Trakm8 interims

Trakm8 released their interims this morning and the share price has currently taken a 30% hit. I'm not sure what investors were expecting, but in my view, it's the usual wild over-reaction by myopic investors looking for short term gains. Trakm8 has a fantastic opportunity to exploit in the telematics industry, and has clearly gone for that opportunity in a big way with a very large spend on engineering capacity, alongside sales and marketing resource. We'll be able to judge in the medium to long term. In the short term, although revenues continue to grow, profitability will suffer a little. I'm happy with that. As I said in a recent blog :-

http://michae1mouse.blogspot.co.uk/2016/11/still-on-trak-week-on-monday.html

"My view is that with a long term view, the company is hugely undervalued. I'm not particularly bothered whether or not they hit expectations this year, as long as they keep growing that order book."

I'm not going to do a forensic analysis of the results:-

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B0P1RP10GBGBXAIMI.html

but as usual you should DYOR.

It's also worthwhile taking a look at the short video presentation by John Watkins:-

hTTp://www.piworld.co.uk/videos/2016/11/28/trakm8-trak-h1-results-presentation-september-2016

For me, the clear risk going forward is can they turn the increased engineering, sales and marketing spend into the proportionate eventual increases in revenues and profitability, and will their expansion into China and the US bear fruit?

However, in my previous blog I wrote this:-

"With a medium/long view on Trakm8, I'm looking for £10-£20. In the short term, at the current lowly valuation, they are possibly vulnerable to a bid at around £5. "

Personally, I think they'd have been remiss not to go for the opportunity in the telematics arena with their market leading solutions, and I see no reason to change the targets stated above, as things stand at the moment.

I am in the advantageous position in that I bought my holding in Trakm8 when the SP was in the teens, and I accept that some investors may have bought recently and are sitting on paper losses.

I bought my shares in 2011, and if I'd closed down my computer and not come back until now then I'd be very pleased with progress. Bully for me eh!!

Something to think about if you're currently sitting on paper losses. If you'd bought Avesco shares in 2007 then you'd have paid just over a £1 and then watched as they fell to around 20p. Not nice. However, assuming that you didn't sell then even if you didn't pick any more up from that time onwards you'd now have got yourself a 6.5 bagger, a £1.10 special dividend, and all their interim and final dividends.

I offer no advice with Trakm8, but I'm happy to stick around. If all else fails, think about their blue-chip clients and installed devices (recurring revenues) and think what a larger player might pay to enter this growing and lucrative market.

Another bad CALL?

I mention this company with some trepidation. Cloudcall formerly known as Synety. All my history with Cloudcall is contained in the following blog and links:-

http://michae1mouse.blogspot.co.uk/2015/09/open-doors-that-needed-far-bigger-push.html

The link above will give you a feel for why I invested in the first place at around 150p. Fortunately, as explained above, I only place small amounts of capital in my more speculative investments. It's just as well since they are more often than not my worst performers. Why wouldn't they be? Why do I bother with them? Answers on a postcard please.

From the link above, I wrote:-

"In my view the group still has it's work cut out to achieve cash break-even and an operating profit. That said, they are clearly getting there quite rapidly which means that even in the eventuality that they do need to raise more cash in the future then the scale of the cash raise should be minimal, and with a supportive shareholder hopefully not at a deeply discounted price."

The share price was in the low 90s at the time. Oops, cue another placing at 57.5p. You need a sense of humour when you're investing or should I say speculating in the case of Cloudcall.

Anyway, as you've guessed I've taken the sensible option and walked away.

Except that's a lie and I haven't done the sensible thing, and instead I've bought some more at prices around 55p.

Now I know what you're thinking. He's lost the plot with this one, and you might be right.

However, in my defence, the company is making progress (albeit far more slowly than originally hoped), and if they do reach break-even then it's game on since this company's revenues will largely be recurring revenues.

I like the ties with Bullhorn and I don't recall the Directors selling any shares, in fact quite the contrary, they have been constant buyers and have a lot of skin in the game.

I should emphasise that I have bought another modest amount for me, and except this speculation could go either way.

The only consolation (if it goes wrong) would be that at least I know the Directors would be sharing my pain. Only more acutely.

I'd suggest starting your research with the latest interim results if you're interested, but I will say again that this is not a conviction buy for me at this stage, although things can change depending on their progress.

AA - 10,000 car trial using black boxes

In today's Telegraph there is a small report in the business section that will be of significant interest to Trakm8 investors. The article is entitled

"AA using black boxes to fix customers' cars before a breakdown"

Now investors will know that Trakm8 are the suppliers of these black boxes.

I won't reproduce that whole article, but it states that the AA are currently running a trial of 10,000 cars fitted with "black boxes" which monitor their systems, sending early warnings of potential problems. This is sent to the AA's control centre as well as members via an app.

Apparently, the test found that almost one in five cars being monitored developed a problem that was likely to cause a breakdown if the system did not flag them, allowing them to be fixed early, reducing the number of roadside breakdowns and cutting the AA's workload.

There is also a hint that the AA will be rolling out the black boxes to both breakdown and insurance members (for a reduced premium).

Now investors will know that Trakm8's partnership with the AA has been established for a few years and that recently they announced the following:-

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TRAK/12621392.html

However, this news is potentially a further game changer. Whilst Trakm8 currently serve the AA breakdown vehicles and no doubt some newly acquired fleets (via the AA). This trial suggests that the black boxes could be offered and rolled out to each and every AA customer i.e. Breakdown member, insurance member, fleet cars etc.

If successful, and it sounds like it's going extremely well, it won't stop with the AA either. New and existing Trakm8 customers won't want to be left behind.

Anyway, as a holder of Trakm8 shares, I feel quite excited!!

Please note that this is a personal blog and I strongly suggest that you DYOR. With a press article such as this one I have made several assumptions.

Still on trak a week on Monday?

I've found that it can be frustrating when you're a long term investor in micro-caps, so I've learnt to be very patient over the years. When I first bought Avesco it's market cap. was about £5m and very few investors wanted to know.

Frustrations include. Inertia in the share price for many months. Illiquidity issues. The share prices rise and fall by gut wrenching percentages at times. Incidentally, I've never used stop losses in illiquid micro-caps, I would have been stopped out of all of my eventual multi-baggers otherwise. The constant noise from braggarts, lunatics, chancers, and experts talking shares up or down to suit their own agendas. Just ignore them and follow your own research. Win or lose, you'll only have yourself to congratulate or blame in the end.

My favourite investing book is "One Up On Wall Street" by Peter Lynch. Whilst I wouldn't recommend it for improving your valuation skills, I found it fabulously funny in regards to what to avoid and look for in spotting potential multi-baggers. It certainly resonated with my experiences.

Moving on, I wanted to mention another of my favourite shares which is Trakm8. I've mentioned it many times before since I bought shares in 2011 for prices in the teens. The shares have gone on to multi-bag since and currently stand at about 172p.

The shares have risen close to 400p, but they're as illiquid as Avesco's shares and have indeed followed a similar roller coaster ride. Their fall from the SP highs was partly due to negative comments from a website, alongside liquidity issues. The negative noises are absolute tripe and Trakm8 (like Avesco) has an excellent management team that just gets on with the job. Just for the record, this same website were advising their readers to cash in profits on Avesco in October, as the SP price rose above £3. Oops. It illustrates the wider trait of share tipping services to try and attract punters by boasting that "We've made 180% on Avesco shares aren't we just f***ing wonderful" whilst ignoring (let's say) Stanley Gibbons where they lost investors 97%. Still I suppose they've got to make a living.  If they'd understood Avesco a little better then they'd have advised investors to hang on in there. Never mind. Incidentally, I will no longer refer to the website in question since it's really not worth the time, however it does irk me somewhat when certain individuals cast themselves as some sort of hero when they're more akin to a villain. Anyway, I'll let it go now. Most people usually sort the wheat from the chaff in the end.

Back to Trakm8. The interims will be released a week on Monday, and it's a wonderful little business. I've stated the investment case many times before, and here was my last offering back in April:-

http://michae1mouse.blogspot.co.uk/2016/04/long-term-investing-eventually-pays.html

Since then we've had the final results, and a trading statement:-

The share price came off a little as investors appeared to concentrate on this:-

"Half year profitability is expected to be less than the first half of last year, ...." and the negative impact of recent currency fluctuations.

As a long term investor, I'm encouraged more by this:-

"......a stronger second half anticipated fulfilling the growing orders received in the financial year to date."

and

"Group new orders booked have been received at a rate of 37% greater than the same period last year, of which 27% is organic growth. This continues the trend of strong growth of recent years."

Whilst the company stuck by their predictions for the full year, it is clear that investors are more cautious. This means that if there is bad news on full year expectations with the interims then it's priced in already.

My view is that with a long term view, the company is hugely undervalued. I'm not particularly bothered whether or not they hit expectations this year, as long as they keep growing that order book.

Of course, if they are still on track to hit expectations then the share price will rapidly climb back towards £4.

I'm sure that some investors thought my predictions about Avesco's value were a little ambitious. Of course, I'm happy to report they weren't.

With a medium/long view on Trakm8, I'm looking for £10-£20. In the short term, at the current lowly valuation, they are possibly vulnerable to a bid at around £5.

Monday week will be interesting.

P.S. I was gob-smacked yesterday. Not about the bid for Avesco, although that did take my breath away. It was what I have always assumed to be a traders urban myth. It's actually 100% true. My lips are sealed!!!!!!

Avesco - value realised after recommended offer

Regular readers of my blog will know that I've been a fan of AIM listed Avesco since 2009. I picked up the majority of shares in the company at prices between 20p-25p, and had been bleating on about how undervalued the company was throughout the following 6/7 years. Avesco has been a terrific progressive dividend payer including a special dividend of £1.10, and until yesterday the shares had increased around 10 fold in that period of time. Yesterday it became more than 20-fold after NEP launched a recommended bid at 650p per share.

My sincere thanks go to a fabulous management team and brilliant work force that have enabled this to happen. We shareholders merely piggyback their hard work and success, and I'm hugely grateful for all their efforts.

I have in the past hinted that a bid approach was highly likely, and indeed on October 1st of this year guesstimated what the shares could be worth:-

http://michae1mouse.blogspot.co.uk/2016/10/avesco-massive-upside-potential.html

"On last year's figures alone that gives fair value of £4.50-£6.00 for operating profits or £5.40-£7.20 working with trading profits."

http://michae1mouse.blogspot.co.uk/2015/01/playing-long-game.html

"Finally, Murray holds near 30% of the company and is 65 years old or thereabouts. When he eventually chooses to retire (of course he may decide to continue for some time yet), he might well wish to cash in his holding. If I was him, I'd be looking at far more than EBITDA for my holding. How does 3 or 4 times EBITDA sound?"

http://michae1mouse.blogspot.co.uk/2016/06/avesco-interims.html

"The margin of safety remains high here, and as mentioned before, the group is always vulnerable to a opportunistic bid."

Should you cash in your shares now or wait for the deal to complete? From the announcement I'd estimate that the chances of the deal going through are extremely high. However, the deal could collapse in unforeseen circumstances or alternatively it might attract a rival bid at an even higher price? On balance, investors will probably be swayed by how many shares they own. If you hold very few then you might be tempted to cash in, if you own a substantial number then 15p/20p per share extra is a lot of money, and you might be tempted to see it out.

I tend to look at it like this. The bid approach has given investors a true picture of Avesco's worth, if the deal fell through (although highly unlikely in my opinion) then you're still left holding a terrific company with plenty of cash, paying substantial dividends. It might even be worth £8+ in a year or two. You also have a chance that a rival bid emerges. Anyway, it looks pretty much a done deal to me and investors should make their own choice depending on individual circumstances.

Once again "Hats Off" to all the Avesco team.

Deals with the big boys take longer and are often less lucrative than you think

Copied and pasted from the OptiBiotix thread. A few thoughts about this start-up company.

Why is it taking so long for OptiBiotix to strike a deal with a multi-national?

In a way, Nanoco's "exclusive" deal with Dow Chemical is a excellent reference point. When the deal was announced, it was too much excitement and the SP duly shot up on general euphoria. However, the share price has since come back to earth with a bump and the "exclusive" deal is now a "non-exclusive" deal.

This line from Nanoco's August trading update tells you a compelling story,

"The Company has received notification of its royalty payment from Dow for the quarter ended 30 June 2016 and, although modest, it is higher than the first royalty received earlier this year."

The big companies call the shots.

Think about OptiBiotix and the Slimbiome technology platform for instance.

Let's say that Opti want a licensing deal with a multi-national. The multi-national will feel it is taking all the risk. Why should the multi-national do all the marketing? i.e. convince consumers that the products are safe and indeed do what they say on the tin. It's not as if there aren't thousands of dietary products or (so-called) cholesterol busting products already out there. They might like the technology but they're not going to spend multi-millions in marketing and offer Opti a big slice of the pie. Why would they? There's already plenty of diet shakes and bars out there already, and there will be plenty of rival technologies.

That's why I believe that they've cut a deal with the Healthy Weight Loss Company for GoFigure, and taken a 51% stake. A small company where OptiBiotix will be stumping up cash for marketing but taking a bigger share of any revenues.

Howvever, if you google diet bars and shakes I'll bet you'll get literally thousands of pages. See if you can locate GoFigure? Marketing spend will be horrendous to get even decent sales in an overcrowded market.

They are not providing a must have technology. In fact, a Mediterranean diet will be far healthier in the long run, far tastier and a fraction of the cost. Indeed a healthy Mediterranean diet is better than statins for reducing cholesterol.

In short, you can apply the same principles to all their technology platforms. They are not "must have" technologies, and hence if they are trying to cut deals with multi-nationals then the multi-nationals will be playing hard-ball and that's why it's taking so long.

If any deals do crop up then the devil will be in the detail. Don't get overly exuberant and expect lots more cash raisings in the months and years to come before they (if they ever do) reach meaningful revenues (never mind cashflows or profits). A £50m market cap. is too large a valuation at this point in my opinion.

Avesco - massive upside potential

Following Friday's late news from Avesco i.e. the sale of Presteigne for £5m cash, I've done a quick bit of maths this morning to try and find a fair valuation for the newly streamlined business going forward.

Last year the figures were as follows:-
Creative Technology made a operating profit of £8,699,000 whilst Presteigne made an operating loss of £3,279,000.

Stripping out the operating loss but keeping finance costs, a small loss at mclcreate and the tax expense the same, it gives us a picture of possible earnings for the streamlined group going forward.

Without Presteigne then operating profits for the group would have been £5,633,000 or 30p per share putting the group on a p/e ratio of 10 (2015 figures).

The trading profit would have been even better at £6,776,000 (that includes all of the above deductions) or 36p per share (p/e ratio 8.75).

Given that CT is growing rapidly, and finance costs should be substantially reduced then a p/e ratio between 15-20 is fair imo.

On last year's figures alone that gives fair value of £4.50-£6.00 for operating profits or £5.40-£7.20 working with trading profits.

A further favourable factor includes exchange rate gains (a big slice of CT's profits are generated in the US).

Remember that these figures are based on last year's results and CT is a growth company, and hence I think it's reasonable to assume that results will continue to improve significantly.

Clearly there is massive potential upside in the share price which ever way you look at it.

p.s. A key driver will also be their ability to sustain their progressive dividend policy, and based upon the above projections this is pretty much assured. They clearly have the cash to pay special dividends as well if they so choose.

Now I've had chance to look back at the figures, I'd be very disappointed if a sale of the whole group was eventually made for anything less than £8+.

7Digital update

7Digital released their half-year results yesterday, and it was a bit of a mixed bag really. Here's what I had to say back in May though first of all:-

http://michae1mouse.blogspot.co.uk/2016/05/welliam.html

Let's start with the bad news.

Guvera, a client of 7Digital's is a company struggling for survival. Sadly 7Digital have had to write off a debt of £733,000 owed to the company by Guvera.

Adjusted reported losses have increased with a LBITDA of £2.8m (H1 2015: £1.3m).

Revenues have risen only slightly to £5.2m (H1 2015: £5.1m).

Slower revenue growth than expected in the first half overall will result in a larger loss this year than they had anticipated.

However, there is plenty to be optimistic about and it will be interesting to see how the rest of the year develops.

In my last report I mentioned that cash-burn has been high, encouragingly though they do appear to be bringing cash-burn under far greater control. However, I wouldn't totally rule out a cash raise in the near term, although I believe (if it happens) that it would (hopefully) be for a modest amount as they grow towards profitability.

Indeed it is encouraging to hear that they are still re-iterating their goal of reaching EBITDA positive in the last quarter of this year, and predict 2017 will be profitable as a whole for the company.

Of course shareholders have to hope that this is realistic and not just wishful thinking on management's part.

They have stated that the sales pipeline for the second half of the year is strong with a number of significant contracts in the final stages of negotiation.

Hopefully then the next few months will bring news of further contract wins to add to recent announcements including yesterday's contract win with GranPad.

Overall, I'm cautiously optimistic that as a medium to long term investment then the potential returns could be significant. However, whilst 7Digital remains loss making and cash burning then clearly risks remain.

It should be mentioned that the quality of the client base is improving significantly e.g. "The Company signed a contract with Cdiscount, the leading e-commerce retailer in France, which will see the launch of a new streamed music service next week. Cdiscount generated profits last year of €1.765bn on a turnover of €2.741bn and enjoys a 34.4% total share of e-commerce in France (source: GfK)."  Hopefully, with these types of contract it means that they should eventually create a firm foundation of reliable recurring revenues.

The share price dipped on release of the results and the company is currently valued at around £6.2m.

As mentioned in my previous report, there are risks involved with an investment here. However, if they do get somewhere close to break-even by December this year, and are profitable in 2017 then things could get very interesting indeed.

Should I be FUMing at missing out? Why is everything rising so quickly?

Why did Intelligent Energy's (IEH) share price rise by more than 100% at one point today?

As far as I can see they haven't released any news. Surely they need to make a statement to the markets?

Either investors are acting on insider information or markets are being swamped by reckless day traders?

Neither scenario is particularly palatable, but I suspect it's just part of a worrying trend in recent days - the rise of the day trader.

I say worrying because in my experience it's often a forerunner to a market top. All I need now is for my local Butcher to give me some share tips and I'll know for sure.

Two further recent examples where share prices went bananas in a single day include Mobile Streams(MOS) and Futura Medical (FUM). Admittedly you can point to news stories which provided a catalyst to the share price rises, but  MOS rose more than 200% and FUM more than 100% in a single day.

I'll briefly comment on FUM which I know a little about, and indeed I had the company on my monitor. Perhaps I'm just a little envious that I never got around to buying shares in the company even as I watched them drop below 20p. I think I must have written FUM off as a serial disappointer and cash guzzler?

After the last few days and following on from the news release regarding their gel which apparently gets you off the blocks quicker than Usain Bolt (DYOR), I had a quick look back at their previous results.

I think I can quite easily justify to myself why I never bought the shares.

Take a look for yourselves, but by my reckoning they're already pretty much out of cash? Last year they burnt through around £5m and had about £4m remaining. Bearing in mind we're into the 9th month of their financial year, they must be down to their last £1m-£2m?

Luckily for them, and just a few days before their half-year results are released, MED2002 put some lead into their pencil which in turn should help with another raising. A dilutive fundraising will inevitably be announced in the next few weeks (if not next week).

Both MOS and FUM may prove to be multi-baggers, who knows? However, I'm happy to miss out on these two, and I'll watch their progress from the sidelines.

Good luck if you are a holder of the three companies mentioned though.

Updates - Avesco and Stilo

Two quick updates.

I've held shares in Avesco since 2009, and I've been extremely pleased with the progress that this company has made in the intervening years. If you're looking for frequent news stories from the company then you're going to be disappointed. This is the type of company that I love. It just gets on with the job. It's a growing company that is cash generative and pays a good dividend. It operates a progressive dividend policy.

Avesco is a company that benefits from large events, and they don't come much larger than the Olympics. I was a little apprehensive this year since it's been apparent from various media outlets that the budget for the Rio Olympics was significantly less than for London 2012. Would this affect Avesco's earnings?

I needn't have worried. The company released a RNS this afternoon stating that trading is comfortably ahead of market expectations for the full year:-

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/AVS/12951319.html

Even after today's 13% rise in the share price, previous broker forecasts were for around 22p and 23p in 2016 and 2017 putting the forecast p/e ratios at around 12 and 11  respectively. Given that tangible NAV is around 230p (and almost certain to rise), net debt is very low following the sale of Fountain Studios and broker upgrades will follow, the shares still look very cheap to me. The World Athletics Championships to held in London in 2017 should also provide a nice boost to earnings.

Stilo International is a relatively new holding for me. See my two previous blogs:-

http://michae1mouse.blogspot.co.uk/2016/06/stilo-international.html

http://michae1mouse.blogspot.co.uk/2016/07/stilo-update.html

Stilo released their interim results today, and although I correctly predicted in my more recent blog that the results this year wouldn't "blow the bloody doors off", they have shown further progress.

Sales revenues and EBITDA were up 11%, but perhaps more significantly cash was up 30% and the interim dividend increased by 33%. This is the second significant increase in the dividend following a 33% hike last year. It's more often than not a sign of confidence in the future.

Results for the full year are expected to be in line with management expectations, and my guesstimate would be earnings around 0.30p-0.35p putting the shares on a p/e ratio in the low 20s with three months of the current year to go.

The exciting part for me is 2017 and beyond. If sales of OmniMark and Migrate show some steady growth or even remain consistent, and AuthorBridge begins to make a more significant contribution to revenues then with 99% gross margins the extra revenues will pretty much drop through to the bottom line. Costs are kept tightly under control and the company is debt free. It's worth bearing in mind that every £120,000 profit adds 0.1p to earnings. Profit for the full year in 2015 was £309,000 for earnings of 0.28p. A relatively modest lift in earnings will see the p/e ratio fall quite dramatically.

Whilst waiting for AuthorBridge  to (hopefully) accelerate Stilo's growth trajectory, Stilo appears to be a relatively low risk profitable, cash generative, debt free, (progressive) dividend payer operating in a niche area.

p.s. IBM was indeed the prestigious client that is using AuthorBridge. (see previous blog).

"Its initial deployment in production at IBM, following extensive co-operation and testing by the central Information Developer Tools team, serves as a good foundation upon which we can build."

Lulu and other mysteries

There are many unsolved mysteries that may endure for decades e.g. the Bermuda Triangle, the Marie Celeste, Jeremy Corbyn, why Lulu looks younger now than in the 60s and why BooHoo.com has a forward p/e ratio of 50 dropping to 45 in 2018?

Forecast EPS growth at BooHoo is impressive at around 39% this year, falling to 20% the year after, but why the heady forward p/e ratios of 50 and 45? Is it because everybody thinks it's the next ASOS?

In Peter Lynch's book "One Up On Wall Street" there's a wonderful section entitled "Beware the next something". It really is a must read.

Now I'll admit that I haven't looked at this stock in detail and it's possible that I'm missing something obvious, but unless a company is a tiddler then often the p/e ratio is a simple and excellent indicator of whether or not a stock is currently overpriced.

BooHoo's average EPS growth for the next two years is around 30. Even at a heady p/e of 30 for 2018, the eps figure of 1.85p would suggest a share price of around 56p (currently 80p). Good luck if you're invested here, but to reach a share price of 100p (i.e. 25% appreciation) then the February 2018 p/e ratio would need to reach 54.

Personally, I think Lulu is more likely to start looking her age sooner than BooHoo catches up with its heady rating.

(The Internet of) Things often take far longer to mature than you'd expect

I don't suppose I make myself very popular when I make negative comments about a company's prospects. Notice the understatement!!

I don't do it very often, although this week has been an exception. I've no interest in going short for very many reasons. One of those reasons is that I've found going long on a stock and holding onto that stock until the story changes for the worse (if indeed it does) is far more profitable and a much safer option.

I'd like to think that in general when selecting companies for investment I'll work through the financials then apply some common sense assessing the business model, and the likelihood of success. It also helps you to avoid companies that are likely to get into distress or flatline. I have to say at this point that I don't always follow my own advice, and have been known to take a complete punt.

However, one company I did avoid investing in despite the so-called "sexy" area it's working in is Lightwaverf which is involved in the IoT market.

Since I first commented on the stock back in October 2015:-

http://uk.advfn.com/forum/search?q=michaelmouse&post_poster=on&post_post=on&index=posts&thread_id=32612016&offset=30

The stock has fallen from around the 26p/27p mark to its current 15p.

Some of my comments were a little flippant and designed to be amusing, but this one now appears to have been highly pertinent:-

http://uk.advfn.com/cmn/fbb/thread.php3?id=32612016&from=2593

"Will I ever buy shares in this company? Well never say never, but not at the moment. The reasons I've listed are good enough for me to avoid this one in the short to medium term, but my bigger concern is longer term.

I might be totally wrong but I think that this market will take considerably longer to develop than many think by which time the competition will be intense.

I would imagine that the best chances of success are selling their products to companies that will install them in new builds - both offices and new homes. However, (and I more than happy to be corrected here) it appears that they are trying to get retailers to sell them to homeowners e.g. through Maplin stores etc.

The majority of homeowners are undoubtedly aged 35+ and the majority of those are probably older. The demand for devices that remotely control your heating, lighting etc through an APP will be low for some years to come since the age group most likely to need them is the least tech savvy or interested.

In ten/fifteen/twenty years then it may be a different story as today's tech savvy cash poor youngsters eventually get onto the housing ladder, but as I stated that's a considerable time to wait.

Now I may not fully understand their business model or the full range of products they offer, but if I don't then sadly there are a large proportion of people in the same boat. Judging by this line in their finals, "Although we continue to remain alert to how we pursue our strategy in detail", neither do their management team. The sentence is total and utter gobbledygook, and illustrates that their strategy lacks any clarity."

A report in today's Telegraph suggests that my caution seems well placed:-

http://www.telegraph.co.uk/technology/2016/08/27/internet-of-things-struggles-as-use-of-smart-home-gadgets-flatli/

"The figures suggest that such connected home gadgets, which allow their owners to control their lighting without leaving the sofa or turn on the heating as they come home, are failing to resonate with consumers."

“Some of them aren’t resonating well because they offer too little,” he said. “The ability to micromanage the temperature in your house doesn’t appeal to the mainstream, and the savings aren’t significant enough to upgrade.”

In my experience, it's very easy to underestimate the amount of time it will take for a "new" market to develop. If you do buy shares in a company in these "new and sexy" areas then expect to wait many years for a decent return on your investment. Think dot-com boom. These type of stocks fly up on hype and hope, and then come crashing back down to earth when reality sinks in.

As ever though, this is a personal blog and I don't offer buy or sell advice.  It's simply a record of my experiences.

OptiBiotix say one thing, so why does a sharetipster claim another?

My last two blogs are linked, and this is the final one in the trilogy.

I did post this on ADVFN, but a vile lunatic seems intent on following me around and trying to trash the thread. Sadly, these days it's not unusual for the ADVFN site. I would simply ban this madman from the thread if I paid for their services, but since I haven't and have no intention of doing so, I can neither moderate or ban him and have therefore opted to post below.

Those of you who have read my previous two blogs will no doubt see the link with the following:-

In July, OptiBiotix issued a RNS stating a change in strategy. The CEO said the following:-

"I believe that OptiBiotix's diversity of both IP and Commercial relationships offers shareholders ‎multiple opportunities where future value to shareholders may be best realised by spinning out domain specific opportunities where we as a Board believe the individual parts may be properly resourced and valued."

Now it's not difficult to compare that statement with yesterday's clear change in tone:-

"As these divisions grow in substance and start making a significant contribution to group earnings we will consider forming new legal entities with the potential for a separate public listing."

So the first RNS hints at spinning out the divisions and then raising extra cash to fund each entity.

Yesterday's statement clearly indicates that they have received no support for this idea, and can only consider it IF the individual parts can eventually make a profit in their own right.

Note:- "significant contribution to group earnings" before considering a spin-off. Since the group is barely producing any revenues, let alone earnings, then one can assume that the spin-off idea is a considerable time away.

You don't need to be Einstein to work it out. It's in black and white in the company's own words.

Why then (from the main thread) does Billy Liar say the following:-

"So all in all it is very good, but not absolutely brilliant. Not enough to drive an immediate one day re-rate. What is needed for that:

1. A demerger. We were hoping for hard news on that today. We now expect it in either this coming SEPTEMBER or early OCTOBER. That could drive a MAJOR RE-RATE."

So despite the company stating quite clearly in yesterday's report that each division would need to turn a profit first, Pinnochio thinks that news of a de-merger could happen as early as next week? Is he referrring to the same company that reported revenues of just £88,000 and a whopping loss yesterday?

He also says:-

"Cash will be boosted in H2 by a) more sales and b) the exercise of the last warrants from before the RTO that created Optibitix which must all be exercised by January 17 2017. But there is clearly " NO " funding concern, at all."

Who's he trying to kid? Bloody hell, the company had a cash outflow of £900,000 in H1 from operations. Administrative expenses are up considerably (£300,000). The small contribution that they get from revenues will be totally negated by increasing expenditure and I'd estimate full year cash consumption from operations will be around £2m. Further funding is almost inevitable at some point if they intend to exploit their "opportunity". About 12/18 months I'd guess.

Finally, just to clarify. I've nothing against OptiBiotix. I'm not short of the stock. The share price could go up or down in the next few months. I just happen to think it's a "jam tomorrow" stock that is currently overvalued.

My key point is that I can't stand the duplicitous fraudsters that often talk these companies up for their own gain. See:-

http://michae1mouse.blogspot.co.uk/2016/08/free-shares-guv-thatll-do-nicely.html

They'll quite happily talk shares up or down to line their own pockets by any means possible.

They need exposing.

I've done my bit, and I'll leave it there for a while.

I don't normally issue advice on this blog, I'll make an exception this time.

Don't sign up to share tipping sites. If you can't make share purchase decisions yourself using your own research then buy a tracker fund. It's safer, and you won't be throwing money to these duplicitious shysters.

OptiBiotix - A trillion pound market opportunity!!!!!

I've written two blogs today. I'll let you make the connections and fill in the blanks between them both.

OptiBiotix listed on Aim in 2014 at a share price of 8p and has spectacularly risen to today's 70p and a heady £55m market cap. Wow!!! A multi-bagger in no time at all.

So what transformational deals have produced this stellar re-evaluation since the initial listing? Ummm...........now that's a tough one.

Certainly OptiBiotix has been given heavy exposure and promotion by individuals with vested interests, but let's look at the facts.

Interim results were released today.

Revenue £88,000.
Loss £615,000
NTAV £4m
Cash £3.6m
Operating cash outflow £900,000

Oh dear! Cash outflow is going to be about £2m this year, and this will clearly ramp up, as costs for R&D etc accelerate. A cash call will surely follow in 12/18 months time, since revenues will be wholly inadequate for the foreseeable future in my opinion.

The market cap. clearly can't be justified on fundamentals. On fundamentals,  a share price of 8p is about right.

Ok, I've been terribly negative here. What does the company actually do? Well, in short it does the following:-

"OptiBiotix has established a pipeline of microbiome modulators that can impact on lipid and cholesterol management, energy harvest and appetite suppression."

Now I've no idea if this is an area that will eventually be successful or not, and for that reason alone I wouldn't be tempted to pay the huge premium on the shares at the moment. Secondly, if this is indeed a massive growth area then the competition will be very fierce.

I've already stated many reasons to be cautious here on my Advfn thread:-

http://uk.advfn.com/cmn/fbb/thread.php3?id=35291865

If you look at the CEO speaking today and on other occasions, each time he is asked about progress he refers to the IP and the share price. Not once does he ever refer to the timings for significant revenue generation or profits. I'd suggest these are years away yet.

Other warning signs for me are that the Chairman has just stepped down, a plan to break the company into 4 separate divisions has been shelved (less than two months after declaring that this was their intention), and ludicrous statements about trillion dollar markets when they've recorded just £88,000 in revenues.

Finally, would I be interested in consuming a product that claimed to suppress my appetite? The answer is a categorical no. Firstly, the market for dietary products is overcrowded and unnecessary. Eat healthily and encourage healthy eating habits. Anybody who has ever used these products will tell you that as soon as they stop using them then they return to their bad eating habits and put any weight they lost back on again in no time at all. In short, they just don't work. Personally, I'd be very wary of consuming something claiming to suppress my appetite.

Anyway, if you are a shareholder then good luck, perhaps I've got it wrong and a huge deal will appear out of the blue.

For the time being, shareholders may need to rely on share promoters to try and keep the share price propped up. A sceptic might suggest that some of these enthusiasts had been given "free shares". I couldn't possibly comment.

Free shares guv that'll do nicely!

I'm incredulous, no actually I'm not. In fact I'm not surprised at all.

It's been brought to my attention that a certain dubious character and the organisation that he works for has been reported to the FCA for perceived wrongdoing. A regular occurrence I'm led to believe. I couldn't possibly comment other than report the facts.

Apparently, the accused has issued some kind of rebuttal on his own website which is a laugh a minute. In fact when it was related to me, I couldn't actually believe that he thinks anyone in their right minds would take him seriously, but he clearly thinks people are so stupid that they'll believe his b*llsh*t.

To cut a long story short, the issue centres around this organisation being paid in company 'shares' for services rendered at their investor shows. For example, let's say company A wants a stand at an investor show but doesn't want to pay cash. The company can pay the equivalent and a bit more in shares apparently. Surely nothing wrong with that is there? Oh hang on, the company receiving the shares is a share tipping site. Now let me think about this. Ummm....It doesn't sound good does it. Seedy, unethical, ?illegal? probably doesn't cover it.

Free shares gov, that'll do nicely. Nudge, nudge, wink, wink.....report on your company coming up on our website.....ramp, ramp........know what I mean guv'nor.......gullible subscribers....nudge nudge......share price ramped up..........say no more ;)

Let's say I'm a share tipster that has just received payment in company A's shares for services rendered. What might I do in these circumstances?

a) Not write about the company.
b) Write a negative report about the company.
c) Ramp the company to high heaven, and try and exploit the opportunity for all it's worth.

Answers on a postcard please.

What is incredulous is that as a rebuttal, the following excuses are given:-

1) It's OK  to do this if they like the company in question.

Ummmm............?

2) In the past they've told investors to sell a company's shares whilst continuing to hold on to them themselves.

Eh.........? How does that work? Would you buy shares in a company and then write a article explaining why everyone else should sell them unless of course you were trying to buy some more on the cheap which is totally unacceptable. So it's either mindless stupidity or totally unethical?

3) The individual doesn't receive any personal reward from the receipt of the company shares, but his dependants do.

Oh that's ok then. My dependents have nothing to do with me. Oh hang on they're my dependents!!

You couldn't make this nonsense up. Sadly it's true. FCA get your act together!!!!

P.S. I won't name the individual or website, but in a recent blog I mentioned that they looked like they were peddling soft porn, at least now they've had the decency to remove it. Pure coincidence of course since they can't possibly read my blog ;).

If only it was always that easy......

I couldn't let the past two days trading in Avanti Communications go without further mention.

Please see Thursday's blog post:-

http://michae1mouse.blogspot.co.uk/2016/08/dont-try-this-at-home.html

Following another stellar 44 % rise in Avanti's share price on Friday, the shares have nearly doubled in two days.

If only short term trading was always that easy.

For reasons that I explained in my previous blog, following the FT article it was pretty much a one way bet.

The only possible fly in the ointment could have been Avanti denying any bid rumours. That was very unlikely to happen since they are currently conducting a strategic review, and it was no surprise to see them issue a statement on Friday (pm) to note the share price rise and neither confirm or deny the rumours. Why would they? The rising value of the equity is very much to their advantage.

If there were more one way bets like this then I'd consider short term trading far more often. As it is, I've always found my current style more profitable in the long run i.e. Seeking out value in micro-caps, building a reasonable position and patiently waiting for the company to grow and prosper. It's also less stressful and allows me to get out and about without being stuck in front of a screen all day. Anyway each to their own.

What next for Avanti? I don't know. I hope that the company can find a satisfactory solution to its debt issues since they have achieved a considerable amount, albeit more slowly than anticipated. Let's not forget that in the recent trading statement they said the following:-

"Avanti (AIM: AVN) a leading provider of satellite data communications services in Europe, the Middle East and Africa confirms that revenue for the financial year ("FY") ended 30^th June 2016 is expected to be approximately $83m.  This represents growth in core revenues year-on-year (excluding the spectrum sale in the prior year) of over 35%.  EBITDA is expected to be approximately $8m.

Avanti's commercial reputation for high service quality and product innovation is strong, enabling it to win high value contracts with prestigious telecoms companies.  In particular, the Group is leading the market in winning cellular backhaul business, and many opportunities are opening up around the EMEA region.  Contract wins in the fourth quarter were over $70m showing commercial traction is building."

It's not a bad company, it just took on too much debt and wasn't growing quickly enough.

Shame on those going short on the stock and trying to precipitate Avanti's decline for their own selfish purposes by destroying the value of the equity over a sustained period of time.

Anyway, anyone who lost money going long on the stock was given a wonderful opportunity to recoup some or all of their losses with the price action this week, and I hope Avanti do manage to reach a satisfactory arrangement where they can survive and prosper in the longer term.

Well done if you've taken profits and good luck if you've decided to hold on for more.

Don't try this at home!

Quick blog update re: Avanti  Communications.

Now regular readers will know that I'm a long term micro-cap investor by nature. It has served me well to date.

You will also have read my recent blog about my investment in Avanti Communications:-

http://michae1mouse.blogspot.co.uk/2016/07/avanti-communications-triumph-of-hope.html

Well today I acted out of character and did something I wouldn't normally consider.

In short I made a trade in Avanti. Yes I know.... after everything I have written about speculating!!!!!

However, let me explain and try and convince you that it wasn't as speculative as it may first appear.

Firstly, can I just say a big thank you to the poster on ADVFN who posted a link to the FT.

Most stuff posted on BBs is waffle and junk posted by those with a vested interest, similarly on dubious tip sites. However, links to respectable websites are often useful.

This particular FT link was suggesting that Avanti Communications had received an indicative offer of £1.40 from Inmarsat, although clearly it never materialised for whatever reasons. It also suggested that Avanti were in discussions with two other potential bidders.

Now I had a dilemma. Avanti had been a speculation for me, but I was convinced at the time that it's asset base and the considerable risk and difficulties encountered by launching satellites into space would enable the company to come good in the end. They were also beginning to gain traction in selling capacity to Blue Chip companies. Unfortunately, as is often the case, debt was Avanti's Achilles heel combined with a slower than anticipated take up of capacity on their satellites. The rest is history as they say. It's a shame because given more time Avanti could have been a excellent British start-up success story.

However, the bid story appeared plausible to me given the reasons I have expressed  above.

Since the share price was 27p, I took a calculated punt, and how I laughed as the price fell back instantly after I'd made the trade.

However, a brief moment of regret soon turned to joy as the price then began to soar. I took profits later in the day. Not a bad days work I'd venture. Making a quick buck through trading isn't usually my bag, but when you're familiar with a company and it's history, I have found that you get a feeling when a trade is possible. However seldom that may be in my case.

What now then? Well I'm wondering if I should have just stuck in there?

Technical factors may push Avanti much higher from here even if a bid doesn't materialise in the next few days. I may even be back for further trades.

Undoubtedly shorters will be having a sleepless night and palpitations. Imagine a bid coming in at £1.40+. Short covering will possibly be rampant tomorrow, particularly since I gather that a certain tipster has suddenly recommended that his lemmings (sorry followers) close their shorts in Avanti. What happened to his carrion cry of this one's going to zero? Mind you, if you follow third rate websites with dubious and equally third rate tipsters then you get what you deserve.

I won't mention the website, but you'll know the one I mean, there's lots of puerile swearing and given the captions you might think that you've landed on a soft porn site. God knows what you receive if you register with them? Anyway, I suppose it knows it's audience.

Tomorrow should be interesting, and remember this is a one off for me and don't try this at home!

Stilo update

mudbath - It could indeed be a bullish indicator, although it may be neither a bullish or bearish indicator and simply a practical solution to a company that generates most of it's revenues outside the UK. Just 2% of revenues came from the UK in 2015 whilst 67% were generated from North America and 14% from Asia.

What might be construed as bullish from yesterday's announcement is that they expect to release results for the 6 months ending 30th June on 1st September.

A quick look through the records indicates that this will be their earliest release of results in the last few years. At best they have released in the second week of September and often towards the end.

In all my time investing, I've rarely, if ever, known a company keen to rush out poor results and prospects going forward. Usually the opposite in fact.

Also with a high percentage of revenues in dollars, surely that will provide a further boost to earnings?

I'm not expecting this year's results to "blow the bloody doors off", but I'm optimistic that we will see a decent improvement and with Author Bridge contributing more significantly in future years (from 2017) then things could get exciting. Fingers crossed anyway.

Angle - Full year results

Angle plc is a long standing holding of mine:-

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

I have written several blogs since buying the shares at around 27p in 2012 (see above).

Angle released their full year results this morning, and I am very encouraged with the approach and progress they have made towards commercialisation of their Parsortix liquid biopsy device.

I commented on ADVFN this morning:-

http://uk.advfn.com/cmn/fbb/thread.php3?id=34862319&from=2819

Post 2829

"The report reads very well and I am more than happy to wait patiently as developments continue, particularly now revenues are beginning to build. £361,000 of revenues since first sales in December which is marginally ahead of forecasts.

The strategy that they have pursued is now beginning to pay off in spades, and there are strong signs that they are going to be a market leader in a very large and developing market place. The portability of the Parsortix device is clearly a key differentiator, alongside the ability to harvest the cells and the high specifity and sensitivity.

It's also telling that research centres are finding additional uses for the device at their own cost.

Holding tightly."

Interestingly, even though revenues are in their infancy, it should be noted that gross margins are high. First sales of £361,000 produced gross profits of £254,000. In other words a margin of 70%. Wonderful.

As revenues improve going forward then these large gross margins may see profitability sooner than anticipated. £10m (at the current margin) would produce £7m in gross profit. Operating expenses were around £5.5m which would generate a £1.5m profit.

The research market is estimated to be worth £250m alone. £10m in revenues would be just 4% of this market. The clinical market is far larger of course. £300m just for Ovarian cancer.

Whilst I would anticipate that operating expenses will increase as the current trials take place (Ovarian cancer trials have been initiated in the US and Europe), the percentage rise in sales should  outstrip the increases in costs in the not too distant future.

Of course my calculations are very simplistic, but quite frankly that usually gives me enough idea of how future earnings will pan out. Sometimes it takes longer than expected, at other times it's sooner.

The key point is that the device is gaining very favourable reports by key opinion leaders and this will drive sales forward at a pace. Gross margins are and will continue to be excellent.

Angle plc won't even need to gain a large percentage of the research or clinical markets to be a very profitable and cash generative company.

The company is also currently well funded.

As the weeks, months and years pass by I am getting more and more confident of my holding here.

Avanti Communications - "The triumph of hope over experience"

When I started this blog, I did say that it would be a warts and all blog. DCD media was one such blemish, and I can now safely add Avanti Communications to my ignominious pile.

I bought shares in Avanti Communications in 2012 for £2.60. Thankfully not too many, as I explained below:-

http://michae1mouse.blogspot.co.uk/2012/10/speculate-to-accumulate.html

Reading that blog again today did bring a wry smile to my face, particularly this bit :-

However, on the flip side there are probably a thousand and one things that could still upset the applecart, hence until there are visible significant revenues, cash flow and profits it remains highly speculative. Brokers quote anything from £6-£20 a share as possible in the medium term (which probably tells you everything you need to know i.e. just pick any number out the air?).

Since 2012 the share price has pretty much been in terminal decline, although remarkably there were two occasions where I was briefly in profit, although coming back to my purchase and blog post, my speculation probably serves to illustrate

"The triumph of hope over experience"

Note to self. Don't deviate away from sensible investment criteria. I usually stick to micro-caps which generate revenues, profits, carry little if any debt and have solid balance sheets. What was I thinking?
Avanti could boast growing revenues, but that was about it. It wasn't even a micro-cap, aaargh!

Anyway, today's trading statement and funding requirement was the final straw, and I have cut my losses. I did get a bit of luck in selling for just over 39p, given that as we speak the share price is currently 23.5p to sell. Nevertheless, a substantial loss on my original investment.

On a more positive note, the losers often teach you far more than the winners (as with DCD Media).  I always review my other holdings following bad news and I am more than comfortable with all of them at present, chiefly because they adhere to my strict criteria. Furthermore, since I recognised that Avanti was a speculation, my original outlay and hence subsequent losses were negligible when set against my overall portfolio.

Finally, I feel that I ought to mention a company called Optibiotix.  I set up a thread on Advfn which expresses my negative views re: the investment case for the company. I don't really have a vested interest one way or another in the company, but I have allowed myself to get drawn in to trading insults with some rather unpleasant individuals who are no doubt currently leaping up and down with joy following Avanti's trading statement. It reflects badly on me as well as them. Would I behave like like outside the virtual world. No. Shame on them and shame on me.

Bad Karma with Avanti?  No just a crap investment decision on my part.

I will simply say the following, and then leave it at that. Optibiotix is a speculation, and not a company I could invest in, even more so now. It is already valued at over £60m, but doesn't generate any significant revenues. The balance sheet is ok, but doesn't justify a market cap. anywhere near £60m. Profits will be years away yet, and I expect further fundraisings will follow. That said, sometimes speculations pay off. However, returning to my heading, more often than not, money thrown at companies like Avanti, Opti, Moni, Nano, IOF etc is "The triumph of hope over experience".

Good luck.

Volatile times

r1singson - As I'm sure you're well aware, markets are jittery at the moment and Trakm8 is an illiquid stock, expect volatile moves in the share price.

I'd never offer advice because everyone has their own unique set of circumstances.

Personally, I was a very early buyer of Trakm8 shares and I'm more than happy to keep holding for the foreseeable future. The trading statement was issued at the end of April and made for excellent reading. We know revenues and earnings were in line with expectations for the year end March 2016, and that the outlook for the new financial year is encouraging with strong revenue visibility reflecting the strength of their business model. This confidence is underpinned by a maiden 2p dividend. At today's closing price of 191p the current p/e ratio is around 16, and next year's forecast p/e is 11. Hardly expensive for a high growth stock.

As ever, I'll just ignore the noise and volatility and look forward to my dividend payout which represents an approx. 11% return on my original investment and I'm hoping that they may adopt a progressive dividend policy.

Good luck to short term traders, but it's buy and hold for me every time.

Stilo International

Stilo International is a company that I have bought shares in over the past year or so, buying at prices between 3p-5p. It's a micro-cap which is making excellent progress and describes itself as follows:-

"The Company provides software tools and cloud services that help organisations create and process content in XML format, so that it can be more easily stored, managed, re-used, translated and published to multiple print and digital channels. "

It sounds a bit boring and niche to me, and exactly the sort of company I like.

The company has been listed for several years and hasn't really fulfilled it's promise yet. It appears to have been long forgotten by many investors.

However, all that appears to be changing.

In their last reported results, sales revenues had increased by 20% and operating profit leapt from £89,000 the previous year to £255,000. EPS doubled to 0.28p (on a fully diluted basis) leaving the shares on a p/e ratio of around 19 at the current share price of 5.5p.

This is another rare example of a profitable, cash generative and dividend paying Aim company which is under the radar of many investors.

Gross margins are massive at 99%. The company is growing revenues, profits, and cash generation. The current p/e of around 19 might look high, but given that increased revenues pretty much drop through to the bottom line then the p/e will fall quickly and Stilo will look very cheap. Add to the mix a progressive dividend policy (hiked by 33% last year), no debt and a very solid balance sheet and the company also looks low risk given it's size.

Stilo boasts three core technologies in OmniMark, Migrate and AuthorBridge. OmniMark is used in the development of Migrate, and both Migrate and OmniMark technologies are utilised in AuthorBridge, which results in very efficient integrated development and support activities.

It's the latter two which will drive growth in the company. Migrate sales improved by 61% in the year to December 2015. AuthorBridge is being rolled out this year and will start to make a significant contribution to revenues from 2017 onwards.

Their recent trading statement indicated that trading for 2016 is in line with management expectations, and they had this to say about AuthorBridge:-

"We continue to invest significantly in the ongoing development of AuthorBridge, our new cloud XML authoring tool. Following extensive testing by a very prestigious client, it is now scheduled to be deployed by them in full production in May 2016, representing a significant milestone for the Company."

It's highly likely that the very prestigious client is IBM.

Despite a Director sale on 10 June which I comment upon here:-

http://uk.advfn.com/cmn/fbb/thread.php3?id=25760470 (post 1503)

I believe that the company has excellent growth prospects with a short, medium or long term view, and with a solid balance sheet, no gearing and a progressive dividend policy, the share price should be well supported as investors await news on their progress.

Avesco - interims

A quick mention re: Avesco's interims this morning.

A little bit of a mixed bag with one or two negatives from the six months ending 31 March 2016, namely gross margins have reduced slightly (2%) due to pricing pressures and overall the trading profit is down from last year to £4.6m (from £5.5m in 2015). Mclcreate has had a disappointing half-year.

However, any negatives should be taken in the context of a group that has still produced an excellent trading profit with the main contribution coming from their CTUS operations. Revenues have increased by 11% to £77m (£66m in 2015) and the group remains highly cash generative.

Net assets now stand at 230p per share, and the sale of Fountain Studios has reduced net debt to just £3.5m. With the current share price at 217p this represents a 6% discount to net assets.

Importantly, as a show of confidence in the full year outcome, the interim dividend has once again been increased by 25% to 2.5p.

The sale of Fountain Studios means that reported profit is £10.3m or 54p per share. The underlying profit is flat on last year at 13p per share.

Avesco's current market cap. is £41m and cash on the balance sheet stood at £23m.

As a permanent Bull on this company, Avesco still looks ridiculously cheap to me.

The outlook statement for the full year looks good with Richard Murray stating:-

"With net debt now at historically low levels and the Rio 2016 Olympic Games to come over the summer, the outlook for the Group remains very positive."

I shall look forward to my interim dividend and the full year results.

The margin of safety remains high here, and as mentioned before, the group is always vulnerable to a opportunistic bid.

The one that didn't get away........

Here's a rule to follow. Always be prepared to break your own investing rules, although not too often perhaps. Some time ago I wrote a blog about why I tend to avoid investing in companies that have recently listed on the stock market. However, a fellow investor whose track record and investment reasoning I have found to be well worth listening to, brought my attention to a fairly new issue - Fishing Republic. With a healthy degree of scepticism, I carried out some research on the company, and liked what I saw.

Subsequently, I bought shares in the company for 17p in October 2015. As ever, I wasn't expecting fireworks in the first few months, particularly since the company is a fishing tackle retailer. Not very sexy really. What attracted me to the company was a solid balance sheet, a modest valuation and a low market cap.

In less than eight months, the shares have rocketed forward and at the end of today, they stood at 41.5p. If you'd have asked me at the time of buying into Fishing Republic which of my holdings is likely to more than double in the next year then this one wouldn't have been listed in my top five. In all the time that I've been investing, I've learnt to accept that this can often be the case though.

I'm certainly not complaining.

You'll notice that the FISH bulletin board is nice and quiet with one or two lone positive voices and probably a few more negative voices. No surprise there either.

Thanks to the poster Norbert Colon for bringing Fishing Republic to my attention.

LWRF - poor interims

I've been very sceptical about a company called Lightwave RF (LWRF) and expressed concerns on the ADVFN bulletin boards several times.

The company released dreadful interim results this morning I'm afraid. Revenues have fallen a whopping 47% to just £804,455 and an order book of just £750,000 is pretty poor when they're burning through cash like it's going out of fashion. They used more than £500,000 of recently raised funds in just six months, and the balance sheet is looking pretty ropey. Cash remaining on the balance sheet is just £119,000. Losses amounted to almost £400,000.

They've attributed a net book value of £600,000 to the group in a rather laughable attempt to suggest that the group is increasing in value when tangible assets have increasingly got worse. In fact if you strip out intangibles then the group is worthless with tnav of minus £316,719.

With losses likely to be heavy for the full year alongside significant cash burn then even at this lowly market cap. you'd need a huge leap of faith to invest in my opinion.

Clearly the IoT hasn't quite arrived for this company yet. Now where did I put my mobile phone?

"In the short run........."

To quote Ben Graham:-

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

R4e is a company that I've mentioned before, and this morning they released their full year results.

In recent weeks, the share price has shot up with persistent buying from Gate Ventures plc, who now hold just over 18% of the company. Good luck to them I say. To be frank I can't see what the appeal is?

Let's take a look at today's finals.

Firstly, they report in the headline figures a profit before tax of £4.5m. Ignore this totally. This profit comes from writing off a significant debt.

The headline figure is this:- "Underlying profitability for r4e (Adjusted EBITDA*) reduced by 31 per cent to £1.8 million (2014: £2.6 million)". Note that even this is adjusted EBITDA i.e. excluding impairment of goodwill and exceptional items. The true figure is actually a huge £4.3m operating loss.

I cannot see anything appealing about this company at all.

Even though they have recently undertaken a massively dilutive placing at 1p, the balance sheet looks awful. Cash is just £1.16m, net current assets of minus £6m, and tnav of minus £7.1m. Debt whilst more manageable is still a hefty £6.7m.

In summary, it's a company with a horrible looking balance sheet making losses and burning through cash (it burnt through £855,000 last year) with just £1.16m in cash remaining. Gross margins are around 24%. Hardly mouth watering.

The company claims to be the leader in it's field. Well good luck with that.

Can investors seek solace in 2016:-

"The platform for 2016 has been established"

"2015 marks a significant milestone for the Group.  Cleared of the prohibitive debt facility from AIB, the business now has the ability to organically grow as well as invest and expand where the opportunities present themselves, particularly in exploring new geographies and pursing data-based marketing and other digital initiatives.  The management team is confident that the Group will be able to pursue these growth opportunities while maintaining and building upon its position as a theatre and entertainment market leader in the London and New York. "

Reading between the lines it looks like they are going to require a considerable amount of additional capital, and they're not going to fund expansion through their own cash generation.

The voting machine may be in full flow at the moment, but the company's a flyweight and I've got a feeling that it'll all end in tears again.

A speculative buy begininng to pay off........

Angle plc is a company I've held in my portfolio since the back-end of 2012 where I was picking up shares at around 27p a pop. This was a speculative investment which I mentioned in the blog below:-

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

I have written several times about my investment since the original blog, and I have so far been mightily impressed with their progress.

The big money for Angle will come from demonstrating the utility of it's liquid biopsy system Parsortix for clinical use in ovarian, breast and prostate cancer.

However, as mentioned back in December 2012, funding is always required for these types of companies as they progress towards meaningful cash generation and profitability.

Today the company announced a placing to raise just over £10m to further fund progress. This doesn't come as a surprise given the excellent results that they are achieving with Parsortix, and it was pleasing that the placing price of 64.5p per share wasn't discounted.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/AGL/12828416.html

Further news released this morning came in the announcement of a contract with Cancer Research UK.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/AGL/12828426.html

"ANGLE plc (AIM:AGL OTCQX:ANPCY), the specialist medtech company, is delighted to announce that it has signed a contract with The University of Manchester, acting in this instance, through the Cancer Research UK Manchester Institute which will allow incorporation of ANGLE's Parsortix system in the Clinical and Experimental Pharmacology group for routine use in clinical trials and for research purposes."

It appears that Angle's patient and sensible approach working alongside their key opinion leaders is now paying dividends, and all the evidence suggests that the Parsortix device will prove invaluable in the fight against cancer. For shareholders, I believe that patience will soon be realised as the focus of the company begins to slowly but surely shift towards revenue generation.

From today's announcement's:-

"Since 1 November 2015, the Company has continued to trade in line with Directors' expectations with revenues expected to be within the range of analysts' forecasts for the 12 months to 30 April 2016.  Together with the net proceeds of the Placing, the Company's cash resources on Admission will be approximately £13.1 million."

The speculative nature of my investment here continues to diminish with each RNS issued, and I am becoming quietly confident that the company will ultimately deliver on it's early promise. I remain a strong holder of my shares.

A football chant comes to mind

A trading statement from Ten Alps (TAL) brought a football chant to my mind yesterday. I'm not a holder of shares in TAL, never have been and never will be, but all I could think of was "Are you DCD Media in disguise, are you DCD Media in disguise etc."

Doesn't really roll off the tongue very easily perhaps, but regular readers will understand why I'd avoid Ten Alps like the plague following my experiences with DCD Media.

Both companies operate in virtually the same highly precarious sector. Neither company appears capable of making a profit. Both have undergone a name change, DCD Media was formerly Digital Classics and Ten Alps is soon to be Zinc Media. Their respective balance sheets are stuffed full of worthless goodwill and intangibles and they're both full of hot air and bluster when it comes to future predictions. You can rely on both companies to disappoint investors on a regular basis.

Let me illustrate. From the March interims, TAL's outlook statement was short, sharp and straight to the point:-

"The Company remains on track to generate a full year profit for the first time in a number of years and to continue momentum into the medium term."

Wow!!  Fill your boots boys and girls. A micro-cap company about to become profitable with momentum behind it. Sounds exciting and also suggests good visibility.

Two months later we have:-

"Whilst the Company does not yet have total visibility on its full year results, the Directors believe that the Company will fall materially behind market expectations for the year ending June 2016."

and

"These continued losses are likely to result in the Group not being profitable for the year as a whole, albeit the Directors do expect some improvement on the losses recorded in FY15."

I do like the phrase "not being profitable" though, so much more palatable than "making losses".

Anyway, enough said. "Are you DCD Media in disguise......."

Surveillance indicates ex-growth

Regular readers of my blog will remember that I have commented on the IP-CCTV company Indigovision several times. Most recently in 2013. After today's lack lustre trading statement

(http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/IND/12821676.html)

from the company it appears that nothing has changed. Here's a reminder of the blog written back in July 2013:-

http://michae1mouse.blogspot.co.uk/2013/07/indigovision-disappoints-again.html

I don't have much to add really, however over the years I have realised that when you invest in a company in a 'hot' market sector then you must remain vigilant. When warning signs appear that the company you have invested in has lost it's competitive advantage and it's momentum then cash in profits.

At the current share price, and given that Indigovision's current TNAV is above it's market capitalisation then I wouldn't rule out a bid for the company. Will it ever be a multi bagger again though? Very unlikely in my opinion.

Well.i.am

I've mentioned 7digital before on my blog since I inadvertently acquired shares in this company through an investment in UBC Media. 7digital reversed into UBC media in 2014. I have carefully watched the progress of 7digital since the reversal, and recently started increasing my holding in the company.

For an overview of what 7digital actually does and for an idea about the size of the opportunity that exists, I'd recommend watching the following interview with CEO Simon Cole:-

https://vimeo.com/152277844

Let's deal with the risks first. 7digital has been loss making to date and is likely to report further losses this year. Cash burn has also been an issue, and this year the company reported a cash outflow from operating activities of £4.7m (2014: outflow £6.3m). Cash on the balance sheet at the end of December was around £1.66m.

Clearly, unless cash burn is reducing significantly then the company will need to raise more cash otherwise they could be in trouble.

Why I have invested then? Several reasons.

I love the business model which seems to be gaining considerable traction and the company is anticipating that it will be generating profits by the end of this year. Monthly recurring revenues are growing strongly, as are gross margins which suggests that cash burn will rapidly reduce. If all goes to plan then in future years 7digital will be highly cash generative and visibility of earnings will be strong. Eventually, it could throw off cash for further investments and hopefully dividends.

Interestingly, the "going concern" statement does not hint at a further cash raise, although in my opinion it can't be discounted. However, either way, if the company can reach cash flow positive without a raise then that would be a superb achievement, but even if a raise is necessary then it's likely to be for a relatively small amount and would be seen as a positive since they have re-iterated  their belief that they will start to turn a profit at the end of this year. It's also worth remembering that 7digital is debt free.

7digital is currently valued at around £8.5m which could be a price anomaly caused be two recent events. IMG were a major share holder in 7digital. IMG's woes meant that they decided to offload their entire shareholding. This was followed closely by the departure of Ben Drury (founder of 7digital) who resigned to pursue other non-competitive opportunities. Drury was another large share holder. He also decided to offload his shareholding. Both these events caused a slump in the share price. The good news is that the shares have been taken up by Henderson and Miton Group.

Returning to the market opportunity for 7digital, it's worth noting that they are operating in an area where barriers to entry are high. From the annual report:-

"Our unmatched combination of market leading technology, broad music rights and deep industry relationships can create significant barriers to entry for others in the sector."

This week, news that one of their main competitors, Omnifone, has gone into administration gives 7digital a further fillip since it provides a real opportunity for them to become the dominant force in this exciting and growing market place.

Again from the finals:-

"Our pipeline is strong, with a healthy number of current customers looking to expand their activities and, as of the year end, discussions were underway with over 60 new prospects across a range of services and geographies."

Since then the recent trading statement has indicated that six of these have been converted already with a total value of £3.9m. On Thursday they also released details of a contract win with musical.ly and a further strengthening of their relationship with i.am+.

Finally, referring back to Simon Cole's interview, if they can capture even 30% of their market, estimated to be £0.25 billion in the next three years, with gross margins already approaching 70%, strong recurring revenues and a reasonably tight grip on expenditure then some simple mathematics will tell you just how massive the company could be. Of course you should always bear in mind that this is a new space that they are expanding into, and hence estimating the market opportunity is quite difficult. As ever, do your own research. Are you going to invest? Well.i.am.
 

Long term investing eventually pays dividends

I noticed I haven't posted since January so I thought I'd provide a brief update, although please read this http://www.michae1mouse.blogspot.co.uk/2016/01/the-last-post-well-not-quite-probably.html which explains why I'm no longer a regular blogger.

Firstly, a quick reminder to regular readers and any new readers why I started writing my blog. Simply put, it's an account of my personal experiences investing in (largely) micro-cap companies. I am not making recommendations with buy or sell advice and I'm certainly not paid to promote or discredit (ramp up or down) companies for the financial gain of myself or others.

Regular readers will know that I am a practitioner and advocate of a long term buy and hold strategy.

Without going into too much detail, I have largely found that by far my most profitable investments are in micro-caps that have many or all of the followings qualities:- A share price close to or below net tangible asset value, manageable debt (preferably very little), cash on the balance sheet, a growing revenue stream with clear future visibility (i.e. recurring revenues), profitable, cash flow positive and a strong client base. There are other criteria, but as you can see for yourself it's already quite an ask list and more often than not I have had to concede on more than one of these criteria. However, where I have deviated significantly I have often found to my cost that the investment has largely been disappointing.

Two notable successes that regular readers will be more than familiar with are Avesco and Trakm8.

Firstly, let's start with Avesco. I started buying Avesco shares back in 2009 between share prices of 20p-30p. At times, I sat on paper losses (unbelievably now), as the share price fluctuated within this range. However, the company stood at a colossal discount to it's quality assets and, although loss making at the time, it had cash on the balance sheet and the potential to generate plenty of cash. I continued to accumulate. The rest is history as they say. Avesco currently has a current share price of 213.5p. Needless to say, capital gains have been excellent to date, and I believe that there is far more to come. If anything, Avesco hits more of the criteria that I have detailed above now than at any time since I have owned the shares.

However, capital gains in Avesco are only part of the story.

When I bought shares in Avesco they had temporarily suspended the dividend, but as I suspected when the company began it's recovery, a progressive dividend policy was re-introduced. At present the dividend stands at 7p per annum. For me, that equates to an approximate 28% return each year on my original investment. Avesco also paid a huge £1.10 special dividend following it's successful litigation against Disney. All in all, including the special dividend my return in dividends alone is around 5 times my original investment.

Imagine my delight then this week when Trakm8 released a very positive trading statement including the unexpected bonus of them introducing a 2p dividend. I started accumulating Trakm8 shares back in 2011 at prices in the teens. Of course with the shares currently standing at 275p, the capital gains to date have been fantastic. The introduction of the dividend (hopefully progressive) is the icing on the cake. Whilst a 2p dividend represents around 1% in terms of the current share price, for me it represents a dividend of around 13% on my original investment.

Similarly, like Avesco, I expect Trakm8 still has plenty of growth to come in future years with a more than useful income stream to boot.

Trakm8's trading statement is extremely encouraging with revenues up 44%, like for like revenues up 28%, recurring revenues up 50%, and strong cash generation (as confirmed by a maiden dividend payment). Contract wins with  Iceland Foods, Kubota UK, the AA and BT Fleet are substantial, and I'm not sure that the market has woken up yet to the fact that the agreements with the AA and BT are transformational. These two heavyweight companies are resellers for Trakm8 products and solutions to their respectively huge client bases.

The great thing about Trakm8's business model is it's revenue visibility (i.e. the growing recurring revenues generated from devices reporting to their servers). This in turn continually enhances their strong cash flow year on year,

"Strong cash generation during the second half of the year resulted in year end net debt of GBP0.97m, being GBP1.3m better than expectations."

which in turn allows them to invest heavily in organic growth and through acquisition (all three recent acquisitions have bedded in nicely) and pursue a progressive dividend policy.

The outlook statement states,

"The full year benefit of the two acquisitions, recent contract wins, including the important new reseller contracts with the AA and BT Fleet, and the continuous increase in devices reporting to our servers means the Board expects another strong trading performance in the new financial year."

and John Watkins, Executive Chairman of Trakm8 commented:
"Trakm8 has continued to build on the momentum established over recent years based on strong organic growth supplemented by selective acquisitions. These acquisitions and our own significant investment has given the Group an unrivalled portfolio of in-house capabilities to take to market.

"The cash generative model of our business not only enables us to make considerable investments in capital assets, IP and acquisitions, but also now to join the list of AIM companies paying dividends.

"We are well positioned to build on the excellent platform that we have established and to capitalise on the outstanding current market opportunities."

Given all the above and a forward p/e for 2016/2017 of just 16, it's an investment I'm sticking with for the foreseeable future.