5 micro-caps that will 10 bag or more in 5 years or less

It's been a while since I last penned a blog post so here goes. It's a brief one and it's a bold one. The five micro-caps listed below will 10-bag or more in 5 years or less. I'm not going into too much detail about the companies themselves, you'll have to do your own research. Have I chosen multi-baggers before? Yes. Here's my most successful one:-

https://uk.advfn.com/cmn/fbb/thread.php3?id=20681152&from=1

Avesco. Went from around 20p to the final £6.50 take-over price with substantial dividends along the way.

Have I made mistakes? We all have, but experience makes you a far better stock picker and builds resilience. I'm very confident about these five micro-caps, as I was with Avesco.

For various reasons I've had a sabbatical from posting too much or talking about my holdings. I hold all 5 of these and won't be selling a single share until they've multiplied manifold times in value. Let's start.

1) Ixico (share price 69p, market cap. £32m) - Due to report on trading on Tuesday. 

"IXICO's data analytics services are used by the global biopharmaceutical industry to interpret data from brain scans and digital biosensors to enable better trial design, site qualification, patient selection and clinical outcomes. "

Strong growth. Excellent gross margins. Plenty of cash. Very strong order book. Minimally affected by Covid-19. No debt and strong balance sheet. Recent trading statement indicates £9.1m in revenues for full year 2020 and £0.9m EBITDA. Double digit revenue growth expected across 2021. You'll also feel good about owning this one when you read about the work they're doing.

2) Crimson Tide (share price 3.4p, market cap. £16m)

"Crimson Tide plc is the provider of the full service mobility platform mpro5 - #notjustanapp.  mpro5 is delivered on smartphones, tablets and PDAs, and enables organisations to transform their business and strengthen their workforce by smart mobile working. "

Gross margins 87%. Profitable. Minimal debt. Growing long term subscription revenues. Unaffected by Covid-19. Winning sizeable clients across supermarkets, rail and the NHS. Stick some figures into a spread sheet and see what happens to their profitable growth with double digit revenue growth. 

" I believe there are exciting times ahead." Luke Jeffrey CEO.

3) Biome Technologies (share price 234p, market cap. £6.5m)

"a leading bioplastics and radio frequency technology business"

Bioplastics is the exciting bit and it's come of age! RF division is cyclical, but profitable and cash generative in normal times. At the interims the Bioplastics division had grown revenues by 53% and this week they announced an order worth US$550,000 from an existing major client operating in the United States packaging market. It was "the largest single order to date for Biome's heat-stable and compostable bioplastic for coffee pod applications". They work closely alongside their clients (largely US based) to meet their exact needs and hence their clients stick with them. Commercialisation is really beginning to take-off now.

4) Software Radio Technology (share price 42.5p, market cap. £69m)

"SRT Marine Systems PLC (SRT), a global provider of maritime surveillance, monitoring and management systems"

It's taken them a long time and many injections of cash but the promise has always been there. They've navigated the recent crisis admirably (see recent trading statement) and are about to deliver in spades.  That's it, time to enjoy the rewards!

5) Trakm8 (share price 18.75p, market cap. £9m)

"global telematics and data insight provider"

From stock market darling to pariah.  Priced to go bust. It won't. Superb client list, and supportive shareholder in a company called Microlise. Half their revenues are recurring. Hot and competitive sector, but Trakm8's offering is second to none. Worst case scenario is they're acquired at about 3 times the current share price.

And that's the five. Don't expect a smooth ride with any. Micro-caps are generally very volatile, but staying the course proves very worthwhile if you've done your research. 

I should add that I'm not a stock tipper and that these are merely my own personal views, and as mentioned I own them all.

Good luck with your investments.

Valuations matter

A relatively short blog post this one. It's really for those who are relatively inexperienced in 'stock picking' and those fretting about the current situation.

This is the third bear market/huge correction I've encountered since starting my 'stock picking' passion.

I suspect it's more of a bear market than correction because it feels very much like 2007/2008. Just when you think a company's share price can't get any lower, it does.

In truth, the huge sell off has been a long time coming. I thought last year would be the year, but of course there were no triggers. However, along comes Covid-19, mass hysteria, mass panic and stock markets around the world plummet as potential worldwide recession casts it gloom across the globe. It's the end of the world!! Again.

In future, some of the signs to look for before a mass sell off are stock pickers relatively new to investing believing they're demi-gods after a couple of years or so of positive returns, a rise in the 'investment gurus' on social media and elsewhere where their mere mention of a company moves it's share price up regardless of it's valuation (I'll come to this in a minute), a significant number of companies on p/e ratios of 30+ which can all be justified of course because earnings will eventually reach infinity and beyond, companies with market caps that are a significant multiple of it's revenues. These are just some signs, but I could go on.

Largely, I learnt my lesson (and it was an invaluable lesson) in the dot-com boom and bust (look it up if you're new to stock picking or a youngster). I wanted a piece of the 'stock market' action, but knew sod all about balance sheets, p/e ratios, balance sheets etc. I got lucky at first, every one's a winner!! Big percentage rises, easy money! Of course, along came the non too friendly bear and oh dear!

Here's the thing though. At that stage of my 'stock picking' excursion I thought I was being sensible and conservative. Two of the companies in my portfolio were GlaxoSmithKline and British Telecom.

I bought GSK for about £20 and BT for around £8 per share. During the bear market, their share prices plummeted. These are quality companies (certainly in GSK's case) but in nearly 20 years the share prices of these companies has never returned to these levels. I should add however that at least you'd have received a nice income stream, but capital appreciation would have been less than zero. Quality companies but not great investments at those prices.

The bear market was the best thing that happened to me however. I couldn't understand why the share prices of these two stalwarts of the market had fallen so dramatically?

That's when I started to read extensively. I'm not talking about the shite website tipsters, the bloggers, the twitter gurus or bulletin board heroes. Ignore all these. Get some books and information about the proven great investors with track records e.g. Buffett, Graham, Lynch, et al and learn about dividends, p/e ratios, net asset values etc.

When I did this in the early 2000s it was transformational. I quickly ditched GSK and BT and took the losses on the chin. The stock market made sense and was no longer a scary place. Knowing how to value companies sensibly is the key to successful investing. Bear markets create huge opportunities. Life changing opportunities.

Of course, I still make mistakes and pick some howlers, but being able to pick companies on a cheap valuation gives you an edge. Where's the evidence then? Well here's one example. The majority of the shares were bought around the 25p mark. The company eventually got bought out for £6.50, not to mention all those dividends and special dividends along the way:-

https://uk.advfn.com/cmn/fbb/thread.php3?id=20681152&from=1

If you read no further than post 2 on this thread it'll give you an idea of why the valuation of this little known company was fantastically appealing. It'll also give you an idea of how low valuations can sink in times of irrational panic.

In conclusion, valuations matter!

Can it rise from the ashes once more?

It's difficult to believe that SpaceandPeople (SAL) was a former darling of the stock market, as the share price languishes at 11.25p down a further 6% after today's trading update. I think today's fall  may reflect a lack of interest in a forgotten micro-cap rather than a reaction to today's news, but more of that later.

In summary the company describes itself as follows:-

"SpaceandPeople (AIM:SAL), the retail, promotional and brand experience specialist which facilitates and manages the sale of promotional and retail merchandising space in shopping centres and other high footfall venues"

In 2007 the share price of SAL hit the dizzy heights of 220p only to fall sharply to around 45p (like so many other companies at the time), and then rise once more like a "phoenix from the flames" to around 150p in 2014. Sadly, and perhaps not surprisingly, the share price alongside the company's fortunes has slid back to today's 11.5p seemingly mirroring the demise and troubles of the high street.

Can it rise once more?

Firstly, let's be realistic and confront the negatives. Over recent years SAL has been a serial disappointer, always on the verge of returning to growth, but never quite managing it. Indeed this morning's trading update reported revenues below expectations and slightly below last year at £7.7m.

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/14407056.html

On the plus side, they have recorded a very small profit before tax (around £100,000) which is broadly in-line with expectations. It should be noted these were revised targets following higher expectations at the beginning of the year. So not inspiring so far.

However, context is everything and SpaceandPeople is valued at around a measly £2m, and there are some positives worth considering.

Their year end cash position was £1.2m with £0.6m of bank debt.

Most interestingly, they've upped the dividend payout by 50% to 0.75p from last year's 0.5p. If you bought the shares at today's price of 11.5p then you'll get a nice yield of 6.5%. Perhaps, more pertinently, the dividend hike suggests that they're confident of an improved performance in 2020.

So what has inspired that confidence?

In today's trading statement, they also announced a contract win with Abellio and a contract extension with Network Rail:-

"The Group is also pleased to announce that a multi-year agreement has been signed with Abellio to provide commercialisation activity in the Greater Anglia and West Midlands rail regions. This is the first time that SpaceandPeople has worked with Abellio and we look forward to growing this relationship.

Also, the Network Rail agreement that was due to expire in September 2020 has been extended by a further year and we look forward to continuing to expand on this very successful relationship."

Furthermore, at the interim stage the company had this to say about prospects for 2020:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/14245740.html

"However, the foundations for a sustainable and significant turnaround have begun. Although the resurgence of German RMUs has come too late to have a significant impact on 2019, the new venues joining our service this year and the pipeline of additional venues in development for 2020 is the most positive it has been for many years. This will result in substantial revenue improvements  next year."

As mentioned, they've disappointed in recent years, and who's to say they won't disappoint again this year? However, with such a tiny market cap., a current progressive dividend policy, and hints of a turnaround (I suspect they would payout at least a 1p next year or 8.7% at today's share price), there is the potential for a significant upside surprise from this tiddler imo.

As ever, no recommendations are made and it's AIMHO.

Madness? Probably, but profitable madness.

A man who writes this vitriol about a company and his losses is surely not daft enough to even contemplate a punt in the same company at any future date? Only an idiot would do such a thing.

https://michae1mouse.blogspot.com/2019/04/liars-incompetence-and-foolhardy-choices.html

Yes I'm an idiot or maybe not so much actually? I'll explain, and I'll keep it brief.

On Tuesday, 7digital released a trading statement. If you read my blog regularly you'll know I am extremely au fait with this company.

I read the statement several times, and decided to risk some "punt" money. The market took some considerable time to react to 7digital's news, and hence I managed to purchase at below 0.2p. The shares finished up a little on the same day and advanced a little more on Wednesday. On Thursday the share price went berserk. I sold and took a 78% profit. If I'd held until Friday then I'd have made twice as much profit. Slightly galling, but a very successful trade nonetheless. I wish I could do that every week.

What next then? No idea short term, but here's my thoughts.

I know this company very well. I like the technology. I've always liked the story. I love the gross margins. The trading update gives cause for hope, but context is everything.

Things I liked. Trading for 2019 is in line with management expectations and their new strategy is performing well (apparently). They've significantly reduced operating costs. They've secured much of their expected revenues for 2020 and should achieve operational profitability by the end of the half year 2020. Plenty of positives and fortunately for me it clearly enticed many short term traders.

What could possibly go wrong?

Firstly, since I've been following 7digital, they've often said they're on the verge of profitability. Vintage 2018 trading statement:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/7DIG/13527293.html

"Following the acquisition of 24-7 in June, operational restructuring has already begun and has resulted in the closure of the Company's office in Paris and a reduction in headcount. The Board is pleased to report good progress towards its goal of profitability in the current financial year." 

Didn't quite happen. In fact the company nearly went bust.

Secondly, despite all the positive noises, where are the figures that matter in the latest trading statement? There is no mention of cashflow, cash remaining or indeed revenue for 2019.

They have raised money over the last 12 months, but if you take a look at their last interim statement I can't for one moment imagine it'll be enough? They lost £3m between January and June 2019, and their balance sheet is just awful. They had a negative net asset balance of around £7m. Horrendous even after considering the cash they raised during the year.  My guess is another major dilution is on the way. The last one was at around 0.2p.

I've no idea what will happen to the share price in the short term, although after such a hefty spike I know what normally occurs. What I can say is that at the current £12m market valuation and a very good chance of further dilution and losses for another 6 months before the possibility of operating profitability, I'll stick to the sidelines again and watch for developments. There are some great little micro-caps that are currently priced less than 7digital with much stronger balance sheets. Some  already having achieved profitability.

Having been wrong about this one in the past, I don't offer any advice and maybe 7digital will pull the proverbial rabbit out of the hat, but with the share price having already 3-bagged in as many days, other options appear a better risk/reward unless they release earth shattering transformational news!

As ever, DYOR and this blog doesn't offer advice.

Good luck if you're a holder.

33% increase in the dividend with more to come?

Here's my second post in as many days after a self imposed hiatus of several months, and it's another update. The company in question this time is the minnow Aeorema Communications (AEO) which I previously wrote about in July 2019. Here's the blog:-

http://michae1mouse.blogspot.com/2019/07/dividends-can-keep-you-happy-whilst-you.html

So what's happened since that time?

Well most significantly full year results were released 30 Sept, and the share price has risen 46% on well received figures and an encouraging outlook statement. Despite the share price appreciation, I believe that the shares are still significantly undervalued.

Firstly, as anticipated in my previous blog post, the dividend was hiked by a more than healthy 33%. It currently stands at 1p which is a coupon of 2.6% at the current share price of 38p. It should be noted that management have a progressive dividend policy in place.

Revenues were up 40% to £6.7m with a profit after tax of £288,000. Cash in the bank was £2.2m.

Not bad in the context of this company's market cap. still being a mere £3.4m. The P/E ratio is therefore around 12. The FCF for the year was £774,847.

Think about the cash in the bank and cash generated in the context of the current market cap. and the investment case is very compelling. The dividend is covered more than 8.5 times by the FCF.

They had this to say about this year's outlook,

 "Focus remains on sustaining client relationships and effective client acquisition to ensure that a robust pipeline of business is in place. To this end, I am confident of future growth having already secured new client wins in the current financial year including a leading global law firm, a number within the technology sector and a high-profile, established confectionery brand. Another upcoming highlight is set to be the execution of an extraordinary event at MIPCOM in Cannes, an annual trade show for entertainment content, in October for a global media brand. "

The MIPCOM event was for the BBC btw and it's a three year project. I'd urge readers to take time and read their full report:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/AEO/14245785.html

In particular, although this was a very successful year for AEO (as illustrated in the figures above) they say the following:-

"Whilst the Group has delivered an unusually high number of low profit margin events during the year, new events to be delivered in 2020 are expected to have higher gross profit margins."

A share price at least double the current value wouldn't be unreasonable at this stage in my view assuming growth remains on track.

As ever, AIMHO.

OptiBiotix (OPTI) - I'll continue to avoid

I haven't written a blog post for a little while now but thought I'd revisit a company that I've suggested was grossly overvalued 4 years ago. Has anything changed my mind in the intervening period or was I correct in my initial assessment?

I will let readers be the judge, but in my own opinion the past 4 years has borne out my initial summation and I'd still give this company a wide berth. It's still hugely overvalued. The company is a little outfit called OptiBiotix. Here was my last blog post in October 2018:-

http://michae1mouse.blogspot.com/2018/10/theres-no-nonsense-like-bulletin-board.html

When I initiated a thread on ADVFN (16 March 2016) the share price was around the 73p mark. It is currently down 30% from that date following today's trading update:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/OPTI/14387837.html

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

Let's look at today's update. Firstly, revenue for the full year is a paltry £808,000 which is just £266,386 better than last year (£541,614) a company with a ludicrous valuation of around £43m. Of course there is no mention of losses incurred during the year as is always the case with such companies.

If you read the trading update in full and take time to digest the information then you'll notice several red flags. I'll take them in turn.

1) There is great play on other income of £617,000 during the year from the sale of shares in a holding in their spin off company called SkinBiotherapeutics (SBTX) (Equally overvalued incidentally!!). Without this then cash in the bank at the end of November would have virtually been zero given that they report they had £687,699 on the balance sheet. Worryingly they appear to be relying on more share sales of SBTX to raise cash. They say :- "We have the option to further reduce our holding (circa £7m) in SkinBioTherapeutics plc if growth capital is required. " Really? A buyer already lined up? What if nobody is interested? Do they realise share prices go down? In fact SBTX is down a further 6% today.

2) They also say this:-

 "The 12 months to 30 November 2019 have seen the transition of the Company from a research and development business to a company building commercial revenues" . 

If you check back then you'll see they've been using this same line for three years now. It appears to be a very long and very slow process.

3) "In line with previous years, the majority of income was generated in the second half of the year (H1 2019: £148,818). We expect this trend to continue in 2020"

So that'll be "sod all" revenues in the first half of 2020 then?

4) I notice that the aim for profitability has now been set for the end of 2020 with the caveat of no guarantees. It would be helpful to know what losses were incurred this year and then perhaps we can come to our own conclusions about the likelihood of profitability in 2020. My guess is not very likely.

5) Finally a ridiculous idea of exploring a listing on the NASDAQ in the same breath as saying they are trying to manage costs. Laughable. Anyone would think the CEO is trying to pump up the share price on crap results? Surely not?

The rest of the trading statement is the same old verbose puff and bluster that has been spouted out numerous times before.

If OptiBiotix was valued at around £7m-£10m then it may be worth re-examining as a speculative punt but at over £40m it's hugely overvalued.

As ever, AIMHO.