The company has recently made a substantial investment in a Development Centre in York on product innovation that is expected to drive growth for 2014 and beyond, and cash flows remain robust with the year-end cash expected to be approximately GBP1.2m.
Gross margins are very healthy at this company, and a high percentage of revenues are recurring.
There is a report on their website from Merchant Securities (March 2013) stating the investment case for ACC with a target price of 7p.
http://www.accessintelligence.com/downloads/07032013_accessintelligence_initiation.pdf
Hopefully, the missed expectations this year will prove to be a blip, and I can't see anything to suggest prospects for the medium and long term have materially changed. I continue to hold, and may add on any further weakness.
Trakm8 confirms acquisition of BOX
On Friday Trakm8 held a General Meeting and confirmed the acquisition of BOX Telematics. John Watkins, CEO of Trakm8 Holdings PLC, commented:
"We are pleased to welcome the new shareholders who have helped us to complete this transformational transaction. BOX Telematics extends our client base, strengthens our IP ownership model and adds manufacturing capabilities. We look forwarded to delivering enhanced returns for our shareholders and reinforcing our position in the Telematics market."
I like this acquisition, see previous blog:-
http://michae1mouse.blogspot.co.uk/2013/10/trakm8-acquires-box-good-deal.html
With the enlarged share capital, the combined group is valued at just over £9m. I think the current share price will prove to be far too low with a short, medium and long term view. I'm a great fan of the management here who appear to take relatively modest salaries, but stump up plenty of cash to invest in their own shares. In fact to help fund the acquisition the Directors subscribed for £750,000 worth of shares to add to their already considerable holdings. In fact the shares were purchased at a premium to the prevailing price at the time. Not the first time they have done this.
A clear indication of their confidence going forward and their commitment to increasing shareholder value.
In contrast, I noted that Globo, a big favourite on the bulletin boards has also recently made an acquisition and raised a considerable sum through a placing. If the FT weekend is accurate, the Directors have sold £710,000 of shares. Surely that can't be right?
I know nothing about Globo, and haven't looked at its accounts, but I do know it has been targeted by shorters in recent days.
If Directors really have sold a big slug of shares whilst at the same time raising money through a placing then it hardly engenders confidence, and indeed plays right into the hands of the usual suspects.
Anyway, no advice intended or given.
of Trakm8 Holdings PLC, commented: "We are pleased to welcome the new
shareholders who have helped us to complete this transformational transaction. BOX Telematics extends our client base, strengthens our IP ownership model and adds manufacturing capabilities. We look forwarded to delivering enhanced returns for our shareholders and reinforcing our position in the Telematics market." I like this acquisition, see previous blog:-
http://michae1mouse.blogspot.co.uk/2013/10/trakm8-acquires-box-good-deal.html
With the enlarged share capital, the combined group is valued at just over £9m. I think the current share price will prove to be far too low with a short, medium and long term view. I'm a great fan of the management here who appear to take relatively modest salaries, but stump up plenty of cash to invest in their own shares. In fact to help fund the acquisition the Directors subscribed for £750,000 worth of shares to add to their already considerable holdings. In fact the shares were purchased at a premium to the prevailing price at the time. Not the first time they have done this.
A clear indication of their confidence going forward and their commitment to increasing shareholder value.
In contrast, I noted that Globo, a big favourite on the bulletin boards has also recently made an acquisition and raised a considerable sum through a placing. If the FT weekend is accurate, the Directors have sold £710,000 of shares. Surely that can't be right?
I know nothing about Globo, and haven't looked at its accounts, but I do know it has been targeted by shorters in recent days.
If Directors really have sold a big slug of shares whilst at the same time raising money through a placing then it hardly engenders confidence, and indeed plays right into the hands of the usual suspects.
Anyway, no advice intended or given.
Angle - next week's biggest riser?
I've never used and probably will never use spread bets. Far too risky for me. However, if I was going to use a spread bet then I would be very tempted to take a risk on Angle's SP moving sharply upwards sometime next week. It's not the forthcoming AGM that I think will have a dramatic impact, but the persistent rumours of bid interest that have appeared in the Times. Last week was the second time that the newspaper reported rumours of takeover talk in the region of £2+ per share. In fact they specifically quoted a possible bid at £2.25. It seems inconceivable to me that there isn't any substance to these rumours, and surely it's only a matter of time before they have to come clean.
Long term investors, like me, are probably thinking along the same lines at the moment. That is to say, if anybody is willing to stump up over £2 a share for the company now, then what could it be worth in a year or two's time when the Parsortix device has CE and FDA approval and is being marketed for clinical sales? Sadly, given that the SP currently stands in the low 80s, I expect anybody bidding above £2 i.e. more than a 100% premium, is unlikely to be rebuffed by majority shareholders.
No advice is intended, but brave spread betters might fancy a punt on Angle tomorrow, although depending on what tomorrow brings, they might have already missed their opportunity. I'm not that brave and I'll stick with my long position, but it should be an interesting week.
Avesco should be in contact with shareholders in the not too distant future regarding the details of the special dividend payout (£1.10). Stripping this payment out leaves a current share price of £1.15 or fully diluted market cap. of just under £32m. This is cheap and a healthy discount to tangible net asset value. The Winter Olympics, Football World Cup and Commonwealth games should provide a very healthy boost to earnings during 2014 and, as mentioned many times in the past, this is a cash generative company where I believe dividends will probably rise to around 5p in 2014. Based on a share price of £1.15 (post Disney payout) this equates to a 4.3% dividend.
Also of interest, Avesco appear to have recently invested in new lightweight LED displays which appear to be having a major impact:-
http://www.ct-group.com/news/ct-introduces-worlds-lightest-full-resolution-led-system
"Commenting on the first shows to be completed in the US, Graham Andrews President CT North America and Asia Pacific, commented "The light weight, speed of deployment and image quality of this product has been incredible. We believe it will be a real game changer in how medium resolution LED can be applied to shows from the largest Corporate or Entertainment application to small displays in TV studios etc." "
"Dave Crump, CEO of Creative Technology in Europe and the Middle East added "getting this product to market has been a tough challenge, we have worked closely with the manufacturer to produce a hybrid version of their standard product which offers significant improvements in reliability and functionality, this has been done against some very tight deadlines. We look forward to seeing and sharing the results on some incredible projects in the coming months."
http://www.ct-group.com/news/cts-glux-carbon-10-led-system-redefines-event-environments-use
"CT and its partners already have access to over 1,000m2 of this product which we believe will have a major impact on the touring and live events industry. The ultra lightweight, speed of rigging and low operating cost mean productions with modest budgets can now incorporate spectacular moving screens. "
Long term investors, like me, are probably thinking along the same lines at the moment. That is to say, if anybody is willing to stump up over £2 a share for the company now, then what could it be worth in a year or two's time when the Parsortix device has CE and FDA approval and is being marketed for clinical sales? Sadly, given that the SP currently stands in the low 80s, I expect anybody bidding above £2 i.e. more than a 100% premium, is unlikely to be rebuffed by majority shareholders.
No advice is intended, but brave spread betters might fancy a punt on Angle tomorrow, although depending on what tomorrow brings, they might have already missed their opportunity. I'm not that brave and I'll stick with my long position, but it should be an interesting week.
Avesco should be in contact with shareholders in the not too distant future regarding the details of the special dividend payout (£1.10). Stripping this payment out leaves a current share price of £1.15 or fully diluted market cap. of just under £32m. This is cheap and a healthy discount to tangible net asset value. The Winter Olympics, Football World Cup and Commonwealth games should provide a very healthy boost to earnings during 2014 and, as mentioned many times in the past, this is a cash generative company where I believe dividends will probably rise to around 5p in 2014. Based on a share price of £1.15 (post Disney payout) this equates to a 4.3% dividend.
Also of interest, Avesco appear to have recently invested in new lightweight LED displays which appear to be having a major impact:-
http://www.ct-group.com/news/ct-introduces-worlds-lightest-full-resolution-led-system
"Commenting on the first shows to be completed in the US, Graham Andrews President CT North America and Asia Pacific, commented "The light weight, speed of deployment and image quality of this product has been incredible. We believe it will be a real game changer in how medium resolution LED can be applied to shows from the largest Corporate or Entertainment application to small displays in TV studios etc." "
"Dave Crump, CEO of Creative Technology in Europe and the Middle East added "getting this product to market has been a tough challenge, we have worked closely with the manufacturer to produce a hybrid version of their standard product which offers significant improvements in reliability and functionality, this has been done against some very tight deadlines. We look forward to seeing and sharing the results on some incredible projects in the coming months."
http://www.ct-group.com/news/cts-glux-carbon-10-led-system-redefines-event-environments-use
"CT and its partners already have access to over 1,000m2 of this product which we believe will have a major impact on the touring and live events industry. The ultra lightweight, speed of rigging and low operating cost mean productions with modest budgets can now incorporate spectacular moving screens. "
UBC Media - this week's best performer
The best performer in my portfolio this week was UBC Media, and as reported in the FT yesterday it was also the best performer on the stock market with a share price rise of 96.2%. The current market cap. of UBC is now around £12.5m and it's already been a spectacular performer for me, but I won't be selling. To listen to my reasoning click the audioboo link below:-
https://audioboo.fm/boos/1688042-ubc-media-further-investment-in-audio-boo
As ever, no advice intended or given.
https://audioboo.fm/boos/1688042-ubc-media-further-investment-in-audio-boo
As ever, no advice intended or given.
Saturday 26 October 2013
Densitron - still no good reason to re-invest
Densitron, a company that I have commented on in the past, released a statement this week concerning the settlement of a claim made against the Company by the landlords of a property in Newcastle previously occupied by a former subsidiary, Densitron Ferrograph Limited.
In the past I have held shares in Densitron, but decided to sell when this case appeared to be dragging on and trading had deteriorated. Below you can see my comments back in August:-
http://michae1mouse.blogspot.co.uk/2013/08/updates-ubc-media-densitron-ddd-group.html
"Densitron was a company in which I held shares, but I did sell in June following a poor trading statement. You can follow my reasoning in the blog below:-
http://michae1mouse.blogspot.co.uk/2013_06_01_archive.html
Following Friday's interim statement, I have no appetite to repurchase any shares in this company.
Revenues decreased by 6% whilst orders booked fell by 7% and the company reported a £315,000 loss.
Whilst the company sounds positive about the second half, has a reasonable balance sheet and is paying an interim dividend of 0.1p, I am nervous about the outstanding writ against the company. This matter has been dragging on for many months despite their attempts to resolve the matter out of court. A date has now been set for the trial on 8th December. This suggests to me that the Landlord has a very strong case, and any settlement either inside or outside of court could (imo) be very punitive for Densitron.
I'll continue to monitor the situation, and never say never, as the saying goes, but allied to recent inconsistent trading this one will remain on the monitor."
Whilst the management state that "the settlement is in the best interests of the group", no financial details have been disclosed and it appears that Densitron are still lumbered with the lease payments until an agent can find a suitable tenant.
I am guessing that the settlement is a hefty one, and then of course they will have incurred legal fees and are still liable for the rent of an unoccupied property.
In response to the news, the share price did move up a few percentage points surprisingly, but whilst Densitron's market cap. is very low, I can't see anything to get excited about and it will be interesting to see their balance sheet when they release their finals.
I really find it most odd that they state:-
"It was agreed that the details of the settlement would remain confidential but in essence the Company has agreed to a settlement amount and the rectification of the lease at the current market rent. "
Are they hoping to keep it secret forever? Will they just ignore it in their final results?
Perhaps they've forgotten that their shareholders are part owners of the company. Bizarre.
Personally, I wouldn't touch this company with a bargepole in the future following this fiasco.
In the past I have held shares in Densitron, but decided to sell when this case appeared to be dragging on and trading had deteriorated. Below you can see my comments back in August:-
http://michae1mouse.blogspot.co.uk/2013/08/updates-ubc-media-densitron-ddd-group.html
"Densitron was a company in which I held shares, but I did sell in June following a poor trading statement. You can follow my reasoning in the blog below:-
http://michae1mouse.blogspot.co.uk/2013_06_01_archive.html
Following Friday's interim statement, I have no appetite to repurchase any shares in this company.
Revenues decreased by 6% whilst orders booked fell by 7% and the company reported a £315,000 loss.
Whilst the company sounds positive about the second half, has a reasonable balance sheet and is paying an interim dividend of 0.1p, I am nervous about the outstanding writ against the company. This matter has been dragging on for many months despite their attempts to resolve the matter out of court. A date has now been set for the trial on 8th December. This suggests to me that the Landlord has a very strong case, and any settlement either inside or outside of court could (imo) be very punitive for Densitron.
I'll continue to monitor the situation, and never say never, as the saying goes, but allied to recent inconsistent trading this one will remain on the monitor."
Whilst the management state that "the settlement is in the best interests of the group", no financial details have been disclosed and it appears that Densitron are still lumbered with the lease payments until an agent can find a suitable tenant.
I am guessing that the settlement is a hefty one, and then of course they will have incurred legal fees and are still liable for the rent of an unoccupied property.
In response to the news, the share price did move up a few percentage points surprisingly, but whilst Densitron's market cap. is very low, I can't see anything to get excited about and it will be interesting to see their balance sheet when they release their finals.
I really find it most odd that they state:-
"It was agreed that the details of the settlement would remain confidential but in essence the Company
has agreed to a settlement amount and the rectification of the lease at the current market rent. "Are they hoping to keep it secret forever? Will they just ignore it in their final results?
Perhaps they've forgotten that their shareholders are part owners of the company. Bizarre.
Personally, I wouldn't touch this company with a bargepole in the future following this fiasco.
How much longer before the current Bull Market runs out of steam?
Well it's full steam ahead for the current Bull market which has been running for five years now. Surely it's time for a correction. Well possibly, but as I commented back in February, I think that this Bull run might continue well beyond some of the most optimistic forecasters predictions.
Why do I believe this? For very simplistic reasons. Firstly, the 2008-2009 market capitulation was extremely severe. Stock prices were pummelled so much that some quite ridiculously low valuations were created by investor panic and forced selling. At the time, I stated that I believed that this had created the investing opportunity of a lifetime, and for many investors this has certainly been the case.
Whilst some stocks are clearly running ahead of themselves, and it's becoming more difficult to find outstanding bargains, they haven't completely disappeared and with a few exceptions, valuations of many UK companies are relatively modest. Euphoria is still some distance away.
Significantly though, true global economic recovery is yet to appear, and when it does earnings for many UK companies may rise significantly. During the recession, companies that survived have become leaner and more efficient and some have benefitted from competitors going to the wall.
Furthermore, low interest rates still prevail. Where else do you invest your money? Gold, coins, wine...? No thanks.
Finally, bears will argue the risk comes from the withdrawal of quantitative easing in the US and interest rates rising sooner than expected. Surely these circumstances will only occur when it is clear that economic recovery is assured and sustained. Doesn't this bring us back to improving earnings for many of our leaner and meaner companies? Indeed many companies on modest earnings ratings may look cheap again as recovery takes a stronger foothold.
Anyway, we shall see, and as stated in a previous blog:-
http://michae1mouse.blogspot.co.uk/2013/02/datong-up-for-sale-markets-overheating.html
"As a long term investor and stock picker I'm only ever concerned whether or not the stocks I hold are undervalued or overvalued, if it's the former then I continue to hold and acquire and if it's the latter then I sell."
There is a good article written in the FT today by Dominic Picarda.
http://www.ft.com/cms/s/0/9e8d7730-3c97-11e3-86ef-00144feab7de.html#axzz2iqAZvLz8
"I would not be at all surprised if UK equities produced double-digit annualised returns over the coming five years".
Anyway, it's a bit of a mugs game predicting the direction of the markets and my next blog will stick with my stock picking experiences and news stories that have been released recently.
Why do I believe this? For very simplistic reasons. Firstly, the 2008-2009 market capitulation was extremely severe. Stock prices were pummelled so much that some quite ridiculously low valuations were created by investor panic and forced selling. At the time, I stated that I believed that this had created the investing opportunity of a lifetime, and for many investors this has certainly been the case.
Whilst some stocks are clearly running ahead of themselves, and it's becoming more difficult to find outstanding bargains, they haven't completely disappeared and with a few exceptions, valuations of many UK companies are relatively modest. Euphoria is still some distance away.
Significantly though, true global economic recovery is yet to appear, and when it does earnings for many UK companies may rise significantly. During the recession, companies that survived have become leaner and more efficient and some have benefitted from competitors going to the wall.
Furthermore, low interest rates still prevail. Where else do you invest your money? Gold, coins, wine...? No thanks.
Finally, bears will argue the risk comes from the withdrawal of quantitative easing in the US and interest rates rising sooner than expected. Surely these circumstances will only occur when it is clear that economic recovery is assured and sustained. Doesn't this bring us back to improving earnings for many of our leaner and meaner companies? Indeed many companies on modest earnings ratings may look cheap again as recovery takes a stronger foothold.
Anyway, we shall see, and as stated in a previous blog:-
http://michae1mouse.blogspot.co.uk/2013/02/datong-up-for-sale-markets-overheating.html
"As a long term investor and stock picker I'm only ever concerned whether or not the stocks I hold are undervalued or overvalued, if it's the former then I continue to hold and acquire and if it's the latter then I sell."
There is a good article written in the FT today by Dominic Picarda.
http://www.ft.com/cms/s/0/9e8d7730-3c97-11e3-86ef-00144feab7de.html#axzz2iqAZvLz8
"I would not be at all surprised if UK equities produced double-digit annualised returns over the coming five years".
Anyway, it's a bit of a mugs game predicting the direction of the markets and my next blog will stick with my stock picking experiences and news stories that have been released recently.
Saturday 12 October 2013
Trakm8 acquires Box - a good deal?
This week TRAKM8, a company that I have mentioned several times on my blog, announced a proposed reverse takeover of BOX TELEMATICS, one of the UK leading providers of fleet management systems. The acquisition comprises an initial cash consideration of £3.5m plus the repayment of a Director's loan of £750,000.
The acquisition is being funded from TRAKM8's cash reserves, a new debt facility of £2.5m and a subscription by the Directors for new ordinary shares at a price of 22p to raise £720,000. They will also raise £1.35m through a placing at 22p for additional working capital purposes.
Is this a good deal for TRAKM8's existing shareholders?
On the face of it, it looks like an outstanding deal.
Firstly, BOX brings with it £8.4m in revenues and profit before tax of £850,000 (2012). The combined group will boast revenues in excess of £13m (based on 2012 figures) which I would expect to rise substantially in future years. I'm not going to guess at profit, but suffice to say, with the enhanced business opportunities and cost savings for the enlarged group, I would expect profits to be very healthy indeed alongside strong cash flows.
The market reacted very positively to the deal and the share price leapt up over 40% on the news, but even at 29.25p per share the combined group has a market cap. of just £8.5m, and looks a snip at that price to me.
Both groups have a very strong and healthy recurring revenue base, and TRAKM8 will also have access to BOX's manufacturing and assembly facilities which should help to improve margins for the combined group. In 2012 TRAKM8's gross margins had improved to 72%. In addition BOX brings with it a Blue Chip client base.
The enlarged group will further benefit from synergies, cross-selling opportunities and scale advantages.
I like TRAKM8's management and believe that they have secured an excellent acquisition here to enhance their organic growth. The Director's take relatively modest salaries whilst seemingly always purchasing shares above the market price, indeed the current placing with institutions and Directors was at a small premium to the share price before the announcement.
They also have a substantial amount of 'skin in the game' and hold around 55% of the enlarged group's share capital. Such a large stake would make me nervous in certain circumstances, but the great thing about this company is that the Director's have consistently shown that they act in the best interests of all shareholders.
Finally John Watkins, Chief Executive Officer had this to say about the deal:-
The acquisition is being funded from TRAKM8's cash reserves, a new debt facility of £2.5m and a subscription by the Directors for new ordinary shares at a price of 22p to raise £720,000. They will also raise £1.35m through a placing at 22p for additional working capital purposes.
Is this a good deal for TRAKM8's existing shareholders?
On the face of it, it looks like an outstanding deal.
Firstly, BOX brings with it £8.4m in revenues and profit before tax of £850,000 (2012). The combined group will boast revenues in excess of £13m (based on 2012 figures) which I would expect to rise substantially in future years. I'm not going to guess at profit, but suffice to say, with the enhanced business opportunities and cost savings for the enlarged group, I would expect profits to be very healthy indeed alongside strong cash flows.
The market reacted very positively to the deal and the share price leapt up over 40% on the news, but even at 29.25p per share the combined group has a market cap. of just £8.5m, and looks a snip at that price to me.
Both groups have a very strong and healthy recurring revenue base, and TRAKM8 will also have access to BOX's manufacturing and assembly facilities which should help to improve margins for the combined group. In 2012 TRAKM8's gross margins had improved to 72%. In addition BOX brings with it a Blue Chip client base.
The enlarged group will further benefit from synergies, cross-selling opportunities and scale advantages.
I like TRAKM8's management and believe that they have secured an excellent acquisition here to enhance their organic growth. The Director's take relatively modest salaries whilst seemingly always purchasing shares above the market price, indeed the current placing with institutions and Directors was at a small premium to the share price before the announcement.
They also have a substantial amount of 'skin in the game' and hold around 55% of the enlarged group's share capital. Such a large stake would make me nervous in certain circumstances, but the great thing about this company is that the Director's have consistently shown that they act in the best interests of all shareholders.
Finally John Watkins, Chief Executive Officer had this to say about the deal:-
"The acquisition of BOX is a significant milestone for Trakm8, bringing strong financial and strategic benefits as it will enable us to exploit the growing demand for vehicle telematics in a fragmented market place.
"We have been delighted by the positive reaction to acquire this profitable and complementary business and furthermore are pleased to welcome a number of high quality UK institutions to our share register."
As ever, no advice is intended or given.
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