5 Micro-caps that will 10-bag or more in 5 years or less - September 2023 update

Firstly, here's the link to last year's comments:-

The mouse "shares" his thoughts: 5 Micro-caps that will 10-bag or more in 5 years or less - September 2022 update (michae1mouse.blogspot.com)

Ok it's the end of the third year. Below is a very brief update on the five companies in question. Needless to say in the current environment  the share prices of all the companies in question have not faired particularly well, although it's more of a mixed bag in terms of yearly performance. I'm really not concerned with the prospects of any of these 5 companies going forward. If anything they're much better placed than 3 years ago when I first mentioned them. With the long term in mind, prospects look promising. Anyway here goes:-

1) IXICO current share price 19p (down 72.5%)

Judging by the collapsing share price over the past three years, you'd be forgiven for thinking that Ixico was ready for the knackers yard. It's down 72.5% over three years and 51% in the past year. However, they issued a trading update today which says that

" FY23 earnings performance is anticipated to be in line or slightly ahead of market expectations despite a small shortfall in revenues caused by delays in the timing of new client trial initiations."

Whilst performance in 2024 will be similar to this year, they expect to see double digit growth return in 2025 and beyond. My comments from last year still apply here, and whilst the wait for the more lucrative phase 2 and phase 3 trials has been longer than anticipated, if/when these awards materialise then the step change in revs and profitability will be very significant. The current market cap. is around £9m but they have cash of over £4m and no debt. Cash burn for 2023 was circa £1m which should reduce this year. There may even be news of significant contracts during 2024 which will benefit 2025 and beyond. Their current order book is healthy at £14.5m.

2) CRIMSON TIDE current share price 1.9p (down 44%)

Current share price is about the same as last year albeit slightly up. Their interim report was published this week. Revs were up 31%, ARR was up 35%, gross margins are 84% and they moved back to a small EBITDA profit. Revs are expected to be 20% ahead at the year end. They're expanding in the US. They've encountered a couple of minor blips this year (imo) but growth remains strong and the future still looks very encouraging. As mentioned last year, moving forward additional revs should pretty much start to drop straight to the bottom line.

3) BIOME TECHNOLOGIES current share price 150p (down 36%)

Stellar 3 fold recovery in the share price from last year's 52.5p. Biome's interims were released this week and are in line with expectations. Both the Bioplastics and RF divisions are making good progress. Bioplastics revs were up 50% at £3.1m with RF up to £0.5m (£0.4m last year). The outlook for both divisions suggests excellent growth prospects. Even after the outperformance of the share price in the past 12 months the market cap. stands at around £5.5m. Not exactly expensive. Indeed it has the potential to really multibag with a medium to long term horizon (imo).

4) SRT Marine Systems current share price 48p (up 13%)

Best performer over 3 years and up 66% since last year. My only comment on this one is that the huge systems contracts are now landing and that the transceivers business is showing excellent growth. Rapid growth has it's own challenges but this company has a wide moat and over time I'm optimistic that they'll steer this company towards very large revs and profits.

5) TRAKM8 current share price 15.5p (down 17%)

Down 14% from last year and priced to fail. Ironically it's better placed than it's been for some years. Trakm8 is currently on target to meet adj. profit expectations of circa £2m. Clearly the market doesn't believe them, valuing the company at less than £8m. Even if the company achieves, let's say £1m adj profit for the full year, it's still cheap (imo). 

That completes the round-up for this year. Stay healthy, happy and enjoy your investing.

5 Micro-caps that will 10-bag or more in 5 years or less - September 2022 update

Yes it's that time of year to provide an update on the blog I started two years ago, and perhaps I should be embarrassed to provide this update, but I'm not. From the outset I've pointed out that I'm not tipping these shares and that micro-caps are extremely volatile and their fortunes and subsequently share prices can turn on a sixpence. We are currently in the throes of a savage bear market, and even great news is largely met with a shrug of the shoulders. Bad news is catastrophic to share prices, particularly illiquid tiddlers like these.

If you have the right mind set though, you'll see massive opportunity which only arrives once every 10 to 20 years. There are so many companies at knock down prices presently, it doesn't mean prices won't go even lower in the short term but if you have spare cash then these are the moments to start buying not selling. Anyway, without further ado here's the update. Readers of a nervous disposition might like to look away now as they may find the content disturbing. 

1) IXICO current share price 37.5p (down 46%)

Ixico is fundamentally still doing well and is on track to grow longer term. I have no major concerns with this company. It's share price was initially rocked when phase III trials with a major lucrative client were terminated and as a consequence Ixico's services on this project were scaled back significantly. This affected Ixico's growth projections for 2022 and 2023. This is a clear risk factor for Ixico, but they have and are very sensibly picking up a broader and bigger client base over time which will ensure that there is far less reliance on just one major contract. 

A recent trading update is encouraging. In year-end 2022 (end of this month), they expect EBITDA to comfortably exceed previous guidance, and their order book will exceed £15m. For 2023, they expect revenues to come in at around £7m, £5m of which has already been contracted. The company (as mentioned) has a more diversified order book, a strong balance sheet and is debt free with cash.

2) CRIMSON TIDE current share price 1.8p (down 47%)

Crimson Tide is an excellent little company that is doing exactly what it has set out to do. Currently it's investing for growth and is achieving expectations. Hence the share price has fallen by 47% over two years. Spot the sarcasm. Indeed, it reported it's interims this morning which were in-line with expectations showing revenue growth of 15.3%, and Annual Recurring Revenue (ARR) growth of 22.7%. They recently secured two significant contracts which will further contribute to revenues in the second half and most importantly to ARR.

They expect to return to profitability in 2024 since at present they are continuing to invest for growth, but with very high gross margins (currently 84.5%) it'll be worth the wait since the revenues will pretty much start to drop to the bottom line. Needless to say, with the visibility of recurring revenue streams and a strong pipeline, management are very optimistic. Client churn is negligible which speaks volumes about their offering.

3) BIOME TECHNOLOGIES current share price 52.5p (down 78%)

It was all going so well until.......Yes, a profit warning last week!! In short, they've suffered from supply chain challenges, a major project delay and a far more uncertain economic backdrop which is severely curtailing the expected ramp up in revenues for the BioPlastics division. By contrast the RF Technologies division is beginning to recover and should show a marked improvement in the second half of 2022. However, the company warned on profits for both 2022 and 2023. 

There are some interesting projects in BioPlastics including in the packaging film area, tree shelters and Home compostables, but clearly we're now looking medium to longer term.

Biome believes it has sufficient working capital for the foreseeable future, and growth is expected from 2022 to 2023 with revenues above £5m and rising, the selloff (imo) therefore is massively overdone leaving Biome on a market cap. of just £2m.

4) SRT Marine Systems current share price 29p (down 32%)

SRT has two key revenue streams, the transceivers business which is growing nicely and the systems division where major projects are promised. One of the systems projects has been confirmed this year for £40m and more large value contracts are expected imminently. So why is the share price at 29p? Largely because the company has promised imminent contracts for some time now and it does have a habit of having to raise cash from the markets at a discount.

If they do deliver the promised systems contracts and the transceivers business continues to grow then SRT shareholders should really prosper. It's a waiting game like with so many of these smaller companies.

5) TRAKM8 current share price 18p (down 4%)

In terms of share price performance Trakm8 is almost a success story compared to the above at a mere 4% down. In fairness, this is a recovery stock and a chink of light has appeared on the horizon.

Trakm8 have seen an uptick in business and recently reported a 13% increase in the number of telematics devices reporting to their servers (299,000). This is the number to look for since it translates into recurring revenues and encouragingly, they are expecting the number of devices to increase significantly in the second half of the year.

They are also streamlining the business and expect to make cost savings of £2.4m per annum. A small profit is expected this year with good growth again the year after. Microlise have confidence and recently backed the company with a loan to cover the restructuring process and provide working capital.

Has the corner been turned? We'll find out in the next six months or so I'd guess.

-----------------------------

In conclusion, after two years it might look like a bit of a blood bath and it has been, but largely due to sentiment rather than company performance and prospects. If you look at my previous reports, you'll see just how illiquid and volatile the share prices of these companies can be. Biome for instance was 75% up at one stage and is currently 78% down.

Market sentiment will change and so will the economic conditions, and I am optimistic that the medium to long term prospects of all 5 companies remain sound and hopefully when the tide turns (no pun intended) these will become multibaggers from here and from the prices I first recorded them at in 2020.

5 Micro-caps that will 10 bag or more in 5 years or less - September 2021 update

 It's been just over one year since I last updated this blog about the 5 companies that I have boldly predicted will 10 bag in 5 years or less. It's not a tipping sheet so thoroughly carry out your own research if any of the five companies catch your attention. Be aware that all 5 are micro-caps and listed on AIM so expect some illiquidity and often large swings in their share prices. I am an advocate of buy and hold and my holding period is often greater than 5 years.

This is the second update since my original post back in August 2020. Obviously, it's been a pretty uneventful year worldwide :-$

Sarcasm aside, for the five companies that I am covering, I'm more than happy with the progress of their respective businesses, and see nothing to alter my vision of their future prospects. I will add the caveat that absolutely nothing can be taken for granted in this game so I always remain vigilant but try to distinguish between short term disappointments and the long term prospects of a business.

So let's start. Firstly here was the original post in August 2020:-

The mouse "shares" his thoughts: 5 micro-caps that will 10 bag or more in 5 years or less (michae1mouse.blogspot.com)

and the follow up in January of this year:-

The mouse "shares" his thoughts: 2020 (michae1mouse.blogspot.com)

1) IXICO (current share price 81.5p - up 18%)

Ixico was on a real roll and up 36% when I last reported, but in March a major client stopped dosing participants in its phase III trial and open-label extension studies in Huntington's disease following a pre-planned review of the data. This led to some uncertainty re: IXICO's short/medium term revenues and order book from this client and the share price took a hit. Since the basic story remains in tact, and expectations from this particular client have now been clarified, it proved to be a buying opportunity. Strong half year results, a solid trading update in August for the full year (£1.2m EBITDA in-line with prior year), strong order book, excellent balance sheet and more contract wins have reassured and the share price has bounced back. 

This week the company gained more momentum with their first contract award from a new Imaging Master Vendor Agreement with a top 5 global CRO. The contract itself is worth greater than $750,000, but more significantly being selected as a dedicated imaging vendor is expected to significantly enhance IXICO's opportunity to partner with the CRO's client portfolio.

I'm very pleased with the progress here, and continue to envisage huge upside potential.

2) CRIMSON TIDE (current share price 3.05p - down 10.3%)

Excellent set of results released in April for year ending December 2020 with revenue up 21%, EBITDA up 22% to £946,000, cash up to £1.157m from £320,000 and a very bullish outlook. So why the slight share price fall? Simply put, the company sees a huge market opportunity in which to grow significantly, but that needs  investment and in April the company raised £6m via a placing at 3p. This is a big positive, and in the medium to long term prospects for Crimson Tide look even bigger and brighter. Crimson Tide is a hidden gem, and whilst the full benefits may take a little time to become apparent, this is a company that has gross margins of 87%. is growing long term subscription revenues and winning sizeable clients across supermarkets, rail and the NHS.

We might see their interim results this week, certainly in the not too distant future.

3) BIOME TECHNOLOGIES (current share price 410p - up 75%)

The star performer so far. Their bioplastics division is really beginning to gain traction, and the company is targeting 40% growth per annum from 2022 onwards. Ongoing delays in shipping and transportation constrained the first half of this year, although there was still some growth. However, looking forward into Q4 this year and beyond it gets very exciting with new large customers in the USA coming onboard and a strong pipeline of projects. The icing on the cake could be a pick up in orders in their RF division which has generated annual revenues of between £4m-£8m in the past and is very cash generative. A possible perfect storm for outperformance in 2022 and longer term.

4) SRT MARINE SYSTEMS PLC (current share price 41p - down 3.5%) 

Not much to say about this one since last reporting since there has been very little news. Final results were released in July and as anticipated. This company just needs to deliver on these figures:- £550m systems division validated system sales opportunity pipeline, of which £71m are very near term. I think they will, and then it gets very exciting.

5) TRAKM8 (current share price 23p - up 23%)

It's beginning to look likely that Trakm8 have not only survived after disappointing in recent years but are now  likely to prosper. They've successfully navigated the "lockdown" storms and look like a leaner outfit. They released a trading statement this week with revenues predicted to be around 19m and a break-even performance, in-line with market expectations. Next years profits are expected to be around £2m which means the market cap. looks anomalous at just £11.5m, particularly when compared to their peers. In the background we have the recently listed telematics company Microlise who hold 20% of Trakm8 and hold ambitious plans within a rapidly consolidating sector.

That's it for the update. This overall portfolio is up 20% from my first post. As stated, I'm happy that all five still retain the potential for huge outperformance and I'll update again in 6/12 months time.

Th

5 Micro-caps that will 10 bag or more in 5 years or less - January 2021 update

It's now just over 4 months since I wrote the blog "5 micro-caps that will 10 bag or more in 5 years or less":-

The mouse "shares" his thoughts: 5 micro-caps that will 10 bag or more in 5 years or less (michae1mouse.blogspot.com)

Here's the follow up blog I wrote in September:-

The mouse "shares" his thoughts: 5 micro-caps update (michae1mouse.blogspot.com)

It's still very early days, but I thought I'd provide a brief review of progress.

1) IXICO (IXI) current share price 94p (up 36%)

Ixico is the star performer so far with a current share price gain of 36%.  The share price gains have come on the back of excellent full year results and a host of new contract announcements which underpin expectations for the year ahead and add to their already strong order book.

Their full year results showed EBITDA of £1.3m (more than double the previous year),  26% growth in revenues to £9.5m (another record for the group),  superb gross margins at 67% with a strong balance sheet which boasts nearly £8m cash. The contracted order book was up 36% at £21.7m and operating cash inflow was £1.5m.

The only surprise is that the share price isn't higher. 

2) CRIMSON TIDE (TIDE) current share price 3.35p (unchanged)

Not much news since the September update other than two new contract wins and some holdings notices. Perhaps that explains the currently static share price? Probably worth repeating my original thoughts:-

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. 

3) BIOME TECHNOLOGIES (BIOM) current share price 220p (down 6%)

The share price has recently recovered following a share fall after they announced a discounted placing back in September. This company really should capture investors imagination this year. Basically it's in the right place at the right time, and their Bioplastics division is really gaining momentum. Results should be in line with expectations for 2020. They have an expanding list of potential new customers, particularly in the US.

Given the potential for Bioplastics and their expanding US based client roster, the market cap. at £8m is absolutely tiny. They release their full year trading update on the 28 January.

4) SOFTWARE RADIO TECHNOLOGY (SRT) current share price 39.75p (down 6.5%)

Apart from the interim results there has been very little news from the company. The interims contained no surprises. Investors are patiently waiting for news of major contracts which will be transformational for all. There should be fireworks if they can announce one or two contracts over the next three months.

5) TRAKM8 (TRAK) current share price 16p (down 15%)

Half-year results suggested that this is still very much a possible recovery play. Whilst lockdowns continue to hamper and delay their full recovery, they are surviving and will hopefully move through the gears as we begin to see an end to the current stop/start economy. 

This is the line for investors to latch on to from the November interims,  "the Group expects revenue in the second half to be significantly higher than the first half given current orders, even with a reasonable downside scenario taken into account for the ongoing impact of Covid-19."

In summary after 4 months, apart from Ixico, the share price performance of the other four companies has been fairly flat. However, most importantly I'm happy with the progress of all five, and still anticipating an excellent performance over the five year time scale. 

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.

Stilo de-lists.

Following on from a blog post I penned back in April, Stilo International will de-list from the AIM market tomorrow (Tuesday 8th October) :-

This is April's blog post giving my thoughts at that time:-

http://michae1mouse.blogspot.com/2019/04/a-de-listing-bring-it-on.html

There's not a huge amount to add other than I've retained my entire holding in Stilo International and remain cautiously optimistic for the future.

The interims were released with a notice of their intention to de-list, and as anticipated the outlook for this year is lacklustre at best. There was a tender offer of 1p to purchase shares from private shareholders, but it appears that almost all private shareholders (like myself) have passed on the tender offer and are happy to hold their shares in the private company. Indeed it was pretty much a no-brainer since if you'd wished to sell out some or all of your holding since the de-listing announcement it's been possible to sell shares significantly above 1p. It should be noted that the company did buyback over 15,000,000 shares from Giltspur and Brewin nominees at 1p to reduce the share capital to around 98,000,000. It also worth mentioning that C.Lee has been acquiring shares and now owns over 10% of the company.

I am very happy that the company has de-listed since it doesn't need to raise funds from the market with a very solid debt free balance sheet and a cash balance (last reported) of over a £1m. This is against a market cap. that had fallen to around the company's cash level. The saving over £120,000 per annum on listing costs will be very significant for the company. In fact £120,000 represents around a 0.12p possible dividend. If you were lucky enough to get shares for around 1p then that's a 12% return. I expect dividend payments to return very soon following their de-listing.

From the General Meeting circular issued in August
(http://www.stilo.com/wp-content/uploads/2019/08/General-Meeting-Circular-23-August-2019.pdf), we also had this included in their reasons to de-list:-

"the Directors believe that the Company’s AIM-quoted status – in which the Company has a tangible share price and hence a perceived “value” - has presented a significant barrier, in practice, in advancing M&A discussions with potential acquisition candidates. Additionally, the Board’s experience is that many privately owned companies are not attracted by the prospect of acquiring, or becoming part of, a publicly traded company. The Directors believe that if the Company was off the market, it might be possible to command a much higher company valuation than that which is currently reflected in our share price."

My guess is that the company will return to profits and cash generation in the not too distant future and then sell the company at a hefty premium to its listed market cap.

Anyway, I'll keep you posted, and it'll be interesting for me since it's the first time I'll have held shares in a private limited company.

Dividends can keep you happy whilst you patiently wait for capital returns

It's a little while since I last produced a blog post so I thought I'd write a short article about Aeorema Communications (AEO). I've mentioned them several times in the past. It's basically a great value micro-cap that's returned to encouraging growth. The market is currently overlooking this little gem, although it does appear that micro-caps are, in general, currently out of fashion with Mr. Market. It'll all change in time. It always does.

From 2014-2018 revenues at AEO fluctuated in the £4m-£5m range, although pre-tax profits were declining. It's worth noting that the company did remain profitable during this period and continued paying dividends.

However, AEO's current management appear to have now got the company back on a growth trajectory. After reporting a half-year loss, chiefly due to the lag between making two senior appointments to their team and the inherent recruitment costs and time to make an impact, and the usual second half weighting they've now rapidly turned the half year loss into a full year profit which has beaten market expectations at over £350,000. Revenue took a big leap forward to £6.7m which is a quantum leap from the 2014-2018 figures. It appears that the new appointments are already beginning to prove their worth.

Their cash position is strong and it's their intention to continue with dividend payments. In 2018 the dividend was 0.75p so I'd expect a further increase this year. The current p/e ratio is around 7, and I'd guess the cash on the balance sheet is at least half the current market cap. of £2.4m.

Bizarrely, after the ahead statement yesterday and an initial 20% rise in the share price, the shares have now fallen back to where they started on Thursday.

From a personal perspective whilst it can be frustrating waiting for the market to recognise AEO's true worth, and in my view the company is stupidly cheap, I've received around 25% of my money back in dividends already with more to come following the release of their full year results.

Finally, a Mr Jonathan Hicking appears a regular and keen buyer and has today upped his stake further to 13%.

A de-listing? Bring it on!

I've written about Stilo International several times in the past. It's a tiny company with a market cap. around £2.3m. The share price has bounced up and down for years, and currently sits near its all time lows. It's disappointing since I had high hopes for Stilo, and have written very positively about them in the past.

There are two key reasons that the share price is currently languishing at 2p. Firstly, growth suddenly stalled in 2018 after looking like the company might be reaching an inflection point. Through 2015, 2016 and 2017 revenues had been steadily growing and although EPS had remained flat due to increased development costs, the company boasts 99% gross margins and it doesn't take too much imagination to see how quickly operational gearing would have kicked in and increased sales would have dropped to the bottom line. Alas in 2018 revenues suddenly dipped, and although the company was still profitable, growth had stalled. Unfortunately, sentiment was not helped by the following comment in their preliminary report, "2019 is going to be a challenging year for the Company, with potential demand, as always, difficult to predict at the current time."

The uncertainty regarding trading in 2019 coupled with the following hint that management may favour a de-listing i.e."Given our size, we continue to incur significant financial overheads associated with being a public listed company, but notwithstanding this we were able to generate a post-tax profit for the period of £177,000.", "spooked" investors and decimated the share price.

If you don't like the possibilty of holding shares in a de-listed company then I'd suggest you stop reading now. However, if you're more adventurous then read on.

My feeling from the tone of the 2018 prelims is that management would be happy to de-list. Indeed why wouldn't they be? Currently the shares yield a 6% dividend, a dividend that has incidentally doubled in the past four years. In fact, it rose 20% this year (a dip year) which indicates huge confidence in the long term future and an extremely robust balance sheet. In essence, de-listing would save them a further £150,000 per annum which is enough to double the current dividend immediately i.e. a potential 12% yield. That's mouth watering! It should be noted that the Directors hold around 25% of the shares and consequently a (potential) double digit dividend would be highly appealing. It should be noted though that they would need the support of all their major shareholders to secure the 75%+ votes to enable a de-listing to happen.

For such a tiny company, the balance sheet is absolutely superb. Cash stands at £1.3m and there is zero debt. The NAV is £3.8m (TNAV is £1.3m) against a current market cap of £2.3m, although if you do your research I believe the true value of Stilo is very significantly higher.

From the prelims, it suggests that their trading statement in May will be lacklustre and it's possible that they might even try and persuade investors to back a de-listing. I'm comfortable holding or even adding whatever happens.

Stilo has excellent financials and the potential to restart their growth trajectory again. Whilst growth may not resume this year, I very much suspect that the medium to long term looks far more rosy.

The shares are already highly illiquid, so any potential de-listing won't improve that situation but by way of compensation you just might get a double digit dividend yield!!

As a final note, I'd add that I've never held a micro-cap company before that was profitable, pays a generous and improving dividend that has doubled over four years and has a rock solid balance sheet.

I hope that they can regain their growth trajectory in the medium to long term because that would truly be very exciting whether they're listed or not!!

De-listing? Bring it on!!

It's not all bad thank goodness!

Hot on the heels of the 7digital debacle, I'm reporting a successful share sale in a company (to make myself feel better) which is the antithesis of 7digital. The company in question is Scientific Digital Imaging where I've banked a 3-bagger (203% profit to be more precise). I bought shares in SDI in December 2016, and have watched a wonderful success story where the management have done a great job in growing the company both organically and by acquisition. The company is profitable, cash generative and has a strong balance sheet. It's gross margins are very healthy at around 66%. As I said, the opposite of 7digital's fundamentals.

I love this company and believe it has far further to run, but I wanted to release some funds because I believe that there are bargains to be had and others that will materialise in the coming weeks or months. It's always a difficult decision to sell a company if it's performed well and I do believe in running winners, but the reality is that occasionally you need to raise cash for other perceived opportunities and you need to make choices. With SDI the compounding return for me after just 2.25 years was 64% per annum. If only all of my choices could do as well.

In further good news, One Media IP (OMIP) reported very encouraging interims today alongside the acquisition of a music catalogue:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/OMIP/14033376.html

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/OMIP/14033329.html

I don't envisage selling any shares in OMIP in the near future. Again it's a great little company with good growth prospects and excellent fundamentals.

As ever DYOR, and listen to nothing I say.

Liars, incompetence, and foolhardy choices

FFS I never saw that coming! Maybe I should have? I'll try not to be to harsh with myself, but I must show more discipline in future.

This morning's shock came in the form of a "Business Update" from 7digital. The previous CEO Simon Cole has just left the company after saying the following on 25th March, "I leave 7digital in good shape". It's now become obvious that he was referring to himself rather than the company, and has clearly been spending too much time at the gym since today's business update from the new incumbent says the following, "the Board's current view is that the business will require material further equity and/or debt funding in the next quarter without which the Company would be unable to continue as a going concern. The Board will assess financing options for the Company however, it is likely that this would entail significant dilution for shareholders."

I'm glad Simon's in good shape, and enjoyed his journey since it provides me with great comfort having today sold my entire holding for a whopping 94% loss overall. The only saving grace for me is that I wasn't suckered in by these rats when the previous share price collapse happened back in January. I have massive sympathy for those who were. In my previous two blog posts I had this to say:- 

http://michae1mouse.blogspot.com/2018/12/micro-cap-christmas-presents-or.html

"7digital (7DIG) - current sp 2.3p, market cap. £9.2m. Big promises but disappointing so far. Has had a habit of pulling defeat from the jaws of victory. Up until now it's been a big cash guzzler and diluted shareholders. Major acquisition should now be fully integrated? Cost savings will be £5m per annum? Gross margins should be 70%+ , and profitability just around the corner in a potentially exciting space. Market doesn't currently believe the promises, but if 7digital proves them wrong then expect a multi-bagger in double quick time."

Followed by:-

http://michae1mouse.blogspot.com/2019/03/the-micro-cap-update-3-months-later.html

"7digital (7DIG) have probably released more news than all of the others since December. Initially bad news including the termination of a contract with Juke a significant customer, and the non payment of a tax bill. The market was spooked and the shares plunged. However, since then they settled the tax bill and received a very healthy 4m Euro settlement from Juke, alongside announcing new contracts. The share price has recovered a little and stands at 1.18p (down 49%). Very recently there have been significant changes to the management team."

Given the newsflow, shareholders had every right to believe that, despite the January issues, the company was recovering and with a 4m Euro settlement received had enough cash for the foreseeable future at least. I can't even express how angry this makes me. At best it was financial incompetence, I'll let you surmise what it was at worst.

I don't care what happens to this company or it's share price from now on since I've been 100% wrong up until this point. However, given it's history then who in their right mind is going to stump up extra cash and/or lend them money when they've pissed so many millions up the wall already. Good riddance.

In terms of lessons learnt then I'm not going to be too harsh with myself, but I'm not best pleased either since this now ranks as my worst investment since DCD Media and there were some worrying parallels e.g. crap balance sheet stuffed with intangibles, ill advised acquisitions, management promises never fulfilled etc.

Firstly, in my defence I'd say that the company was beginning to generate very healthy revenues, gross margins were around 70% (very appealing for operational gearing), they were last man standing in Europe and profitability and cash generation was promised and appeared highly likely in 2018.

It's all "jam tomorrow" bollocks though really. At the 2018 interims, despite a healthy increase in revenues, losses were over £2.5m, net current assets were nearly minus £2m and they were still burning cash like it was going out of fashion. The fundamentals will always out in the end! I know this and must do better next time. 

I've been in this game for a long time now, and the successes are invariably those companies which have most of the following qualities:- Profits, good cash generation, a solid balance sheet, high gross margins, good management, dividend payments and Directors with "plenty of skin in the game". Small companies don't need to have all of them to pique my interest, but 7digital only boasted growing revenues and high gross margins. It's not enough.

What still amazes me after all this time is investors (including myself in this instance) chasing companies with none of the above and sometimes barely any revenues. 99% of the time it ends in disaster for such companies. 7digital being one of them. What on earth was I thinking?

Remember ignore all I say and do, but (just for myself) don't listen to bullshit by CEO's, sharetipsters, multi-handled bulletin board idiots, tweeters or any one else. It's always the fundamentals stupid with some potential for growth and a bit of luck thrown in! They might not always be multi-baggers, but some will be and the ones that aren't are unlikely to lose you 95% of your capital.

GLA, and commiserations if you own(ed) 7digital or indeed any other company that has lost significant value.