Speculate to accumulate?

Earlier this year I made what I would consider to be a highly speculative purchase of shares in a company called Avanti Communications. Avanti had been on my radar for some considerable time, but given the stage of its development in early 2011, a price of £7+ was certainly more than I was prepared to pay. The company’s shares were subsequently the target of a well-known “shorter”, and the price fell rapidly over the year to a low of around £2.40 if memory serves me correctly.

However, I kept the company on my monitor and decided to take the plunge around April 2012, buying shares at around £2.60. Since that time the shares have recovered to the current price of £3.44.

I could never classify my purchase of Avanti as an investment, more a speculative punt, but I am becoming more confident that this could be a multi-bagger in the making.

Firstly, the trigger for my purchase of Avanti shares came when in February this year they announced the fundraising for their third satellite HYLAS 3, alongside a positive trading update and a statement stating that “in the current climate (the company) does not intend to pursue further equity raisings for satellites in addition to HYLAS 3” and “Subject to suitable market conditions the Company intends to seek a premium listing on the Official List of the London Stock Exchange in 2013”.

Directors have been regular purchasers of company shares; trading updates have been encouraging and recently the launch of HYLAS 2 went smoothly. Given the costs associated with building and launching satellites and all the inherent risks, I’d imagine that barriers to entering their chosen market are high.

If things do continue to go well for Avanti then shareholders should be richly rewarded with capital growth and hopefully dividends in the longer term. However, on the flip side there are probably a thousand and one things that could still upset the applecart, hence until there are visible significant revenues, cash flow and profits it remains highly speculative. Brokers quote anything from £6-£20 a share as possible in the medium term (which probably tells you everything you need to know i.e. just pick any number out the air?).

Results will be released this Wednesday with an update on HYLAS 2, and it will be interesting to see the numbers and the capacity being filled on both HYLAS 1 and 2.

It’s not a company I’d bet the house on, but nevertheless you wouldn’t need to since if it is ultimately successful, even a fairly modest stake could quickly become more significant.

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.