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.
