The good, the bad and the ugly

Well I did say that this blog would include the good, the bad and the ugly. Whilst Surgical Innovations and Avesco are looking good, it got ugly at DCD Media.

Let’s start with the good. It appears that the market is once again waking up to the fact that Avesco is hugely undervalued. I have mentioned many times before that this company is undervalued on any number of measures, and if you want to know more then read some of my previous blogs.

Avesco’s share price rose by 13% today. I suspect that it is in anticipation of the interim results due in June and the impending Disney appeal case due to start towards the end of the same month.

One of the posters on ADVFN suggested that today’s rise in the price could be due to a tip that appeared on a trader’s blog. Does that imply that my thread on advfn and this blog are largely ignored? I’ll try not to take offence. It’s just as well that I’m not egotistical I suppose. However, I can take solace in the fact that I picked up the majority of my holding in Avesco at prices between 20p-30p.

In my opinion, the Avesco story still has some considerable way to go before I even contemplate taking any profits.

In my previous blog, I commented on the 12 month results for Surgical Innovations. After a brief retrace in the share price it has begun another assault on the 10p mark. I’m also quite happy to hold the shares in this company for the foreseeable future.

Anyway that’s the good. I can’t think of any bad, so let’s go straight to the ugly.

DCD Media. Where do I start with this company? What kind of management releases its full year results (18 month period) on its own website on a Saturday afternoon in the middle of a bank holiday weekend? Put your answers on a postcard please.

Needless to say, the results were not what were expected, or should I say not what I expected (understatement of the year). I could write a book about these results. Take a look at the contrast between the 12 month period and these results just 6 months later. Unbelievable!! Perhaps there’s another story here?

If you read my blog entitled ‘don’t bend the rules’ then you will see that this has been a very poor investment for me. I did truly believe that they had turned things around, and with Taya investments taking a 20% stake, DCD’s future looked considerably brighter.

The company appears determined to self-destruct and make me look stupid in the process. 

The results raised innumerable uneasy questions about this company and its management. Top of the list was their sudden and unexpected statement about needing £1m for working capital for the newly established factual division. Eh? Do explain how you intend to use it? Are you planning an extravagant party perhaps to keep up staff morale?

Apologies for the heavy sarcasm but I think I’m entitled to some with this one.

DCD did make an underlying profit and was cash generative. They managed to pay down a £1m of bank debt. However, the market has totally lost faith in the company and at a capitalization of just £3.28m DCD is priced to go bust. Given its capacity to spring nasty surprises, I cannot dismiss that this is a possibility.

With hindsight investing in DCD was an easily avoidable mistake. Their balance sheet has always been stuffed full of intangibles and goodwill and, as I said in a previous blog, these so called assets are totally worthless when the chips are down!

I also wrote a piece entitled ‘put your money where your mouth is’, expressing the significance of Director’s buying shares. Director buying at DCD has been noticeable by its absence.

It may seem contrary, but I do still hold shares in the company. It turns over more than £30m a year, and as I said it is still profitable. If it survives then it must surely be a potential bid target at a premium to its current value.

However, given my history with this company, I hold the shares more in hope than expectation!!

Some of you may be wondering why I don’t just cut and run.

Firstly it’s priced to go bust, however if they do get their funding, then parts of, if not all of the company may be attractive to either TAYA or another predator. September Films is a particularly successful operation and has a strong presence in the USA. This could be very attractive to some production companies wishing to make inroads into US television.

Secondly, if they’re not acquired then it’s just possible that TAYA will take an active role in managing the company and aim to restore DCD’s credibility.

I should point out that DCD have stated that their major shareholders have given strong indications of support in an equity or debt funding for the required £1m.

I shall hold, await further news and then take action as appropriate.

SUN will keep shining until at least 2013 (apparently)

Well that was an interesting week in the run up to the Bank Holiday (UK)!

On Tuesday 21 April, Surgical Innovations (SUN) released there 2010 final results. You may recall that I bought shares in Surgical Innovations for less than 2p (See blog entitled "Will (the) SUN keep on shining?"). After the results, I think it's fair to say that (the) SUN is still shining, and will be for some considerable time to come.

"We remain confident about the future growth prospects of the business for the remainder of 2011 and further into 2012 and 2013 as new products are launched towards the end of this year and the increasing traction with OEM customers gains momentum. "

A great forward looking statement, and I continue to hold all of my shares in this company.

The 2010 results were impressive with a massive hike in profits and an EPS slightly above expectations at 0.48p, which puts the shares, currently at 8.65p, on a historic p/e of 18. Given the growth prospects I consider the current valuation to be cheap, in fact their broker has set an intial price target of 12p.

What excites me most about Surgical Innovations is the accelerating growth coupled with a rapid improvement in margins (set to improve further in 2011). It also appears that they are increasingly gaining traction in the US with a marked increase in enquires.

It was a very bullish report and I shall sit tight. Given the consolidation in this sector there is also the outside chance of a bid. Either way, it's looking increasingly like a very long term hold for me.

Elsewhere, I see ASOS continues its heady climb, and now stands at £24.10. In my very first article I mentioned that I saw ASOS at 15p, and thought about a £5000 investment. I didn't buy any shares though. If I had then the current value of that £5000 investment would be £803,333. I'll just go and weep into my coffee for a few minutes! Just joking, and well done to those that bought early and held on.

I also see that BLINKX leapt another 17% yesterday, taking Burst Media with it (now 29p). Both these companies shares have multibagged in recent months. BRST perhaps being the most spectacular when BLINKX bid for the company. BRST sat on a SP of 5p before the bid, and has become a six bagger in a matter of weeks. Don't you just love small cap companies when they behave like those mentioned above.

In my last article I wrote about why I never short shares. Events over the last few weeks certainly haven't caused me to change my mind. As I said in that article, companies like ASOS can remain on a very high multiple for some considerable time. ASOS continues to defy gravity.

I have also been watching Avanti Communications where there appeared to be a struggle going on between the bulls and the bears. An impressive trading statement has handed control back to the bulls, and the share price has recently shot back up above £5. As mentioned before, there had been heavy Director buying in this company recently. It's worth remembering that these are the guys with insider knowledge, so when they put their money where their mouth is, it shouldn't be ignored lightly.

Finally, a quick mention of Kenmare Resources. KMR released their final results recently, and after a small blip in the share price, I notice that it is still hovering around 50p. For those that place great store on chart patterns, from my less than expert interpretation, it appears to remain in an upward trajectory. I still think a bid will arrive for KMR well above its current valuation. However, I might add that I am not a holder of this stock, and haven't read the report in any detail other than a cursory glance.

As ever, good luck to all investors, good health and may you all prosper!