An interesting article in the Telegraph yesterday. See link below. Essentially it is about Britain's best performing fund manager, and some of his stock picks for 2014. Not surprisingly he is backing a number of Aim listed shares. I say not surprisingly because not only can Aim listed companies be held in ISA's now, but in April trading on the Aim market will be exempt from Stamp Duty. For frequent traders this could potentially save them a not inconsiderable amount of money. There is quite a bit of rubbish listed on Aim, but with all stock picking it's a matter of choosing judiciously. Here's the article and some of his stock picks for 2014:-
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/10542145/Britains-best-performing-fund-manager-picks-his-favourite-shares-for-2014.html
A happy, healthy and prosperous New Year to all.
Tuesday 31 December 2013
Astrazeneca, Barclays, Drax and Debenhams (trading statement)
Continuing with my look at the Telegraph's 2014 share tips, I thought I'd have a look at AstraZeneca, Barclays and Drax.
In truth, I'm not that interested in delving into the figures of larger companies, there are plenty of analysts out there who are paid handsomely to do that job. However, it is worth a quick look to see whether or not these companies are near there highs or lows, what the p/e ratios are and what sort of dividends they are paying, if any?
Starting with AstraZeneca. With the briefest analysis, I would say that AZN is a very solid buy for income. The dividend has steadily grown from 70 cents in 1999 to 280 cents presently. Whilst the dividend hasn't grown every year, neither does it appear to have been cut. The current dividend represents a near 5% yield. The p/e ratio is around 12 which is probably about right. I notice that this is one where the tipster refers to it being cheap against sector peers. I mentioned this in yesterday's blog, it may just mean that Glaxo and Shire are expensive? I would personally never use relative performance as any guide. How happy would you be if you invested in a fund that told you that they had done well relative to their sector peers because they had only lost 90% of your money whilst the others would have lost all of it? In conclusion, AZN looks like a relatively safe haven to park your money for a reasonable income stream, but I personally wouldn't expect fireworks this year.
I can't see anything particularly attractive about Barclays from a quick glance, although the financials appear to indicate plenty of cash and a tangible asset value somewhere around the current share price. The dividend is a miserly 2.4%. However, I usually steer well clear of the financial sector, particularly the larger companies. I once parked quite a large amount of money in Lloyd's Bank when it was paying a 7% dividend. I only left it there a while to collect the dividend and then sold for a modest profit. This was around 2003, it never for one moment crossed my mind that this was such a risky move. How foolish and how lucky I was in retrospect. You tend to hear a familiar mantra about very small companies being far more risky than the mega-caps. I tend to disagree, it's the nature of the business, the management and most of all (imo) the financials which dictate the risk.
Finally Drax. I can't see the appeal here, although for momentum traders the chart is in a clear uptrend. The valuation is not particularly attractive for me with a p/e of 18, and a dividend yield of just over 3%. Again I can't see any justification for substantial rises in it's share price this year since broker forecasts suggest EPS of 29p and 35p in 2013 and 2014 respectively putting the shares on forward p/e ratios of 27 and 23. In fairness, a recent trading update said that EBITDA would come in materially ahead of expectations for 2013.
In other news I notice that Debenhams have issued a poor trading statement today. Is this a portent of further disappointing news from some of the well known high street retailers? Perversely, it may be a company I'll add to the monitor since it states an intent to keep paying a dividend (currently getting towards 5%), although they are abandoning their share buyback programme which isn't such a good sign. I do wonder what the future holds for our high streets? The success of ASOS and others suggests that over the longer term, companies like Debenhams, M&S etc might be fighting a losing battle unless they can successfully execute substantial online operations whilst reducing their high street presence. This of course will be a costly process.
As ever, no advice is intended or given.
In truth, I'm not that interested in delving into the figures of larger companies, there are plenty of analysts out there who are paid handsomely to do that job. However, it is worth a quick look to see whether or not these companies are near there highs or lows, what the p/e ratios are and what sort of dividends they are paying, if any?
Starting with AstraZeneca. With the briefest analysis, I would say that AZN is a very solid buy for income. The dividend has steadily grown from 70 cents in 1999 to 280 cents presently. Whilst the dividend hasn't grown every year, neither does it appear to have been cut. The current dividend represents a near 5% yield. The p/e ratio is around 12 which is probably about right. I notice that this is one where the tipster refers to it being cheap against sector peers. I mentioned this in yesterday's blog, it may just mean that Glaxo and Shire are expensive? I would personally never use relative performance as any guide. How happy would you be if you invested in a fund that told you that they had done well relative to their sector peers because they had only lost 90% of your money whilst the others would have lost all of it? In conclusion, AZN looks like a relatively safe haven to park your money for a reasonable income stream, but I personally wouldn't expect fireworks this year.
I can't see anything particularly attractive about Barclays from a quick glance, although the financials appear to indicate plenty of cash and a tangible asset value somewhere around the current share price. The dividend is a miserly 2.4%. However, I usually steer well clear of the financial sector, particularly the larger companies. I once parked quite a large amount of money in Lloyd's Bank when it was paying a 7% dividend. I only left it there a while to collect the dividend and then sold for a modest profit. This was around 2003, it never for one moment crossed my mind that this was such a risky move. How foolish and how lucky I was in retrospect. You tend to hear a familiar mantra about very small companies being far more risky than the mega-caps. I tend to disagree, it's the nature of the business, the management and most of all (imo) the financials which dictate the risk.
Finally Drax. I can't see the appeal here, although for momentum traders the chart is in a clear uptrend. The valuation is not particularly attractive for me with a p/e of 18, and a dividend yield of just over 3%. Again I can't see any justification for substantial rises in it's share price this year since broker forecasts suggest EPS of 29p and 35p in 2013 and 2014 respectively putting the shares on forward p/e ratios of 27 and 23. In fairness, a recent trading update said that EBITDA would come in materially ahead of expectations for 2013.
In other news I notice that Debenhams have issued a poor trading statement today. Is this a portent of further disappointing news from some of the well known high street retailers? Perversely, it may be a company I'll add to the monitor since it states an intent to keep paying a dividend (currently getting towards 5%), although they are abandoning their share buyback programme which isn't such a good sign. I do wonder what the future holds for our high streets? The success of ASOS and others suggests that over the longer term, companies like Debenhams, M&S etc might be fighting a losing battle unless they can successfully execute substantial online operations whilst reducing their high street presence. This of course will be a costly process.
As ever, no advice is intended or given.
Monday 30 December 2013
Monitise, Home Retail Group and Imagination Technologies
Following on from yesterday's share tips in the Sunday Telegraph, I thought I'd now add some numbers to Monitise, Home Retail and Imagination Technologies.
Starting with Monitise, it certainly appears to be in the right place at the right time, and according to yesterday's article it's now a FTSE-250 company which provides the technology for mobile banking to 350 financial institutions worldwide. Great story, however for me there is a big "BUT" coming with this one.
The market cap. is currently a staggering £1.1billion. That's an awful lot of expectation already priced in. Now I'll freely admit that sometimes growth companies early results are deceptive, and revenues and profits can suddenly jump very significantly justifying a seemingly ludicrous share price. However, the simple mathematics are these. At a market cap of £1.1 billion and were I to give it a very generous p/e ratio of 50, then this implies profits of £22million. Currently Monitise is loss making. Net tangible assets are around 3p compared to a share price of 67.5p.
Good luck with this one if you're a shareholder, but it's not for me. By the way, if anybody compares the valuation to Twitter (or something similar) then my reply would be so what? One silly valuation doesn't justify another. In fact sometimes you do hear share prices justified by comparison, for instance share xyz is cheap compared to it's sector peers. What a nonsense that is. It could just mean that the whole sector is grossly overvalued including company xyz.
As I've said in many previous blogs, I would never short shares because they can stay on very high valuations for many years (ASOS is a good example), but unless I'm very badly mistaken I can't see any justification in the numbers for the current share price never mind any further increases this year. I'm happy to be proved wrong though.
Home Retail group is more my kind of investment, although I do feel I've missed the boat to a certain extent with this one. Nobody wanted to know this company during the dark days of the recession for a variety of reasons, not least the business model of it's Argos stores. However, as the article says it is now sensibly using it's stores as collection points for online orders.
Home retail has solid tangible asset backing at around 130p per share, and although the current dividend yield is less than 2%, they do have a track record of paying decent dividends and if retail conditions improve further dividend hikes are possible.
I'm not tempted to buy the shares at the current price, but certainly missed out when they were hovering around their lows at about 50p. Experience has taught me that if a company has solid tangible assets, and it begins to show recovery or (better still) signs of growth then the share price more often than not catches up with asset value and normally moves above it in the longer term.
Finally, Imagination Technologies has been in the doldrums this year and the share price has come back from over £5 to under £2. I'll stick my neck out here and guess that the share price will recover the ground that it has lost. I like these types of companies. Why? Although I can't justify the share price on the metrics I have used above, gross margins are around 86% which has a massive effect on the bottom line as revenue growth really starts to kick in. It's fantastic if you can spot these success stories when they are starting out.
As ever, no advice is intended or given, and in particular I have not researched these companies in any depth, just a quick glance at the financials.
N.B. For balance I should add that Monitise also has high gross margins. Around 76% in their latest set of prelims. It depends how quickly that they can grow revenues I suppose, but £1.1 billion is still a very hefty valuation at this stage in my opinion.
Starting with Monitise, it certainly appears to be in the right place at the right time, and according to yesterday's article it's now a FTSE-250 company which provides the technology for mobile banking to 350 financial institutions worldwide. Great story, however for me there is a big "BUT" coming with this one.
The market cap. is currently a staggering £1.1billion. That's an awful lot of expectation already priced in. Now I'll freely admit that sometimes growth companies early results are deceptive, and revenues and profits can suddenly jump very significantly justifying a seemingly ludicrous share price. However, the simple mathematics are these. At a market cap of £1.1 billion and were I to give it a very generous p/e ratio of 50, then this implies profits of £22million. Currently Monitise is loss making. Net tangible assets are around 3p compared to a share price of 67.5p.
Good luck with this one if you're a shareholder, but it's not for me. By the way, if anybody compares the valuation to Twitter (or something similar) then my reply would be so what? One silly valuation doesn't justify another. In fact sometimes you do hear share prices justified by comparison, for instance share xyz is cheap compared to it's sector peers. What a nonsense that is. It could just mean that the whole sector is grossly overvalued including company xyz.
As I've said in many previous blogs, I would never short shares because they can stay on very high valuations for many years (ASOS is a good example), but unless I'm very badly mistaken I can't see any justification in the numbers for the current share price never mind any further increases this year. I'm happy to be proved wrong though.
Home Retail group is more my kind of investment, although I do feel I've missed the boat to a certain extent with this one. Nobody wanted to know this company during the dark days of the recession for a variety of reasons, not least the business model of it's Argos stores. However, as the article says it is now sensibly using it's stores as collection points for online orders.
Home retail has solid tangible asset backing at around 130p per share, and although the current dividend yield is less than 2%, they do have a track record of paying decent dividends and if retail conditions improve further dividend hikes are possible.
I'm not tempted to buy the shares at the current price, but certainly missed out when they were hovering around their lows at about 50p. Experience has taught me that if a company has solid tangible assets, and it begins to show recovery or (better still) signs of growth then the share price more often than not catches up with asset value and normally moves above it in the longer term.
Finally, Imagination Technologies has been in the doldrums this year and the share price has come back from over £5 to under £2. I'll stick my neck out here and guess that the share price will recover the ground that it has lost. I like these types of companies. Why? Although I can't justify the share price on the metrics I have used above, gross margins are around 86% which has a massive effect on the bottom line as revenue growth really starts to kick in. It's fantastic if you can spot these success stories when they are starting out.
As ever, no advice is intended or given, and in particular I have not researched these companies in any depth, just a quick glance at the financials.
N.B. For balance I should add that Monitise also has high gross margins. Around 76% in their latest set of prelims. It depends how quickly that they can grow revenues I suppose, but £1.1 billion is still a very hefty valuation at this stage in my opinion.
Sunday 29 December 2013
Share tips for 2014
I notice that the Sunday Telegraph have published their share tips for 2014 in today's paper which include the following companies:-
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
Friday 27 December 2013
Proposed share buy-back and implications for future dividend payments at Avesco
In a short follow-up to my comments about Avesco's recently announced distribution of the Disney proceeds to shareholders, and in particular the share buyback, I just wanted to add my further thoughts about future shareholder returns.
Firstly, at 217.5p per share (pre-Disney payout) shareholders will receive a 52% dividend within 4 months (114p) which currently implies that post Disney and final dividend pay-outs, the shares are worth 103.5p (217.5p-114p) or a £19m market cap.
As mentioned previously this leaves the shares at a very substantial discount to NTAV. The even year effect in 2014 is more than likely to put the company back on track after a disappointing 2013.
Moreover, the company have increased the dividend by 25% this year (from 4p to 5p), and have stated their intent in pursuing a progressive dividend policy. This is interesting since the reduction in the share capital (assuming the share buy-back goes ahead) from 25.9m to 18.3m implies that a maintained dividend would actually equate to around 7p next year (25.9m*5p=£1.3m, 18.3m*7p=£1.3m). In fact a 7p dividend next year would be marginally less expensive. If Avesco are truly going to implement a progressive dividend policy then is it possible that next year's dividend could be 8p plus? It will be interesting to see.
The way I see it, the company have effectively returned pretty much all of the cash from Disney to their shareholders. The buy-back increases each shareholder's stake by approximately 41%. Despite having being an investor in Avesco for more than four years, and although I have benefitted from substantial share price gains and large pay-outs, I still see the company as well below fair value.
Investor's should also take a peek at their website to view the circular re: return of £1.10 and share buyback:-
http://avesco.com/node/355
and this is also worth a watch:-
http://www.ct-group.com/news/nuformer-and-ct-team-Philips
As ever, no advice intended or given.
Firstly, at 217.5p per share (pre-Disney payout) shareholders will receive a 52% dividend within 4 months (114p) which currently implies that post Disney and final dividend pay-outs, the shares are worth 103.5p (217.5p-114p) or a £19m market cap.
As mentioned previously this leaves the shares at a very substantial discount to NTAV. The even year effect in 2014 is more than likely to put the company back on track after a disappointing 2013.
Moreover, the company have increased the dividend by 25% this year (from 4p to 5p), and have stated their intent in pursuing a progressive dividend policy. This is interesting since the reduction in the share capital (assuming the share buy-back goes ahead) from 25.9m to 18.3m implies that a maintained dividend would actually equate to around 7p next year (25.9m*5p=£1.3m, 18.3m*7p=£1.3m). In fact a 7p dividend next year would be marginally less expensive. If Avesco are truly going to implement a progressive dividend policy then is it possible that next year's dividend could be 8p plus? It will be interesting to see.
The way I see it, the company have effectively returned pretty much all of the cash from Disney to their shareholders. The buy-back increases each shareholder's stake by approximately 41%. Despite having being an investor in Avesco for more than four years, and although I have benefitted from substantial share price gains and large pay-outs, I still see the company as well below fair value.
Investor's should also take a peek at their website to view the circular re: return of £1.10 and share buyback:-
http://avesco.com/node/355
and this is also worth a watch:-
http://www.ct-group.com/news/nuformer-and-ct-team-Philips
As ever, no advice intended or given.
Monday 23 December 2013
Avesco returns cash and buys back 30% of it's shares from Taya
I must admit to feeling just a little bit queasy when I saw that Avesco had released two news statements at just after 5pm this evening. Normally this doesn't signify good news!
However, on this occasion and to my relief, it was quite the opposite.
Firstly, let's deal with the prelims which didn't make very good reading. Avesco had previously indicated that 2013 had been a challenging year for the company and this is apparent from the final results, and of course comparisons with last year are unfair since revenues and earnings had a very substantial boost from the London Olympics.
Nevertheless, they did make a small trading profit of £0.5m, but more significantly the final dividend of 4p is a 33.3% premium to last year's (3p) and a 25% increase on the full dividend (5p compared to 4p in 2012). Moreover, the company are committed to a progressive dividend policy.
I'm not going to spend too much time analysing the 2013 results because there are several figures that could be quoted for EPS, the headline figure of course is 136.2p because of the huge income received from the Disney litigation.
The main drag on underlying earnings this year appears to have been CT Germany and Presteigne Charter. The company had to incur restructuring costs in both of these divisions.
Looking forward however, Richard Murray states:-
"The first quarter of the current financial year has started in line with the Board's expectations. As we look further into 2014, the Group anticipates a return to profitability with the benefits of a reduced cost base and an expected increase in demand over 2013 for its services, with a number of major "even year" sporting events being held, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil."
There will still be some costly restructuring at their loss making European operations, but the business should be stronger and more predictable going forward as a result.
Overall, the fact that they have no requirement for the Disney cash going forward, and are intent on a progressive dividend policy, is an excellent and reassuring sign for the future.
The £1.10 return of cash to shareholders will now take place at the end of January and shareholders can opt for the pay-out either as income or capital. With the share price currently standing at £2.26, post Disney pay-out and share buyback (mentioned below), Avesco is valued at just £21.4m.
This brings me on to the unexpected buyback from Taya of nearly 30% of the company's issued share capital. The shares will either be held in Treasury or cancelled. The number of shares in issue will fall from around 26m to around 18.4m and as consequence should enhance earnings significantly.
I must admit this wasn't a move I had anticipated, but it is extremely welcome.
Their reasoning is as follows:-
"The completion of the Share Buy-Back is expected to be earnings-enhancing, post on-going funding costs. After the completion of the Share Buy-Back, the value of the net assets per Ordinary Share will increase proportionately."
"The total voting rights of Independent Shareholders (excluding the interests of the Directors) will increase to 66 per cent. from 47 per cent. and, in this context, the Independent Directors believe that the removal of a significant shareholder will remove a possible disincentive to other institutional investors considering an investment in the Company."
"In recent years the Company has been reporting its financial results on a quarterly basis to enable Taya to comply with Taya's own reporting obligations on the Tel Aviv Stock Exchange. After completion of the Share Buy-Back, the Company will be able to revert to producing its financial results on a biannual basis which will remove a management and administrative burden."
"It is estimated that the Company will save approximately GBP0.2 million per year in quarterly audit review fees, director's fees and related expenses."
"The reduction in the issued share capital will result in a 29.2 per cent. reduction in the amount of cash being paid out in dividends by the Company and will, therefore, provide further support to the Company's intention to maintain its progressive dividend policy."
If my calculations are correct then post Disney pay-out and share buyback the shares stand at a 40% discount to Avesco's net asset value (and they are quality assets). In my view this still means the company is significantly undervalued.
Avesco has been a stellar performer for me, and I am extremely grateful for all the efforts of those involved with the company.
Merry Christmas to all readers of my blog, and congratulations to all shareholders in Avesco.
As ever no advice intended or given.
However, on this occasion and to my relief, it was quite the opposite.
Firstly, let's deal with the prelims which didn't make very good reading. Avesco had previously indicated that 2013 had been a challenging year for the company and this is apparent from the final results, and of course comparisons with last year are unfair since revenues and earnings had a very substantial boost from the London Olympics.
Nevertheless, they did make a small trading profit of £0.5m, but more significantly the final dividend of 4p is a 33.3% premium to last year's (3p) and a 25% increase on the full dividend (5p compared to 4p in 2012). Moreover, the company are committed to a progressive dividend policy.
I'm not going to spend too much time analysing the 2013 results because there are several figures that could be quoted for EPS, the headline figure of course is 136.2p because of the huge income received from the Disney litigation.
The main drag on underlying earnings this year appears to have been CT Germany and Presteigne Charter. The company had to incur restructuring costs in both of these divisions.
Looking forward however, Richard Murray states:-
"The first quarter of the current financial year has started in line with the Board's expectations. As we look further into 2014, the Group anticipates a return to profitability with the benefits of a reduced cost base and an expected increase in demand over 2013 for its services, with a number of major "even year" sporting events being held, including the Winter Olympics in Russia, the Commonwealth Games in Scotland and the FIFA World Cup in Brazil."
There will still be some costly restructuring at their loss making European operations, but the business should be stronger and more predictable going forward as a result.
Overall, the fact that they have no requirement for the Disney cash going forward, and are intent on a progressive dividend policy, is an excellent and reassuring sign for the future.
The £1.10 return of cash to shareholders will now take place at the end of January and shareholders can opt for the pay-out either as income or capital. With the share price currently standing at £2.26, post Disney pay-out and share buyback (mentioned below), Avesco is valued at just £21.4m.
This brings me on to the unexpected buyback from Taya of nearly 30% of the company's issued share capital. The shares will either be held in Treasury or cancelled. The number of shares in issue will fall from around 26m to around 18.4m and as consequence should enhance earnings significantly.
I must admit this wasn't a move I had anticipated, but it is extremely welcome.
Their reasoning is as follows:-
"The completion of the Share Buy-Back is expected to be earnings-enhancing, post on-going funding costs. After the completion of the Share Buy-Back, the value of the net assets per Ordinary Share will increase proportionately."
"The total voting rights of Independent Shareholders (excluding the interests of the Directors) will increase to 66 per cent. from 47 per cent. and, in this context, the Independent Directors believe that the removal of a significant shareholder will remove a possible disincentive to other institutional investors considering an investment in the Company."
"In recent years the Company has been reporting its financial results on a quarterly basis to enable Taya to comply with Taya's own reporting obligations on the Tel Aviv Stock Exchange. After completion of the Share Buy-Back, the Company will be able to revert to producing its financial results on a biannual basis which will remove a management and administrative burden."
"It is estimated that the Company will save approximately GBP0.2 million per year in quarterly audit review fees, director's fees and related expenses."
"The reduction in the issued share capital will result in a 29.2 per cent. reduction in the amount of cash being paid out in dividends by the Company and will, therefore, provide further support to the Company's intention to maintain its progressive dividend policy."
If my calculations are correct then post Disney pay-out and share buyback the shares stand at a 40% discount to Avesco's net asset value (and they are quality assets). In my view this still means the company is significantly undervalued.
Avesco has been a stellar performer for me, and I am extremely grateful for all the efforts of those involved with the company.
Merry Christmas to all readers of my blog, and congratulations to all shareholders in Avesco.
As ever no advice intended or given.
Saturday 21 December 2013
Trakm8 interims, and brief updates
As anticipated in last week's blog, Trakm8 released their interim results this week.
The headline figures show that revenues increased by 10% to £2.564m, combined UK and International orders received increased by 28%, and underlying annualised recurring revenues increased by 15% to GBP2.3m. The company continues to maintain profitable growth with an operating profit before exceptional costs of £87,000, gross margins increasing slightly to 75% whilst they retained strong cash balances.
The figures are very healthy and encouraging, but it is the forward looking statements that have greater significance following the "transformational acquisition of BOX Telematics Ltd completed in October 2013". In the year ended 31 December 2012, BOX recorded revenues of GBP8.4 million and profit before tax of GBP850,000.
In the forward looking statement John Watkins, Executive Chairman of Trakm8 said:
"We expect to deliver on the investments in resources over the next year and to deliver strong growth in profitability on the back of the much larger Group revenues, in line with our expectations."
Broker forecasts are for revenues of £10.9m in 2014 with EPS of 2.3p and £16.9m in 2015 with EPS of 4p. This gives forward P/E figures of 15 and 8.5 respectively. The figures don't look unreasonable , but I don't tend to pay too much attention to broker forecasts on smaller companies in the early stage of their development. Revenues and profits at this stage are very difficult to predict. With this company there are a number of other key indicators that are far more important to me in holding shares in the company for the long term.
Highlighting the significant detail from the interims:-
"Trakm8 has continued to consolidate its trading position and profitability, in addition to enhancing its robust financial position. We were very pleased to have completed the transformational acquisition of BOX Telematics just after the half year end, significantly improving our market leading position. "
"The rate at which new orders have been received during the period indicates that the expansion of our engineering and sales teams is starting to positively impact the results."
"There has been a continuing increase of 15% in the annualised recurring revenues, which are based on increased numbers of units reporting to Trakm8 servers. These revenues are the bedrock of the Group's financial future."
"Gross profit margins have continued to improve, which we anticipate to increase further once BOX Telematics is fully integrated into the Group."
It should be noted that the increase in revenues and profitability were achieved without a large order from one single customer which they had achieved in previous years. This is down to the fact that they have managed to broaden their customer base both in the UK and internationally. It's always important to me that a company does not have too heavy a reliance on one single customer. I watched a company called UBC Media (mentioned in previous blogs) for many years before buying shares in the company. Amongst the early reasons for holding off any purchase was their reliance on the BBC for the vast majority of their revenues.
"Our customer facing web based solutions are market leading........ The order pipeline has been building strongly following the appointment of a Corporate Sales Director early in 2013."
"Trakm8 has been building from the strategy announced last year to invest in more engineering and sales resources. Although, as expected, operating costs have increased at the expense of short term profitability, the new product introductions and the order pipeline is giving confidence that this investment will pay off."
Despite this investment Trakm8 continues to trade profitably.
The report regarding the early integration of BOX Telematics into the group reads very positively indeed and will be transformational for the group if they achieve the financial and strategic benefits they have outlined.
Finally,
"The Group has a much stronger pipeline of new sales opportunities than at any time in its history and has the recently enhanced engineering resource to capitalise on them."
and
"The Board believes that the investment in resources and the acquisition was timely both in terms of the improving general economic climate and the tipping point in mass market adoption of telematics that appears to have been reached. "
In conclusion, Trakm8 is a small company valued at less than £10m that could have a very big future.
I am excited about the prospects for the enlarged group which can grow significantly from a sound financial footing with high gross margins, strong cash flow and double digit growth in recurring revenues.
In other news, Angle continues to show considerable promise and is presently delivering on the timeline set out for the marketing and sales of it's Parsortix system in the diagnosis and treatment of cancer patients. This week they announced the CE Mark authorisation of its Parsortix cell separation system for use as an in vitro diagnostic device in the European Union. FDA approval should follow in due course which opens up a potential £8 billion plus market for sales of the device.
Some time ago there were rumours in the Times newspaper that Angle was a bid target. I expected that there was some substance to these rumours, and that a bid would duly follow. I still believe that because (as mentioned last week) the company is now a one product outfit with some not inconsiderable challenges to be overcome in getting the product into mass market use, a bid for the company is very much a real possibility. Of course other options are open to them, as outlined in their RNS. Overall, I am very happy to hold on tightly and see what happens in the ensuing months.
No further details from Avesco or UBC Media yet. In the meantime, I have noted that Creative Technology continue to ramp up their visibility on the website. The latest news item details their involvement in Jessie J's concerts. Certainly worth a read for shareholders:-
http://www.ct-group.com/news/ct-alive-jessie-j
As ever, no advice is intended or given.
The headline figures show that revenues increased by 10% to £2.564m, combined UK and International orders received increased by 28%, and underlying annualised recurring revenues increased by 15% to GBP2.3m. The company continues to maintain profitable growth with an operating profit before exceptional costs of £87,000, gross margins increasing slightly to 75% whilst they retained strong cash balances.
The figures are very healthy and encouraging, but it is the forward looking statements that have greater significance following the "transformational acquisition of BOX Telematics Ltd completed in October 2013". In the year ended 31 December 2012, BOX recorded revenues of GBP8.4 million and profit before tax of GBP850,000.
In the forward looking statement John Watkins, Executive Chairman of Trakm8 said:
"We expect to deliver on the investments in resources over the next year and to deliver strong growth in profitability on the back of the much larger Group revenues, in line with our expectations."
Broker forecasts are for revenues of £10.9m in 2014 with EPS of 2.3p and £16.9m in 2015 with EPS of 4p. This gives forward P/E figures of 15 and 8.5 respectively. The figures don't look unreasonable , but I don't tend to pay too much attention to broker forecasts on smaller companies in the early stage of their development. Revenues and profits at this stage are very difficult to predict. With this company there are a number of other key indicators that are far more important to me in holding shares in the company for the long term.
Highlighting the significant detail from the interims:-
"Trakm8 has continued to consolidate its trading position and profitability, in addition to enhancing its robust financial position. We were very pleased to have completed the transformational acquisition of BOX Telematics just after the half year end, significantly improving our market leading position. "
"The rate at which new orders have been received during the period indicates that the expansion of our engineering and sales teams is starting to positively impact the results."
"There has been a continuing increase of 15% in the annualised recurring revenues, which are based on increased numbers of units reporting to Trakm8 servers. These revenues are the bedrock of the Group's financial future."
"Gross profit margins have continued to improve, which we anticipate to increase further once BOX Telematics is fully integrated into the Group."
It should be noted that the increase in revenues and profitability were achieved without a large order from one single customer which they had achieved in previous years. This is down to the fact that they have managed to broaden their customer base both in the UK and internationally. It's always important to me that a company does not have too heavy a reliance on one single customer. I watched a company called UBC Media (mentioned in previous blogs) for many years before buying shares in the company. Amongst the early reasons for holding off any purchase was their reliance on the BBC for the vast majority of their revenues.
"Our customer facing web based solutions are market leading........ The order pipeline has been building strongly following the appointment of a Corporate Sales Director early in 2013."
"Trakm8 has been building from the strategy announced last year to invest in more engineering and sales resources. Although, as expected, operating costs have increased at the expense of short term profitability, the new product introductions and the order pipeline is giving confidence that this investment will pay off."
Despite this investment Trakm8 continues to trade profitably.
The report regarding the early integration of BOX Telematics into the group reads very positively indeed and will be transformational for the group if they achieve the financial and strategic benefits they have outlined.
Finally,
"The Group has a much stronger pipeline of new sales opportunities than at any time in its history and has the recently enhanced engineering resource to capitalise on them."
and
"The Board believes that the investment in resources and the acquisition was timely both in terms of the improving general economic climate and the tipping point in mass market adoption of telematics that appears to have been reached. "
In conclusion, Trakm8 is a small company valued at less than £10m that could have a very big future.
I am excited about the prospects for the enlarged group which can grow significantly from a sound financial footing with high gross margins, strong cash flow and double digit growth in recurring revenues.
In other news, Angle continues to show considerable promise and is presently delivering on the timeline set out for the marketing and sales of it's Parsortix system in the diagnosis and treatment of cancer patients. This week they announced the CE Mark authorisation of its Parsortix cell separation system for use as an in vitro diagnostic device in the European Union. FDA approval should follow in due course which opens up a potential £8 billion plus market for sales of the device.
Some time ago there were rumours in the Times newspaper that Angle was a bid target. I expected that there was some substance to these rumours, and that a bid would duly follow. I still believe that because (as mentioned last week) the company is now a one product outfit with some not inconsiderable challenges to be overcome in getting the product into mass market use, a bid for the company is very much a real possibility. Of course other options are open to them, as outlined in their RNS. Overall, I am very happy to hold on tightly and see what happens in the ensuing months.
No further details from Avesco or UBC Media yet. In the meantime, I have noted that Creative Technology continue to ramp up their visibility on the website. The latest news item details their involvement in Jessie J's concerts. Certainly worth a read for shareholders:-
http://www.ct-group.com/news/ct-alive-jessie-j
As ever, no advice is intended or given.
Sunday 15 December 2013
Angle, UBC Media, Avesco and Trakm8
Apologies to regular readers of my blog, but life is very hectic at the moment, and consequently writing my blog is not top of my priority list. However, the next couple of weeks should prove a very interesting time for four of the companies in my portfolio.
Firstly, I have written several times about my speculative investment in Angle which has done considerably well this year, and was my entry into the 2013 shares likely to gain 100% or more (a challenge on one of ADVFN's bulletin boards). Well it's done better than that. The shares were languishing in the high 20's in January, but now stand at around the 80p mark.
As previously mentioned this is essentially a speculative investment based on the company achieving success with its Parsortix device, and certainly the company appears to be delivering on it's promises. I have high hopes for this product, and if it can gain traction in it's potential markets in the near future (subject to the relevant regulatory approvals anticipated this year) then growth could be spectacular.
Friday brought excellent news with the sale of their stake in Geometrics, a graphics technology developer, to ARM holdings. The sale brings in £6.2m to Angle and effectively erases any need for funding in the near future, and refocuses the group as a specialist medtech company. The available additional financial resources will be used for its Parsortix non-invasive cancer diagnostics business.
The shares rose modestly on Friday, but I expect this is largely due to investors being unaware of the significance of this event. It would be fantastic if Angle could now go it alone and successfully bring this product to market. This would be the most lucrative option for investors, although clearly the most risky since there are always potential banana skins at such an early stage - not least capturing market share before serious competition arrives on the scene. Earlier bid rumours appear to have quietened down in recent weeks, but Angle is now essentially a one product company (albeit with enormous potential) and I fully expect that suitors for the company will emerge in the not too distant future.
Angle's sale of Geometrics brings me on to UBC Media.
I must confess that I hadn't looked at the Geometrics balance sheet, but I believe revenues were in the hundreds of thousands rather than millions. Arm appear to have paid £20m for Geometrics (I believe Angle held a 31% stake) which is a pretty hefty price, but indicative of the heady prices that can be paid for small companies with the right technology at the right time.
Tomorrow should bring news of developments in UBC's reverse takeover of 7digital. There is no guarantee that the two companies will have come to any agreement at all, but if they have then this could add further excitement to what I believe was an already potentially interesting story.
At the same time that UBC announced their proposed acquisition, they also released their interim results which were very encouraging. Not least the explosive growth of the social media site Audioboo.
From the interims :- "During the last 12 months the growth in traffic at Audioboo has been particularly impressive, with registered users more than tripling from 600,000 to 1.9 million. The level of consumption of audio on the platform has also increased: 12 months ago, the number of audio clips listened to in October was 4 million, this year in the equivalent month it was 22 million. Perhaps more significantly, the company has now implemented the technology to monetise this listening; content owners can opt to be part of an advertising network on Audioboo with pre-roll and display advertising associated with their clips. Revenues are shared between the content owners and Audioboo."
Interestingly, in the weekend FT their was an article about Beyoncé releasing her latest album in digital format only and relying on social media sites to alert her fan base. This appears to have worked extremely well, and clearly emphasises the prominence that social media will have in the future.
We will see what tomorrow brings, but potential synergies between UBC Media, 7Digital and Audioboo sound very exciting to me. Of course the devil will be in the detail of the acquisition, but I'd hope with Imagination Technologies being a large shareholder in both companies, the deal should be a fair one for all parties concerned, if indeed it goes ahead.
The next two weeks should also bring news of the return of cash (£1.10 per share) to shareholders in Avesco, and more details of the potential transaction (again if this has been agreed?). The more I've thought about it, the more I'm convinced that this is more likely to be a sale of assets rather than a purchase. Surely, if it was an acquisition then there would have been no need to delay the details of the return of cash? However if they are selling the company (or part of the company) then of course it makes sense since the sale price is inextricably linked to the share price post distribution of the funds i.e. they would need to detail NTAV etc. post shareholder payout to fully explain an agreed sale price. Of course I might be wrong, but we shouldn't have to wait too long for news.
Finally, I expect Trakm8 to release their interim results this month (they are usually released in November or December). Of course these won't include figures for the enlarged group, but they will give an indication of how well Trakm8's market's and market share are developing and they should give some indication of how the acquisition of BOX is bedding in, and what current trading is like for the enlarged group.
As ever, no advice is intended or given.
Firstly, I have written several times about my speculative investment in Angle which has done considerably well this year, and was my entry into the 2013 shares likely to gain 100% or more (a challenge on one of ADVFN's bulletin boards). Well it's done better than that. The shares were languishing in the high 20's in January, but now stand at around the 80p mark.
As previously mentioned this is essentially a speculative investment based on the company achieving success with its Parsortix device, and certainly the company appears to be delivering on it's promises. I have high hopes for this product, and if it can gain traction in it's potential markets in the near future (subject to the relevant regulatory approvals anticipated this year) then growth could be spectacular.
Friday brought excellent news with the sale of their stake in Geometrics, a graphics technology developer, to ARM holdings. The sale brings in £6.2m to Angle and effectively erases any need for funding in the near future, and refocuses the group as a specialist medtech company. The available additional financial resources will be used for its Parsortix non-invasive cancer diagnostics business.
The shares rose modestly on Friday, but I expect this is largely due to investors being unaware of the significance of this event. It would be fantastic if Angle could now go it alone and successfully bring this product to market. This would be the most lucrative option for investors, although clearly the most risky since there are always potential banana skins at such an early stage - not least capturing market share before serious competition arrives on the scene. Earlier bid rumours appear to have quietened down in recent weeks, but Angle is now essentially a one product company (albeit with enormous potential) and I fully expect that suitors for the company will emerge in the not too distant future.
Angle's sale of Geometrics brings me on to UBC Media.
I must confess that I hadn't looked at the Geometrics balance sheet, but I believe revenues were in the hundreds of thousands rather than millions. Arm appear to have paid £20m for Geometrics (I believe Angle held a 31% stake) which is a pretty hefty price, but indicative of the heady prices that can be paid for small companies with the right technology at the right time.
Tomorrow should bring news of developments in UBC's reverse takeover of 7digital. There is no guarantee that the two companies will have come to any agreement at all, but if they have then this could add further excitement to what I believe was an already potentially interesting story.
At the same time that UBC announced their proposed acquisition, they also released their interim results which were very encouraging. Not least the explosive growth of the social media site Audioboo.
From the interims :- "During the last 12 months the growth in traffic at Audioboo has been particularly impressive, with registered users more than tripling from 600,000 to 1.9 million. The level of consumption of audio on the platform has also increased: 12 months ago, the number of audio clips listened to in October was 4 million, this year in the equivalent month it was 22 million. Perhaps more significantly, the company has now implemented the technology to monetise this listening; content owners can opt to be part of an advertising network on Audioboo with pre-roll and display advertising associated with their clips. Revenues are shared between the content owners and Audioboo."
Interestingly, in the weekend FT their was an article about Beyoncé releasing her latest album in digital format only and relying on social media sites to alert her fan base. This appears to have worked extremely well, and clearly emphasises the prominence that social media will have in the future.
We will see what tomorrow brings, but potential synergies between UBC Media, 7Digital and Audioboo sound very exciting to me. Of course the devil will be in the detail of the acquisition, but I'd hope with Imagination Technologies being a large shareholder in both companies, the deal should be a fair one for all parties concerned, if indeed it goes ahead.
The next two weeks should also bring news of the return of cash (£1.10 per share) to shareholders in Avesco, and more details of the potential transaction (again if this has been agreed?). The more I've thought about it, the more I'm convinced that this is more likely to be a sale of assets rather than a purchase. Surely, if it was an acquisition then there would have been no need to delay the details of the return of cash? However if they are selling the company (or part of the company) then of course it makes sense since the sale price is inextricably linked to the share price post distribution of the funds i.e. they would need to detail NTAV etc. post shareholder payout to fully explain an agreed sale price. Of course I might be wrong, but we shouldn't have to wait too long for news.
Finally, I expect Trakm8 to release their interim results this month (they are usually released in November or December). Of course these won't include figures for the enlarged group, but they will give an indication of how well Trakm8's market's and market share are developing and they should give some indication of how the acquisition of BOX is bedding in, and what current trading is like for the enlarged group.
As ever, no advice is intended or given.
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