An intelligent choice?

Over the past year I have been buying shares in a company called Access Intelligence for prices between 3p-3.75p. This is a micro-cap company which describes itself as a "leading supplier of Software-as-a-Service (SaaS) solutions for the full life cycle management of a company's governance, risk and compliance."

As with all of my share selections, I'm looking at a medium to long term investment and felt that this micro-cap has significant potential.  The company has a market cap. of just £9.1m, and the results which were released on March 5th 2013 show that the company produced revenues of just over £8m, and a small loss of £114,000.

On the face of it the results don't look particularly impressive until you dig deeper.

Firstly this is a company that is currently investing heavily in it's future to increase long term shareholder value, and initial indications are that this investment is paying off.

Whilst turnover was up 11% from 2011, most significantly, contracted not yet invoiced revenue was up 101% to GBP5,453,000 (2011: GBP2,713,000) and recurring revenue was up 16% to GBP5,562,000 (2011: GBP4,807,000) at 69% of sales (2011:  66%). Gross margins are a very healthy 70%.

The company also boasts a solid balance sheet with £2.8m cash and very little debt. In fact a small dividend will be paid to shareholders during this month (approx 1.25%) as a sign of their confidence in the future.

There will be continuing investment in 2013 with the full benefits coming through in the latter part of the year, and the company states that "Access Intelligence's solutions are core to companies achieving compliance and there continues to be significant opportunities for growth, both within our enviable customer base and regulated markets as a whole."

The shares leapt an impressive 23% today, although the reasons for this are unclear since it wasn't driven by any news (a tip possibly? leaked news of a contract win or bid approach? who knows?). However, the company looks a good medium to long term bet to me anyway, and the following research note also suggests that at the current price of 4p, the shares are significantly undervalued:-

http://www.accessintelligence.com/downloads/07032013_accessintelligence_initiation.pdf

"Applying this suggested recurring revenue multiple range to Access Intelligence implies an enterprise valuation range of £11m to £14.4m, or 5.5p-7.0p, considerably above the current share price."

It should also be noted that during December, Joanna Arnold (Chief Operating Officer) bought £200,000 worth of shares at 4p a piece, and other Directors were also hefty buyers during March 2012.

 

There's many a slip twixt the CUP and the lip!

Oh dear, what's happened to Cupid? On Friday the shares fell a massive 57% after the company released a statement about the appointment of auditors to investigate recent press speculation about the activities of the company's 'motivation team'.

I wrote about Cupid in August 2011, and although I never did purchase shares in the company I did leave them on my monitor just in case the share price fell back to enter my value based criteria:-

http://michae1mouse.blogspot.co.uk/2011/08/will-you-fall-in-love-with-cupids.html

I wrote the article when the shares were priced around the £2.50 mark. Now the shares are trading at about 50p, a quick glance at the recent finals would suggest that the shares are now a bargain basement price. The company has achieved outstanding growth since listing, and currently sit on a single figure p/e ratio with plenty of cash on the balance sheet and no debt.

Am I tempted to buy at these levels given the current situation?

Certainly the fundamenals are seductive, and I do wonder how damaging these allegations will be in the long run? What's the worst that can actually happen here? How many users will actually care that much about these allegations, particularly if their experiences have been positive?

I've no idea how much a year's subscription to a site like this would cost, so even if the company are found to have deceived/duped customers into signing up (which hasn't been proven yet) what sort of compensation is likely to be payable, and exactly how many lonely hearts are likely to want to come forward anyway? Of course, it's difficult to gauge the extent of any possible lasting damage and that's why the shorters are currently enjoying a field day with planting doubt in the minds of shareholders and potential investors.

My own feelings are that this may just turn out to be a very temporary blip for a rapidly expanding company that has a presence in 15 different countries. Certainly online dating appears to be a huge growth area. This could turn out to be a massive opportunity to buy shares whilst they are extremely cheap.

From a bear perspective though, one thing does worry me. From 2011 to present, the Director sells have far outweighed the Director buys, apart from a recent purchase from Bill Dobbie. If this is such a great growth story why have the Directors been cashing in so early on in its history? In fact Martin Higginson (a non-exec) sold his entire holding in 2011 (although I don't know if he is stilll a non-exec?).

I'm not going to guess what the final outcome from all this will be, nor am I going to buy or short sell the company, but I do have sympathy for current shareholders since this is one of those situations where at around £2, on all fundamentals, the company did look at least fair value until all the recent shenanigans.

I suppose it's now a trust thing for shareholders, and in any relationship there's got to be an element of trust if there is going to be any future at all!!

Remarkable turnaround in the fortunes of the hopeless cases portfolio

Those of you who regularly take a quick peek at my blog may remember that just for a bit of fun, back in August 2011, I picked eight well-known companies whose fortunes, and subsequently share prices, had taken a turn for the worse.

I decided to compare the portfolio of these eight companies to the performance of the FTSE-250 over an unspecified (yet to be decided) time period. In the last update in November 2012, the FTSE-250 had risen by around 21% whilst the 'hopeless' portfolio had declined by 14%.

However, largely due to the remarkable turnaround in the Thomas Cook share price, the performance of the 'hopeless' portfolio has now shot up to a 25.4% gain against a now 41% gain in the FTSE-250.  Meaning that, although the FTSE-250 is still the leader by a considerable margin, the gap has narrowed.

Since November, Thomas Cook's shares have risen from 22.5p to yesterday's price of 115.5p, a massive 413% gain. If you timed your purchase well with this one then that's a fantastic return in less than five months. Even in August 2011 with the price at 43.55p, if you have kept your nerve and held on then that's a very healthy 165% return. Is there more to come? We shall see.

Another terrific performer is ITV which has risen from 55.85p to 131.2p (a 135% gain).

As reported in my last update, Game Group was the major casualty whilst Man. Group is still about 50% down on it's price at the time, despite it perking up from it's all time lows.

Aviva, C&W worldwide and Vodafone have all posted modest gains and C&W worldwide was bought out by Vodafone for a 10% gain.

I have decided to re-invest the gain from C&W worldwide into Aviva at it's current price of 326.2p. Why Aviva? Well given the recent rises in large/medium cap. shares it was difficult picking an obvious dog, but Aviva shares did take a recent hit with dispappointing results and a dividend cut.

I don't and haven't held shares in any of these eight companies, since I tend to concentrate on small and micro-caps, but well done to all those who invested in ITV and Thomas Cook, particularly if you caught them at their lows. Timing is crucial!

On a totally separate note, I notice that the ASOS share price currently stands at £31.84. It's a constant reminder about why I love micro-cap investment, and featured in my first blog post:-

http://michae1mouse.blogspot.co.uk/2011/02/magnificent-micro-caps.html

That £5000 would now be worth  £1,028,000. Whilst ASOS is an exception in terms of its remarkable success story, there are fantastic gains to be made from micro-caps. Interestingly, I also wrote a blog about why I don't short stocks, outlining that they can continue on very high multiples of earnings for considerable lengths of time. ASOS is one such stock and currently stands (if ADVFN's figures are correct) on a p/e ratio of 255. Ummm..........