Fond memories - not really!

A brief blog post from me today. It's a company whose shares I don't hold, but have in the dim and distant past. Talking of dim, I remember taking a loss of 27% back in 2004. More positively and looking at the current share price that could have been a lucky escape? We'll see in the fullness of time.

The company in question is Coral products. If memory serves me correctly, I vaguely remember them producing CD casings? Do you remember CD's? Yep, that's why the share price went into freefall I think? Like most investors my memory becomes a little hazy when recalling the duff investments. Anyway, that was then and this is now. Perhaps Coral products is about to rise from the ashes? If they don't go under it's surprising how many companies rebuild and prosper. They can be the most lucrative purchases if you catch them near to their recovery path.

Anyway CRU released an encouraging trading update today and the shares are up 5% as I type.

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/CRU/13838153.html

Firstly, I should point out that they're still  a specialist in the design, manufacture and supply of injection moulded plastic products. So what are the all important figures?

The market cap is just over £8m, and the results to the end of April 2018 showed a loss of £370,000 on revenues around £23.5m, although the underlying operating profit was £879,000 with earnings per share of 0.84p. Net assets came in at £13.2m, but just over £7m of that is goodwill and intangibles.

The company does generate cash, but had just £471,000 in cash on the balance sheet against approximately £6m debt back in April. Gross margins are ok at around 35%.

In summary, it's not one that interests me too much at the present since I always compare the financial metrics, market cap and prospects against company shares I already hold, and at the moment I'd tend to add more to some existing holdings rather than add CRU.

However, others may beg to differ or wish to do far more research than I have.

Incidentally, on the subject of plastics, if you haven't read my post on Biome Technologies then you may wish to do so by clicking the link below:-

http://michae1mouse.blogspot.com/2018/09/buy-one-get-one-free-bogof.html

I hold.

twitter: @michae1mouse

One I hold and one I don't!

First of all, a very quick mention of a company I hold.

PCF group released a trading statement this morning which has been well received since trading is in-line with market expectations. The growth metrics are looking very good, and as I write the shares are up almost 6%.  Here's their statement:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/PCF/13836455.html

A recent earnings enhancing acquisition should also aid growth prospects going forward:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/PCF/13819226.html

A very neat summary of where they are at the moment and what they hope to achieve can be found in the Midas article below:-

https://www.thisismoney.co.uk/money/investing/article-6146579/MIDAS-SHARE-TIPS-invest-PCF-Group-bank-thats-horsebox-expert.html

I'll be holding for the long term because I like the growth prospects, particularly as they continue to improve operational gearing and I'm always happy with a progressive dividend policy. Although the dividend is modest at the moment, for long term holders this income source can become quite substantial over time.

One I don't hold is Croma Security Solutions (CSSG) who released their final results this morning.

I've managed to contrive to miss out on buying into this company on two separate occasions now, in the mid teens and then early twenties. That's the share price I'm referring to btw and not my age. The share price is over £1 now. Never mind! :-(

They released a great set of figures this morning with a 59% increase in revenues to £35.1m (2017: £22.1m), a  significant rise in EBITDA to £2.5m (2017: £0.80m), a massive increase in pre-tax profits to £1.98m and earnings per share to 9.89p (2017: 0.36m and 2.13p respectively) and paid and proposed dividends up to 1.6p (2017: 0.5p). 

An outstanding performance all round. 

The share price has risen a very modest 1% as I write, chiefly I suspect due to the fact that this stellar performance won't be repeated next year:-

https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B5MJV178GBGBXASX1.html

"In the current financial year, we can expect to replicate some but not all of the project income we received in FY 2018 due to some large exceptional projects that are unlikely to be repeated.  However, there has been a substantial increase in contracted income and this together with the expectation of some further project work make the Board confident of achieving a good result for the year, consistent with the underlying growth in the business. "

It's a great little business which is supported by a very solid balance sheet which boasts £2.2m in cash (up from £770,000 the previous year) and has next to zero debt. The current market cap. is a very modest £15m or thereabouts. In summary, many of the qualities that attract me to micro-caps.

CSSG is back on my watchlist, although even in my most optimistic mood I can't see the share price slipping back to the teens or twenties. Sadly, I can't envisage me revisiting my teens or twenties either except by way of a mid-life crisis?

I will be monitoring any opportunities very carefully though. 

As ever, this is just a personal blog and isn't an attempt to provide buy, sell or hold advice.

twitter: @michae1mouse

7digital - A journey from cash burn to cash generation?

I've mentioned a company called 7digital before. It's a company I hold shares in. Here's the company website to find out more about what they do:-

http://about.7digital.com/services

A quick look at the share price graph will indicate what a great performer it's been for me so far. Apologies for the sarcasm. It's been a company that has consistently pulled off great defeats from the very jaws of almost certain victory. So why am I still here? Well, it may have lost some short term battles (certainly in terms of share price performance), but I'm still hopeful they'll eventually win the war.

I like their business model and I believe that the services they provide and their vision for the near future could bear fruit.

In April 2017, 7digital acquired a company called 24-7 Entertainment which provided them with considerable scale, and left them as last man standing in Europe in their field. In fact they claim to be the world leader with their PaaS offering.

However, the acquisition has come at a cost in terms of consolidating it with 7digital's existing offering and cash burn has been high. Certainly far higher than I had anticipated. In December of last year (2017) they raised around £8.5m by way of a capital raising and open offer for working capital and consolidation costs. Just over six months later they've burnt through most of this, and have taken a further loan from two existing shareholders to see them through to cash flow positive and profitability.

Not great reading so far, and indeed a delay to publishing full year accounts for the year ending 2017 in the summer months did not help sentiment, although that turned out to be much ado about nothing in the end and results showed good progress.

Back to the question. Why am I still here?

I'm hoping that 7digital are now very close to the end of needing further financing. Indications have been that by the end of this month they should be close to completing the consolidation. Once consolidation is complete, they anticipate annual cost savings of £5m a year. With gross margins around the 70% mark, recurring revenues and huge cost savings, 7digital should easily move into profit and be cash flow positive in 2019 with revenues around £20m+. At a modest market cap. of  around £12.5m, and with high operational gearing then it's easy to envisage a massive uplift in the share price.

In my view, the next few weeks will be pivotal in establishing 7digital's long term credibility and I'd expect some investors to wait on the sidelines since it's been less than a smooth ride so far. However,  are good things just around the corner?

I hope so, and shall wait to hear of further developments. If 7digital does turn cash positive and profitable in 2019 without the need for much more funding and serious dilution then the shares will multi-bag without question. Of course, it is an IF at the moment.

As ever, the shares are illiquid and can move quickly either way. I'm not a tipping service, these are just my personal thoughts and not advice so DYOR thoroughly.

twitter: @michae1mouse

Is this a bear market or a market correction?

Wow it's a bit choppy out there at the moment!

Nasty share price falls across the board today. The big question is are we going through a market correction before the bull chases ahead again? Or is this a bear market? There's a clear distinction.

Market corrections are usually sharp and short. Short term pain is normally short-lived before share prices recover and more often than not move sharply ahead again. Bear markets are more painful, and often endure for between 1-2 years.

So which is it? Nobody knows yet. We'll have to wait and see.

If it's a bear market then I'd suggest that you carefully look at the company shares you own and ask yourself the following questions:-

Does the company make a profit?

Does the company have positive cashflow?

Is the company debt free?

Is the company's P/E ratio a sensible one? (Anything above 25 is quite racy)

Does the company pay a dividend which is well covered?

Is the market cap. no more than three times the TNAV?

If the answer to (let's say) two of those questions is yes then you might want to just see the bear out? Your company is unlikely to go bust because it's got a safety net (a margin of safety). A healthy dividend yield, solid earnings in relation to share price, a strong balance sheet etc. should eventually attract buyers and stop the shares going into freefall.

However, if the answer to all those questions is no then you may want to consider cashing in your profits or losses. You're holding a highly speculative company which carries no safety net, and consequently the share prices will fall more significantly than most. Momentum plays work both ways. Value becomes king! Raising cash in bear markets can be very difficult, and by implication if you've answered no to all the above then your company will very probably need either loans or a fund raise. Banks are not so keen to lend, and institutions want their pound of flesh and will only offer cash at huge discounts to prevailing share prices. Some speculative companies will inevitably go bust.

At this stage nobody can say for sure if this is a correction or a bear market, but it's a good time to assess just how financially secure the companies you've invested in are.

As ever, I don't give sell or buy recommendations. Please do your own research carefully.

twitter: @michae1mouse

There's no nonsense like bulletin board nonsense!

Don't you just love the total tripe that is often posted on bulletin boards. It's very entertaining, but should generally be disregarded apart from sensible financial commentary or the odd useful link.

If you read my blog on a regular basis then you'll know I'm not a fan of "story" stocks that have climbed to multi-million dollar valuations on the back of vast riches to come next year or perhaps the year after that or is it the year after that? Jam tomorrow companies. Let me say at this point I've occasionally invested in one or two in the past, but they rarely, if ever, turn out well. Why? Mainly because the figures just don't add up. Even if a company was the best thing since sliced bread, it doesn't make it a great investment if you pay too much for it. Let the financials be your guide to how much you should expect to pay. Read some books by the great investors such as Graham, Buffett, Lynch etc if you haven't already.

One story stock I'm not a fan of is OptiBiotix which I've written blog posts about before. Here's why I think it's a poor investment at it's current lofty market cap. My blog is written in response to an bulletin board avatar who said the following:-

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

"Has it really gone up on hot air or numerous agreements across the world which will go straight to the bottom line. Strong fundamentals. Last time you spouted your saviour rubbish we didn’t have this pharma deal in place and the price shot up to £1.30. They’ll be injecting up to $50m. Pretty big investment for hot air don’t you think?.

Great opportunity to buy many stocks during this time of volatility."

My response:-

Your post is factually incorrect. Firstly, you have no evidence that these agreements will generate significant revenues which will go straight to the bottom line. Last reported interim revenues were £80,000 about the same as the previous year. Yet when you look through the RNS statements there were "agreements" between May 2017 and May 2018 into the double digits. If these were significant revenue generators then at least three or four should have ramped up revenues for the six months ending May 2018? Even just one would surely have improved revenues?

Something doesn't stack up does it? As I said this morning these agreements should be RNS Reach since they clearly mean diddly squat in terms of generating revenues. If the six months ending November 2018 still shows poor results then you'll know for sure that nothing significant is coming anytime soon.

Secondly, Opti doesn't have strong fundamentals. If you strip out intangibles and it's SBTX investment (which incidentally is pretty worthless since nobody would make an offer at it's current market cap. ) then tangible net asset value is about £2m and that's after a £1.5m fund raise at 62p at the end of May. Full year revenues last year were short of £200,000 and interims this year were £80,000. Needless to say that Opti is loss making and burning cash. Opti is valued at around £70m. It's laughable. Those fundamentals might support a £4m market cap at best.

The share price movements are immaterial unless you're a trader. If you're a LTBH investor then it's the end game you're looking at. Opti's share price is now below 80p again, so what's your £1.30 point?

A pharma "injecting up to $50m". Really? Point me to the RNS please. Besides even if this were true (please provide evidence) then it could fail the first hurdle. In fact, if it fails any hurdle then that's going to have a huge detrimental effect on the validity of Opti's claims for this Science. Everything they have tried to promote may then be regarded as "quackery"? I bet the bulls haven't  even considered that eventuality. Pharma is a dangerous route to tread.

"Great opportunity to buy many stocks during this time of volatility."
On that we can agree, sadly Opti isn't one of them.

As ever dyor, these are just my thoughts and views and do not constitute buy or sell advice.

twitter: @michae1mouse

King Canute won't stop the Tide!

I do love a micro-cap company with a great growth story to tell, particularly where there is relatively little risk to your capital in the long term.

Here's a company that fits the criteria called Crimson Tide (Tide) and below you'll find a link to it's website:-

http://crimsontide.co.uk//company-description/

I'm a fan of this company and my investment is currently showing a 37% gain. It's another long term hold for me since it's best days are yet to come.

As you'd expect if you read my blog on a regular basis, TIDE is a profitable, cash generative company with an excellent balance sheet. It's market cap. stands at slightly below £13m.

It has a healthy £782,000 in cash on the balance sheet with zero debt. It's gross margins are a mouth watering 86%.

Crimson Tide released their interim results at the end of September showing revenue growth of 8%, but profit down to around £4000. At first glance it doesn't look impressive, but delve further into the company's history and you'll see a terrific growth story unfolding. The temporary dip in profits is purely down to a planned investment in sales and marketing, and a measured and sensible approach  to global expansion.

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TIDE/13807975.html

Barrie Whipp, Executive Chairman said the following:-

"Our pipeline has grown significantly and have seen additional demand from Europe and the Middle East as well as in the UK & Ireland. The Board estimates that, considering increased investment in Sales & Marketing, like for like profit would have increased by approximately 50%. We are working on a much wider range of exciting opportunities and have developed mpro5's IOT capabilities. mpro5 is now publicly downloadable from app stores for demonstration purposes and for smaller businesses. We are extremely well placed to take advantage of the opportunities generated from our marketing activities and the Board is excited to accelerate our growth to the next level. " 

If you want a company to grow strongly and succeed then they need to invest and TIDE's management have seen the opportunity and are to determined to capitalise on it. This is a very telling sentence from the interim report:-

"We currently have over 100 identified opportunities with potential clients, five times more than typical levels before these investments were made."

Whilst not obviously cheap at the moment, once growth kicks in from investments then with such juicy gross margins and a strong balance sheet I expect the share price of TIDE to make excellent progress in the years to come.

Finally, keep your eyes peeled for those large contract announcements with enterprise clients.

As ever, this is not a recommendation to buy or sell.

twitter: @michae1mouse.

 

Disappointing results - SAL, SAL, SAL?

It's always a jolt when a company issues unexpectedly disappointing results, particularly when there's been no prior warning. That's exactly what Space and People did last week which caught investors unawares.

I took a stake in Space and People (SAL) in a couple of tranches back in December 2016 when the company had been in the doldrums, and the share price was in the low 20s and mid teens. From my research I had anticipated a recovery and was duly pleased that a recovery in fortunes did indeed occur in 2017. The company returned to profit, good cash generation and the restoration of a dividend. In fact the dividend alone meant a nice 7% return on my investment. The shares shot up into the mid thirties and until last week I was sitting on a nice capital return.

However, the interims results disappointed and full year results are anticipated to be below market expectations. With the dividend included, I'm back to a mere 1% paper profit.

The shares retraced around 35% last week. It appears a little harsh to me, and I'm happy to sit tight and see how things pan out for the rest of the year and hope they get back on track again in 2019.

SAL is currently valued at £3.9m. Whilst results for the full year will disappoint, they do expect to report a profit of around £200,000 and they have a solid balance sheet with net cash around £510,000 and no debt. Whilst there was a cash outflow of £1.72m in the first six months, this is a seasonal business and they may still pay a small dividend, although I have assumed this from the following statement, "The group will generate a profit this year and it is the Board's intention to maintain our dividend policy." The all important Christmas period is yet to come so fingers crossed that they deliver on revised expectations.

All eyes on 2019 then where they make the bold statement:-

"We are confident that we can regain sales momentum for next year which combined with the costs savings already identified. Our 2019 forecasts being unchanged despite the lower than anticipated 2018 outturn."

If they do this then the shares will be the bargain that I originally hoped. Meanwhile, at SAL's lowly market cap. and with a solid balance sheet, the shares have little downside and plenty of bad news already priced in.

I do like what SAL offer as a company and I'm sure that in a tough retail environment then companies will need their services short, medium and long term. Here's their website and recent half-year results:-

http://www.spaceandpeople.co.uk/

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/13808000.html

Finally, George Watt (Non-Exec Chairman) bought around £20,000 of shares immediately following the interim results in a vote of confidence. I also notice that the share price has ticked up marginally today on a 145,000 share purchase (around £30,000) which I'd suspect may be another Director purchase, although this is speculation on my part.

As ever DYOR. I own shares in SAL and don't recommend buying or selling.

twitter: @michae1mouse