Trading statements and cashing in a 50% profit

It's been a fairly eventful week, with two of the companies I hold shares in issuing trading statements.

Unfortunately neither statement was particularly pleasing, although it could be argued that neither was disasterous either.

However, I have subsequently sold one of my holdings and retained the other.

The holding I have sold are my shares in Indigovision.

During 2012 the company has been extremely bullish about its prospects, and as I have previously written, when Indigovision increases sales whilst maintaining margins the effect on the bottom line is quite dramatic.
 
When they issued their final results in September, the tenor of the report gave the impression that 2012/2013 was set to be a year with good growth prospects. In fact having achieved double digit growth in the second half of the year, it mentioned that double digit growth had continued into the new year. I quote " A good start has been made in the current year. Double digit sales growth has continued into the first seven weeks of the current year, and the rate of order intake is equally encouraging."

Barely a few weeks later revenue growth has been reported at 6% and order intake at 10% (just about double digits), more concerning is the fall in margins and the increase in operating expenses.

It begs the question, what exactly has happened in a few brief weeks?

Let's be generous and just say that the trading statement wasn't quite what I was expecting.

I was also a little puzzled by the following:- "As ever, the visibility of future orders remains short.....". Well that's obvious.

But then we have:-

"Given the outstanding performance achieved in last year's first half, we expect benefits to operating performance to be skewed towards the second half of the current year."

So let me get this right. Forward visibility is limited (to say the least), but they expect benefits to operating performance to be skewed towards the second half. How on earth do they have any idea what the second half will look like?

To be honest that line looks like gobbledygook to me. What's the first half of last year got to do with the second half of this year? Perhaps it's just me!!

Anyway, unfortunately I was out on Thursday, pretty confident that the statement would be good, if not great. I was more than a little surprised to see a 65p decline in the SP when I returned home.

My worry is that over the past year or two, there has been more time spent on a power struggle than on improving the performance of the business, and now I'm totally unsure about the prospects here. The picture is very opaque in my view.

I think the company is probably reasonably priced, but for me, the issue of forward visiblity will always be a worry and hence I sold my holding on Friday.

I have no complaints. With the special dividend and some capital growth, I have banked a 50%+ profit in just under a year. As ever, I'll keep them on the monitor, but for the moment I'll invest elsewhere.

Earlier in the week Densitron also gave out a trading statement. The bear points are that they will miss market expectations for the year (delayed orders which will now fall into 2013)and there is ongoing litigation (although they hope to settle out of court). The share price dipped by around 10%.

On a positive note, the possibilty that they would undershoot market expectations, and their intention to resolve the dispute about a lease out of court were flagged up in the interim results and not too much of  surprise.

Furthermore, operating profits for the year will still be ahead of 2011 which puts the company on a forward p/e of less than 7. The order book is strong and 10% ahead of the same period last year, with prospects for 2013 looking encouraging.

It appears that the bad news is already in the price. Clearly the uncertainty around the lease dispute is a risk, but a swift and not to painful resolution would see the company back on track and, in my opinion, undervalued on future prospects.

The current dividend is around 7%. I hope this can at least be held, but again I expect that the outcome of the litigation may influence their decision on this year's payment (0.2p was already distributed at the interims).

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

It's been a very quiet week for the micro/small caps that I have an interest in, and as such I don't really have anything new to add.

However, some of you may remember that, as a bit of fun in September 2011, I started to look at companies that had or were having a bit of a torrid time either from a trading or a share price point of view.

Out of interest, I started to compare the SP performance of these companies to the performance of the FTSE-250.

I was going to provide updates on a monthly basis, but unfortunately other commitments don't allow me to post as regularly as I might wish to.

Since September 2011, you might be interested to know that the FTSE-250 has risen by a very creditable 20.9% from 10,021.39 to 12,120.83, but how have the selected companies performed. Which have been the stars (if any) and which have crashed to earth with a bang?

Well the biggest casualty was Game Group. In fact it was Game over (I wonder how many times the press used that one?). One of the many high street casualties in recent years unfortunately, and an investment here would have cost you dear.

The next biggest loser (at the moment) is Man Group, falling from a price of 206.1p to 84.5p, a whopping 59% drop. Incidentally, I did mention Man Group in last week's blog for those interested.  Thomas Cook is next with a drop from 43.55p to 22.5p (a 48.3% drop).

Three of the other shares have fared better. In order of price gains Cable and Wireless Comms has increased by 16.2%,  Aviva and Vodafone by 6.2% and 3.3% respectively.

Cable and Wireless Worldwide succumbed to a bid from Vodafone (ironically), and if memory serves me correctly Vodafone paid 38p per share, meaning you would have bowed out with a reasonable 10% profit.

Finally, the biggest star so far is ITV, rising from 55.85p to its current 89.5p, a very healthy 60.3%.

Overall, the portfolio is down by 14%, and hence the FTSE-250 is the clear leader by some considerable way at this particular juncture.

As I stated at the time, I didn't and don't have any holdings in the companies mentioned and haven't carried out any research, I just thought it might be an interesting study for a year or two.

Are there any lessons to be learnt?

Probably not, but to state the obvious, it's essential to thoroughly research companies you invest in before taking the plunge, and investing at the right price is crucial i.e. What price are you prepared to pay for a company?

Cable and Wireless Worldwide was a classic example. Whilst a 10% gain is a decent profit in less than a year, at one point the shares slipped to about 14p (again from memory?) and if you'd bought them then you'd have made a killing, in fact a 171% profit in a very short period of time.

I hope to re-visit these companies again in a year's time.

Takeover rumours

When I first started dabbling in the stock market, like many investors I tended to concentrate on larger companies that were generally household names. However, I soon moved away from these companies towards the smaller types of organisations I invest in today. There are many reasons why I quickly moved away from investing in big caps, but the main one would be because small caps are often overlooked and under-researched whereas the larger companies are analysed to death by hundreds of professionals. It therefore seems likely that there is more chance of spotting a bargain amongst the small-caps.

However, that doesn't mean that there aren't bargains to be had even in the FTSE-100.

I am always interested when I hear takeover talk mentioned in the papers and elsewhere, and keep a watchful eye on potential targets.

Back in 2002, there was a lot of talk in the press about Safeway supermarkets being vunerable to a takeover, and having cast an eye over the fundamentals, I decided that the shares did look cheap. I waited a while for the rumours to die down before buying a small stake. The share price drifted for a few weeks/months before Morrisons eventually made their successul bid, and I was able to bag a 20% profit.

So where are the rumours that just won't go away at the moment?

Well amongst the larger caps, Man Group seems to be popular, and further interest has been aroused by Odey Asset Management recently taking a near 5% stake in the group. I've no idea whether or not a potential bidder may appear, but certainly the rumours have lingered for some time. I haven't researched the fundamentals, but I am aware that the shares have fallen considerably from their peak, that the company has been struggling to hold onto it's investors and that its AHL fund continues to underperform. On the plus side it appears to offer a double digit dividend which, if it can be held, is not to be sniffed at. Break-up value is touted to be around the 50p-75p mark.

An investment in Man Group would look very tempting if the share price were to drop to within this range.

Another large company where takeover talks have often arisen is Sainburys. In truth, this looks a safe company in which to 'park' your money, offering a very healthy dividend yield, slow but steady growth in earnings and with substantial property assets on it's balance sheet.

In 2007 the Qatari backed Delta Two fund held talks over a 600p per share offer for the group, but backed off because of the credit crunch. However, during the summer, rumours about renewed interest surfaced once again.

My instinct tells me that either one or both of these giants will eventually fall prey to a takeover bid, and although you're probably not going to achieve a multi-bagger with either one, traders with a short/medium term horizon may make a healthy profit.

I don't own shares in either company, but I will keep them on my watch list, although I do tend to stick to my small caps these days.



My recommended investment books:-

http://astore.amazon.co.uk/httpmichae1mb-21