It's been fairly quite on the news front regarding some of my holdings, although in recent weeks Angle, a specialist medtech company, has released some encouraging news. Firstly they have appointed a specialist regulatory company to manage the process of CE mark and FDA approval for their Parsortix cell separation system and their time targets for both CE and FDA approval appear to be running to schedule. The RNS stated:-
"Although ANGLE has not yet started to market Parsortix, there has been a stream of potential users expressing interest in the product, particularly in its harvesting capability. These include major hospitals, leading research groups and several commercial companies. Geographically, interest has come from across the UK as well as several international locations including the US, Canada and Australia."
Last week they followed up this news with further positive developments about Parsortix's harvesting capability stating that :-
"the Company has further extended the operational capability of its Parsortix non-invasive cancer diagnostic product by automating its cell harvesting function."
and
"We have seen widespread demand from researchers and clinicians for CTCs to be made available in a test tube after isolation from blood. It is testimony to the versatility of our separation technology that we have been able to introduce and automate this capability in such a short time. The consequent prospects for our Parsortix sales are significant."
Angle will hopefully be launching this product into a multi-billion dollar market eventually, and this harvesting capability appears to be " a major advantage and a key competitive differentiator".
Whilst not allowing myself to get over excited just yet, the news sounds very positive and I await further developments with interest.
On a separate note, I had hoped that Densitron would have released their final results by now. In the previous two years results were released in the first week of May. This is rarely a good sign given that the previous trading update was disappointing.
However, Densitron already has a significant amount of bad news already priced in, and given that it has a strong balance sheet and negligible debt, I continue to hold.
Finally, Avesco will release their interim results in mid June, and whilst this will be a relatively modest year for the group following last year's bumper Olympic contribution, it's worth remembering that Avesco has done extremely well despite the less than favourable worldwide economic conditions in recent years. This is a cyclical company and if the world economy is now beginning to recover more substantially then Avesco will benefit greatly. Underlying growth should continue, the Disney payout will shortly arrive and next year is an even year with the Football World Cup and Winter Olympics to contribute to revenues. Avesco should continue to prosper, and whilst the exact details of the Disney payout are still unknown, the shares are likely to be on a very undemanding rating post any distribution of the cash.
Sunday, 19 May 2013
Sunday, 12 May 2013
Offer for Datong at 50p
On Friday (10/5/13), having put the company up for sale in February, Datong announced that they had now received an offer for the entire issued shared capital of the company at 50p per share.
At that price I would receive a 31% profit on my share purchases in less than 6 months. So I'm very happy because that's a great return isn't it? No, actually I'm less than happy because whilst my profit is a good return, the offer hugely undervalues this company.
In my previous two articles I did state what I felt were reasonable valuations given the strength of the balance sheet and current trading prospects. The offer values Datong at just £6.92m which is less than £0.5m above Datong's current assets less all it's liabilities. If this was a company in trouble and about to be wound up then £6.92m might be acceptable, but in December they won a lucrative two year contract worth £7.5m and the balance sheet is strong with £2.5m in cash on the balance sheet. The company should see some substantial growth this year and next. In my opinion the valuation at 50p is clearly short-changing shareholders by a considerable margin. See my two previous articles to get, what I think, is a more realistic value.
http://michae1mouse.blogspot.co.uk/2013/02/value-share-heading-for-growth.html
http://michae1mouse.blogspot.co.uk/2013/02/datong-up-for-sale-markets-overheating.html
Heaven only knows how they appear to have come up with this 50p valuation. It looks like it's been plucked out of thin air because it's a nice round number.
As you can gather, I'm not a happy bunny despite making a very decent profit.
Commenting on the Offer, Richard Moon, Chairman of Seven (Technologies) said:
"We are delighted that Datong will be joining Seven". I bet he is at that price.
Currently they have received around 62% in Irrevocable Undertakings to accept the Offer. They will need 90% to complete the deal.
What does really annoy me in these bid situations is that they tend to quote the premium they are paying to the average share price over the past 12 months etc. This is totally irrelevant. The business should be valued based on it's balance sheet, future earnings and prospects not some arbitary value from a depressed share price. In particular shares in micro-cap companies often see large swings in the share price given their relative illiquidity, and the share price often doesn't necessarily reflect it's true worth. That's one reason why micro-caps are attractive to buy for private investors since pricing anomalies are more frequent and these companies rarely appear on the radar of the larger institutions.
Anyway they still need a further 28% of irrevocable undertakings before the offer is completed, and maybe the offer will be improved or another suitor will emerge. Who knows? I will hold until the situation reaches a resolution and then think about where next to invest the profits.
At that price I would receive a 31% profit on my share purchases in less than 6 months. So I'm very happy because that's a great return isn't it? No, actually I'm less than happy because whilst my profit is a good return, the offer hugely undervalues this company.
In my previous two articles I did state what I felt were reasonable valuations given the strength of the balance sheet and current trading prospects. The offer values Datong at just £6.92m which is less than £0.5m above Datong's current assets less all it's liabilities. If this was a company in trouble and about to be wound up then £6.92m might be acceptable, but in December they won a lucrative two year contract worth £7.5m and the balance sheet is strong with £2.5m in cash on the balance sheet. The company should see some substantial growth this year and next. In my opinion the valuation at 50p is clearly short-changing shareholders by a considerable margin. See my two previous articles to get, what I think, is a more realistic value.
http://michae1mouse.blogspot.co.uk/2013/02/value-share-heading-for-growth.html
http://michae1mouse.blogspot.co.uk/2013/02/datong-up-for-sale-markets-overheating.html
Heaven only knows how they appear to have come up with this 50p valuation. It looks like it's been plucked out of thin air because it's a nice round number.
As you can gather, I'm not a happy bunny despite making a very decent profit.
Commenting on the Offer, Richard Moon, Chairman of Seven (Technologies) said:
"We are delighted that Datong will be joining Seven". I bet he is at that price.
Currently they have received around 62% in Irrevocable Undertakings to accept the Offer. They will need 90% to complete the deal.
What does really annoy me in these bid situations is that they tend to quote the premium they are paying to the average share price over the past 12 months etc. This is totally irrelevant. The business should be valued based on it's balance sheet, future earnings and prospects not some arbitary value from a depressed share price. In particular shares in micro-cap companies often see large swings in the share price given their relative illiquidity, and the share price often doesn't necessarily reflect it's true worth. That's one reason why micro-caps are attractive to buy for private investors since pricing anomalies are more frequent and these companies rarely appear on the radar of the larger institutions.
Anyway they still need a further 28% of irrevocable undertakings before the offer is completed, and maybe the offer will be improved or another suitor will emerge. Who knows? I will hold until the situation reaches a resolution and then think about where next to invest the profits.
Saturday, 27 April 2013
Trakm8 accelerating away?
Regular readers may remember that I have written two articles about a small company called Trakm8. I bought shares in Trakm8 in mid-2011 and have waited patiently for developments:-
http://michae1mouse.blogspot.co.uk/2011/09/your-m8-my-m8-trackm8.html
http://michae1mouse.blogspot.co.uk/2012/10/trakm8-revving-up.html
Trakm8 issued a trading statement on Thursday which appears to confirm my faith in this company in both its short and long term prospects.
In their interim report in November, the company announced that the company had "decided to embark on a period of significant expansion".
They justified this as follows:-
"The past few years have seen a major transition for the business; we have built a strong core of customers whilst growing service recurring revenues, based on a market leading portfolio of telematics products and solutions. This in turn has led to a turnaround in financial performance, with strong profitability following a period of trading losses, and a strong balance sheet with substantial cash resources available."
They went on to say:-
"This fundamental improvement in the Group's position has provided the Board with the confidence and scope to consider a range of strategic options. At the same time the tough economic climate means that our strong financial position and business model
gives us a competitive advantage compared to weaker competitors"
However, expansion involved increasing the headcount by 15 new employees with an estimated increase in overheads of £400,000 per annum.
Whilst excited by their future prospects, I did anticipate that for the year ended 31 March 2013, Trakm8 might record a small loss associated with the costs of building the team further.
The trading statement released this week is far better than I could have anticipated, and now confirms my belief that this company has multi-bagger potential in the short and long term.
Although revenues for the full year to March will be slightly lower than last year (£5.2m), the company has in fact remained profitable, despite the increased overhead. Margins have further improved (75% last year) and recurring revenues have also increased. Significantly, despite a slight dip in revenues and increased overhead, cash balances have improved again to £1.4m. (£1m last year, £1.1m at the half year).
Some major contracts due to start this year have fallen into next year, and as testament to their products, they have secured an agreement with a competitor (Visilink) whereby :-
"Trakm8 is delighted to offer Visilink customers the opportunity to transfer to Trakm8's solutions, allowing us to broaden our footprint in the UK. We will do everything possible to ensure a smooth transition and a productive future cooperation with customers that transition."
John Watkins the CEO goes on to say:-
"Having established a strong financial base we are embarking on a period of significant expansion. The Board is confident that this investment strategy will deliver increased revenues and shareholder value in the near term."
Clearly they are currently delivering on their promises and more.
Directors have a lot of 'skin in the game' and appear very confident, I continue to share their confidence.
When the results are released, the shares will look expensive on a p/e basis. This will be very misleading. All eyes should be on next year and subsequent years.
Just to illustrate, as the additional employees begin to make an impact and increase revenues, the impact on the bottom line will be game changing. Despite the shares having risen a healthy 31% since the trading statement, the market cap. is still just £4.4m.
I expect revenues to March 2013 to be around the £5m mark given the interim figure, but let's consider next year. If they can achieve somewhere near the £6m mark then with healthy margins of around (let's say) 78% and increased overheads taking admin expenses to £3.7m, that would give a profit of around £1m or EPS of 5.3p. Applying a modest p/e ratio of 12 gives a share price of 63p.
Over forthcoming years if they can increase revenues towards £10m then EPS leaps to a massive 22p. Again applying a modest p/e of 12 gives a share price of £2.64. In other words, any revenue increase of £6m upwards has a substantial impact on the bottom line. This is a company with market leading products which is profitable, generating cash and has a very high percentage of recurring revenues. The balance sheet is very strong and improving rapidly.
As I have mentioned before, the shares are illiquid, but as the market cap. improves so will liquidity.
This remains a long term hold for me, and whilst I always remain cautious, I am a excited for the future.
As ever, no advice is intended or given, and the blog is purely an account of my investing thoughts and experiences.
http://michae1mouse.blogspot.co.uk/2011/09/your-m8-my-m8-trackm8.html
http://michae1mouse.blogspot.co.uk/2012/10/trakm8-revving-up.html
Trakm8 issued a trading statement on Thursday which appears to confirm my faith in this company in both its short and long term prospects.
In their interim report in November, the company announced that the company had "decided to embark on a period of significant expansion".
They justified this as follows:-
"The past few years have seen a major transition for the business; we have built a strong core of customers whilst growing service recurring revenues, based on a market leading portfolio of telematics products and solutions. This in turn has led to a turnaround in financial performance, with strong profitability following a period of trading losses, and a strong balance sheet with substantial cash resources available."
They went on to say:-
"This fundamental improvement in the Group's position has provided the Board with the confidence and scope to consider a range of strategic options. At the same time the tough economic climate means that our strong financial position and business model
gives us a competitive advantage compared to weaker competitors"However, expansion involved increasing the headcount by 15 new employees with an estimated increase in overheads of £400,000 per annum.
Whilst excited by their future prospects, I did anticipate that for the year ended 31 March 2013, Trakm8 might record a small loss associated with the costs of building the team further.
The trading statement released this week is far better than I could have anticipated, and now confirms my belief that this company has multi-bagger potential in the short and long term.
Although revenues for the full year to March will be slightly lower than last year (£5.2m), the company has in fact remained profitable, despite the increased overhead. Margins have further improved (75% last year) and recurring revenues have also increased. Significantly, despite a slight dip in revenues and increased overhead, cash balances have improved again to £1.4m. (£1m last year, £1.1m at the half year).
Some major contracts due to start this year have fallen into next year, and as testament to their products, they have secured an agreement with a competitor (Visilink) whereby :-
"Trakm8 is delighted to offer Visilink customers
the opportunity to transfer to Trakm8's solutions, allowing us to broaden our footprint in the UK. We will do everything possible to ensure a smooth transition and a productive future cooperation with customers that transition."John Watkins the CEO goes on to say:-
"Having established a strong financial base we are embarking on a period of significant expansion. The Board is confident that this investment strategy will deliver increased revenues and shareholder value in the near term."
Clearly they are currently delivering on their promises and more.
Directors have a lot of 'skin in the game' and appear very confident, I continue to share their confidence.
When the results are released, the shares will look expensive on a p/e basis. This will be very misleading. All eyes should be on next year and subsequent years.
Just to illustrate, as the additional employees begin to make an impact and increase revenues, the impact on the bottom line will be game changing. Despite the shares having risen a healthy 31% since the trading statement, the market cap. is still just £4.4m.
I expect revenues to March 2013 to be around the £5m mark given the interim figure, but let's consider next year. If they can achieve somewhere near the £6m mark then with healthy margins of around (let's say) 78% and increased overheads taking admin expenses to £3.7m, that would give a profit of around £1m or EPS of 5.3p. Applying a modest p/e ratio of 12 gives a share price of 63p.
Over forthcoming years if they can increase revenues towards £10m then EPS leaps to a massive 22p. Again applying a modest p/e of 12 gives a share price of £2.64. In other words, any revenue increase of £6m upwards has a substantial impact on the bottom line. This is a company with market leading products which is profitable, generating cash and has a very high percentage of recurring revenues. The balance sheet is very strong and improving rapidly.
As I have mentioned before, the shares are illiquid, but as the market cap. improves so will liquidity.
This remains a long term hold for me, and whilst I always remain cautious, I am a excited for the future.
As ever, no advice is intended or given, and the blog is purely an account of my investing thoughts and experiences.
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