Densitron disappoints

Densitron issued a trading statement this week which greatly disappointed and took me by surprise. In early November the company had already issued a profits warning which indicated that they wouldn't meet market expectations. However, at the same time they said operating profit would be above that achieved in 2011.

The latest trading update now states that profit will be materially lower than 2011. Given that the previous statement was issued just two months before the year end, it doesn't instill any confidence in their ability to accurately forecast future trading.

The poor update was compounded by the reluctance of the parties involved in litigation against Densitron to enter mediation regarding a lease property at Wallsend, Tyne and Wear.

The share price nosed dived 20% on the news, but later recovered to end the day around 16% down.

The reason I was so surprised was that in recent days, volumes had been increasing and the share price steadily moving upwards. Rightly or wrongly I expected that news had possibly leaked that trading had picked up and a resolution to the lease litigation had been settled out of court. Given the lowly rating (a low single digit p/e ratio) that would have made the shares very attractive and the share price would no doubt have jumped a similar amount in the opposite direction (if not substantially more). However, if my aunt was my uncle as they say. Such are the vagaries of stock market investment from time to time.

Since I acquired shares in Densitron they have paid good dividends, and I hope these can be sustained despite the profit warning. They have a strong balance sheet with little debt. The p/e ratio is currently around 7, based on 2011 results, although clearly set to rise. They also own a 1.25 acre strip of land in Blackheath where they are seeking planning permission.

At the current share price, I would hope that there is little further downside, and that 2013 may bring better news. I'm also still a little intrigued with the sudden volume increase in recent weeks which moved the share price upwards, although this may amount to nothing. On balance I've decided to hold on to my shares and await developments during 2013 whilst (hopefully) receiving a healthy dividend payout.

Only time will tell whether or not this is a wise move.

 

Interesting development??

I see Taya Communications have invested another £277,890 in Avesco at £1.57 per share. Ami Giniger, a non-executive director of  Avesco, is the chairman and controlling shareholder of Taya. That brings their stake up to 29.99% the maximum amount they can hold before making a formal bid for the company (pedants might argue that they could add a further 0.00999 recurring percentage worth).

Taya had a bid for the company rejected when the share price was bouncing up and down in the 20p-30p range in 2009. The derisory offer at the time was in the range 28p-35p and summarily dismissed. It wasn't a difficult decision given that NTAV even at that time was north of £1.40.

The recent purchase seems interesting to me given my article "something on my mind" http://michae1mouse.blogspot.co.uk/2013/01/something-on-my-mind.html.  If Avesco eventually receive their $60m from Disney and they distribute most of it to shareholders (as they have already indicated) then nearly a third will be pocketed by Taya. What will they do with that money? Will they come back with another bid for Avesco?

One thing is for sure, it would have to be a high multiple of their original offer. I firmly believe that Avesco is still priced well below fair value even without a payout from Disney. NTAV is £1.52, the company is profitable and growing and has an excellent reputation in its field. See link below for two recent awards received by Creative Technology:-

http://www.ct-group.com/news/ct-awarded-gold-twice-two-weeks

Avesco has done exceptionally well to grow organically into the teeth of a considerable economic storm. As economic conditions improve this company can only continue to prosper.  Any prospective bidder would need to make a very generous offer indeed!!

Angle interims and Avesco share dealings

This week, the main news came from my holdings in Angle and Avesco.

Firstly, Angle released their interim results and details of a £2.2m fundraising. I am very encouraged by both news items. Although there is little further news about the progress of the Parsortix device that wasn't already known, the product is on schedule to be released for sale to the research market in the near future. News of this development should provide the next driver of the share price.

As I have mentioned before, the success or failure of Angle will be down to this single product. Despite chatter on the boards regarding Geometrics, Angle have stated quite clearly that their fair value holding in Geometrics currently amounts to £3.6m (some very fanciful figures have been bandied about on the BBs). They also state that "market changes may make Geomerics an attractive acquisition target."

Their other investment in EmbryoSure(R) has effectively been shelved for the forseeable future.

Just to clarify my interpretation of the accounts. They will sell Geometrics as soon as the opportunity arises to raise more cash to launch Parsortix, and they won't do anything about EmbryoSure(R) for at least a couple of years or so. Angle is all about Parsortix.

The fundraising shouldn't have come as any surprise  I have mentioned the likelihood in previous blogs, as well as my thoughts about their other investments:- http://michae1mouse.blogspot.co.uk/2012/12/a-new-angle.html

Fortunately, as hoped, the placing price was well above my relatively recent purchase price. I consider the placing price of 50p quite a coup for Angle, and clearly investors who participated in the placing are very impressed with the progress of Parsortix. Incidently my purchase price was well below 30p, and I continue to hold all my shares.

So where next for Angle. Well I hope that they are successful selling the product to the research market without any banana skins. If, and hopefully when, they reach this stage, the share price will comfortably exceed £1+, and any future fundraisings (should they need them) will also be above £1.

Make no mistake, this is a cross your fingers and hope for the best speculative investment, but so far so good.

Other news came from Avesco where Richard Murray picked up another £300,000 worth of shares at 150p a piece and three other Directors collectively sold £141,818.20 to cover their tax liabilities. The reasons given for the share sales are plausible and Murray's large purchase, Taya's 29.9% holding, tangible asset value close to the current share price and the possible Disney payout provide considerable reassurance.

N.B. As always, no advice is intended or given, this is a personal blog about my own experiences and dealings in the market.