Interior Services Group

 “An international construction services company delivering fit out, construction and a range of specialist services”,.

I was attracted to the company by a hefty dividend, low P/E ratio and Director purchases despite the company clearly competing against a lack lustre UK economy, competitive pressures and the inevitability of squeezed margins.

As ever, I wasn’t expecting a quick turnaround on this investment, but longer term it looks a good bet.

Whilst it was disappointing that they reduced dividend payments in the current year, the yield is still over 6%, and management are committed to a progressive dividend policy. The company is still heavily reliant on the UK, but overseas operations are growing rapidly and there is plenty of cash on the balance sheet. Hopefully, the UK is seeing some green shoots of recovery.

The 2012 outlook statement was encouraging without being overly optimistic.

I bought shares at around £1.35, and did see them fall back to just over £1 at one point, however, they have recovered since and I am now slightly in profit.

Having seen what happened at Zetar yesterday I’m intrigued, whilst I’m pleased with the rapid share price recovery, I see no particular driver for it at present. Yes, in the long term I believe that the company will prosper and the share price improve considerably from here, but I wonder why there has been a sudden interest at this juncture.

Interior Services have talked about acquisitions to fuel further growth, but like Zetar will they become the prey. If share price action is anything to go by then, given the similarities, the answer is possibly yes.

Sweet profit at Zetar

Well you don't expect that kind of RNS after hours on a Friday evening, but I'll take it!!!

It appears that a German company called Zertus have made a cash offer of £2.97 for the entire issued share capital of Zetar.

As you may remember, I bought shares in Zetar in July 2011 (see blog dated Monday 25th July 2011) for around £2.20.

If you read the post then you will see that, longer term, I believe that they are probably worth between £4-£4.50.

However, I'm not going to turn my nose up at a 33% profit in just over a year. Where to put my profits next is the question that will occupy me now, although there are still plenty of small cap bargains.

I suppose that the offer wasn't a surprise really, and in my July post, I did say the following:-

"There has been plenty of consolidation in this sector in recent times (think Cadbury’s and Uniq). In fact whilst Zetar are looking towards organic growth, they are keeping an eye out for small bolt on acquisitions, although will they inevitably become a target themselves?"

 

Plenty of small cap companies are still hugely undervalued, the predators know this and are sniffing around.

 

 

 

Get to know the companies you invest in, and keep them on your monitor-Indigovision

Regular readers of my blog will remember that some time ago I sold the remainder of my holding in Indigovision to bank an overall profit of 750%. You can read the previous posts which detailed my reasoning, but in summary their trading statements indicated that growth and margins were faltering, and I predicted that the share price would fall back below £2 which it subsequently did.

However, I also wrote that I would keep the company on my monitor and that it was vulnerable to an opportunistic bid approach.

Late afternoon on Friday 25 Nov 2011, Indigovision suddenly released one of the most bullish trading statements I’d ever seen from this company. Knowing the company well, and the implications that an improvement in margins, and a reduction in operating costs would have on the bottom line, I bought shares for around £2.70.

I had no idea about the drama that was to subsequently unfold, but the opportunistic bid did appear from the most unlikely source i.e. the now ousted Chief Executive, and although the final bid (rumoured to be around £4) was rejected, the company appears to have regained momentum.

Final results released on Thursday (27/9/12) are encouraging with a resumption of double digit growth in the second half which has carried over into the current trading year. Most pleasingly they have hiked the dividend by 33% year on year, and proposed a special dividend of 70p per share. Fantastic. I always interpret these moves as a positive sign. They don’t need the cash to fuel growth, and investors get the opportunity to reinvest or spend their money however they like.

For those investors who know this company well, the implications for operating profits from double digit top line growth are exciting, and I’ll be holding tightly for the foreseeable future.

If growth doesn’t retain its current momentum then don’t be surprised to see Vellacott return with another offer. Overall, the balance of probabilities is favourable for further share price rises, and meanwhile I’ll gratefully accept the dividend and special dividend payments.

Finally, over the past year or so, I have been accumulating shares in other small/micro-cap companies whilst there is still a sale on. More to follow in later blogs.