Your m8 , my m8, TRAKM8

In one of my previous blogs, I wrote an article about the significance of Director buying entitled “Put your money where your mouth is”.

I do like Directors to own a fair chunk of their own businesses, and I’m always interested when they buy or sell.

This month I noticed that the Directors of a company called Trakm8 had bought 400,000 shares between them, which collectively takes their holding in the company to around 46%. Notably, the two Directors that purchased the lion’s share were the Finance Director and the Sales Director.

After some research, I decided to join them.

From their website, “Trakm8 designs, develops, manufactures, supplies and supports vehicle tracking, fleet tracking and GPRS/GPS tracking products and services. The company provides both hardware and software telematics solutions.”

I think that the market may be missing the underlying growth story here, and may have been mislead by what appears to be a drop in EPS from 3.1p (March 2010) to 1.1p (March 2011).

This is one of those instances where the EPS is not the most reliable indicator of the progress a company has made.

The difference in the EPS figures is accounted for by a substantial tax credit in 2010, as opposed to a tax charge in 2011. This masks the excellent underlying growth.

Revenues grew by 22% to £4,186,000 and operating profit 19% to £329,000. Profit before tax increased 23%.

What is also impressive is that they increased cash balances from £427,000 to £1,119,000, gross margins were 66.6% and the NAV increased to £2,236,000 (includes £1.2m of intangibles). The market capitalization, when I last looked, was around £2.7m. This certainly doesn’t look expensive given the growth prospects and balance sheet.

Further attractions include contracts secured with Jewson and the AA (over the past year or so), a significant jump in monthly recurring revenues from 49.9% to 61.7%, and relatively low borrowings at £184, 491 (reduced from £223,265 the previous year).

The Chairman’s outlook states that “The board is confident that the revenues and profitability growth of the group can be continued over the next 12 months”.

The current p/e ratio is about 13, and my conservative forecast puts the company on a forward p/e of around 10. This seems mean given the growth prospects.

A couple of bear points might include

1)       The Company not paying a dividend. They prefer to reinvest their growing cash resources into the business and look for suitable acquisition targets.

2)       The illiquidity of buying their shares.

Overall, it looks an interesting story, and if growth continues over the next two to three years then the share price has substantial upside potential.

As ever, time will tell.

Will you fall in love with Cupid's growth story?

For those of you who like growth companies, here's an interesting story. Cupid is essentially a global on-line dating company achieving rapid growth through acquisition. The company, which joined AIM in June 2010,  released it's half-year results today and exceeded market expectations. Revenues were up by 189% at £25.4m with 53% of the total achieved outside the UK.  EBITDA increased to £5.7m, a rise of 137% and they have £8.4m cash on the balance sheet and no debt.

Cupid are building a truly global presence, and establishing a strong foothold in the North American market.

Monthly revenues now exceed £4.5m per month, which projecting forward should produce a figure in excess of £52.4m for the full year. EPS at the interim stage was around 4p, and broker's forecast's come in at about 9p for the full year. However, I could easily see them achieving 10p+ for 2011 giving a forward p/e of around 24.

The Chief Exec's statement is very bullish:- "We are in a very strong position and remain confident that we will grow value for shareholders in 2011 and beyond. The market for our services is global and growing and we are well placed to take advantage of the numerous opportunities that exist".

It's a truly impressive growth story so far, and I will be keeping a careful eye on the SP and future developments. However, I shan't be buying at the current share price. 

At heart I 'm a value seeker, and my issue with growth companies is that forward p/e ratios of 20+ don't leave any room for mistakes. Essentially growth has to continue at the heady pace expected by the company and the market. Cupid currently has a market cap. of £200m which is about ten times its net asset value (including intangibles). Without a dividend and/or sufficient asset backing then any hint of slowing growth can have a catastrophic effect on the SP. I'm not that brave.

That said, if I was to have a punt on a growth company in the expectation that they could continue to produce impressive figures, then Cupid would certainly be of interest. The very nature of their business appears ripe for consolidation and rapid growth, and I can see the story running for many years to come.

In conclusion, and perverse though it may sound, whilst I can't justify buying Cupid's shares using my strict (largely value based) criteria , a gut feeling tells me that I might be missing out on the next ASOS like growth story here?

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The very little research, but are these really hopeless cases? portfolio vs. FTSE250

Just for a bit of fun, I thought I'd pick a few companies whose share prices look a little battered and bruised and compare their performance against the FTSE 250 over the next two/three years. I haven't done any research on these companies, and all I'll do is make a few cursory observations in their favour. I don't currently hold any shares in the companies I shall mention. Those of you who do read the blog from time to time will know that I tend to concentrate my efforts on trying to find bargains in the small/micro cap sector (see previous blogs).

For simplicity, I am going to allocate an equal (but fictional) investment in each of the eight companies.

The companies and their respective share prices at the close of play today are as follows:-

Aviva                                                            318.8p
Cable and Wireless Worldwide                      34.44p
Cable and Wireless Communications              32.12p
Game Group                                                  23p
ITV                                                                55.85p
Man Group.                                                   206.1p
Thomas Cook                                                43.55p
Vodafone                                                       162.85p

The share prices are the mid-prices given on the ADVFN monitor at the time of posting (17:40 Thurs. 25 Aug 2011).

The FTSE-250 finished the day at 10,021.39.

Starting with Aviva. Well known Life Insurer that pays a dividend of over 8%. If it holds the dividend for the foreseeable future then that's a pretty good return when you compare it against other investments.

The two Cable and Wireless companies. Proof that performance after a demerger can be as unimpressive as it was before, so far investors have had the opportunity to be disappointed twice as often. However, the yields from both companies are quite high (again if they can maintain them), and aren't both companies possible takeover targets?

Game group. Is this company seen in the same light as HMV? Looks to have better prospects to me, and  a cursory glance seems to indicate that it is adapting and fighting back with a growing online presence.

ITV. Can still attract huge audiences for popular shows e.g. around 20m for the X-factor final and hence still attracts the advertisers. Apart from the BBC, does it really have any credible opposition in the UK? Just re-instated a dividend payment. Possible takeover target?

Man Group. Nice dividend. Possible takeover candidate.

Thomas Cook. Pessimists think TC could go bust or at the very least need to issue more equity. However, TC will be merging with the Co-op to make it the biggest UK tour operator. Despite the many issues facing TC, Russian acquistion looks promising, the Brits still love their package holidays and the chaos caused by the ash cloud should benefit companies like TC in the long run. At today's share price the yield is about 25%. Market obviously believes a cut is imminent, but if it isn't or it returns to the same levels in a year or two then what a fantastic return. Directors have been buying at current levels.

Finally, Vodafone. Dividend yield must be over 7% with the special dividend in January. Will the special dividend be a one off? Probably not.

You can clearly see that I haven't done much research, but I am interested to see how the performance of this portfolio pans out against the FTSE250 over the next two or three years. Just to stick my neck out, my guess is that this portfolio will out perform the FTSE250, but I'm not recommending it and I certainly haven't done this myself.

As I said at the beginning, it's just a bit of fun that fits in with my value and contrarian instincts, and on a monthly basis I shall return to compare performance.