I last wrote about Trakm8 at the end of April following a very positive trading update. This is a small company that is well below the radar of most investors and valued at just £3.3m.
They released their final results on Monday, and they are certainly very encouraging. I am becoming increasingly confident that this small outfit is a hidden gem that will prosper in the short, medium and long term.
As mentioned in my last report, as expected revenues for the year came in below last year's figures at around £4.75m (2012 - £5.22m). The group made a small operating profit and diluted EPS was 0.78p, slightly above last year despite lower revenues. This puts the shares on an historic p/e ratio of 22 which makes the shares look expensive on first glance.
However, in my view, the company is extremely cheap. Firstly, Trakm8 have invested heavily for growth this year, and despite an increased overhead of around £50,000 per month, the company have remained profitable. This is due to their robust financial model that now places a greater emphasis on their high margin solutions and engineering services divisions rather than their product division where revenues are less predictable and margins far tighter. Products are still an important segment, but not the most strategically important segment.
Gross margins improved from 64% in 2012 to 72% this year due to continually improving recurring revenues. The company is generating healthy amounts of cash and cash balances increased 29% during the year to £1.41m at year end. Net assets increased to GBP2.52m (2012: GBP2.38m).
The important point with Trakm8 is that it is generating cash and profitable with a healthy balance sheet. Moreover, their investment in growth is already making a large impact with revenues already up by 23% on last year. The full effect should start to show through in the second half and in future years.
As revenues improve year on year, operational gearing will really kick in. For example, if revenues were to remain 23% ahead (although the suggestion is that the second half may see an even larger upturn) then full year revenues would be around £5.84m. If margins remain around 72% and assuming admin. expenses are around £3.8m then diluted EPS comes in at 2.1p putting the shares on a forward p/e of around 8. Projecting further forward then even a 10% improvement in revenues doubles the EPS figure and puts the shares on a forward p/e of 4.
I like what I see with Trakm8 and have in recent times considerably increased my holding. (Please note that a good broker will easily pick up decent amounts of stock at a discount to the quoted offer price).
The outlook statements make encouraging reading, and they have also announced the appointment of a new Non-Executive Director, Keith Evans.
John Watkins had this to say,""I am delighted to welcome Keith to the Board of Trakm8. His extensive experience and knowledge gained as a senior partner with PwC will prove invaluable in the next phase of our growth and investment plan and as Trakm8 evolves into a leading player within the international telematics industry".
Ambitious plans indeed, but so far they seem to be delivering on their promises.
As ever, no advice intended or given.
Wednesday, 3 July 2013
Saturday, 22 June 2013
Regrets I have a few but then again...........
I last wrote about Densitron following their annual results, and I mentioned that the company could be a recovery play and that I intended to hold my shares. After this week's trading statement, I decided to sell.
I have made a fairly hefty loss on my investment in this company, but sadly they can't all be winners and you have to take the rough with the smooth. The key thing is to ensure the winners outweigh the losers and stick to a strategy.
I sold my investment in Densitron for two reasons. Firstly, the trading statement stated that :-
"The difficulties in closing business that were encountered during the second half of 2012 have continued into the first half of 2013. At present the level of sales are in line with those achieved in 2012. A number of projects have moved forward and, while noting the on going protractions in closing business, we expect to see revenues from them during the second half of the year and into 2014."
Not great, but not disastrous either. More worrying is the protracted legal action against the company:-
"As also explained in the 22 May 2013 Preliminary Results announcement we are working to find a solution on the writ that the Company
received in relation to the property occupied by a former Group company. The situation remains largely unchanged and we continue to work to bring this matter to a resolution as soon as possible."
This is dragging on too long for my liking, and I think Densitron could eventually take a considerable hit.
As I mentioned in my last blog about Densitron, much of the bad news might already be priced in and
I'll keep them on the monitor, but another good reason for selling was to free up cash to invest in other opportunities.
It's never nice selling at a loss, but it's your overall portfolio that counts. The multi-baggers more than compensate for the losers.
In fact show me an investor that always picks winners and I'll show you a liar.
Looking back my biggest investment mistake by far was investing in a company called DCD Media. A real jam tomorrow outfit that I have mentioned on my blog a few times. I sold out a little over a year ago, and if you're interested you can read my comments in post 72 on the advfn thread below:-
http://uk.advfn.com/cmn/fbb/thread.php3?id=27683272&from=58
I notice that DCD's recent results were released around a couple of weeks ago. Same old story, the usual loss making dross with another share consolidation thrown in for good measure. If the share consolidation was 1 to one trillion, I'm pretty sure that in a few years they would still manage to bring the price back down to a penny again.
The only positive from owning shares in DCD Media was the invaluable lesson it taught me in what to look out for in the future and avoid at all costs.
As mentioned above, it's never nice when an investment goes against you, but if you have a reasonable ability to pick out the hidden gems amongst the micro-caps (mostly AIM listed) then the rewards from the winners more than negate any losses incurred elsewhere.
As a scenario, let's say that you buy a portfolio of ten micro-caps at £1000 each. Two five bag, six lose half their value and two go bust. Not particularly good stock picking, but your original £10000 investment is now worth £13000 and you've made a 30% profit.
Unless you've proven to yourself that you can pick potential multi-baggers then of course the strategy above isn't going to work for you, but if you've got a proven track record in stock picking and are confident in your own ability then you're likely to do far better than the scenario detailed above. With an added bit of luck you've also got the chance of picking an ASOS or LO-Q for instance that will multiply your original investment manifold times.
As ever, no advice is intended or given, these are just my musings based on personal experiences.
I have made a fairly hefty loss on my investment in this company, but sadly they can't all be winners and you have to take the rough with the smooth. The key thing is to ensure the winners outweigh the losers and stick to a strategy.
I sold my investment in Densitron for two reasons. Firstly, the trading statement stated that :-
"The difficulties in closing business that were encountered during the second half of 2012 have continued into the first half of 2013. At present the level of sales are in line with those achieved in 2012. A number of projects have moved forward and, while noting the on going protractions in closing business, we expect to see revenues from them during the second half of the year and into 2014."
Not great, but not disastrous either. More worrying is the protracted legal action against the company:-
"As also explained in the 22 May 2013 Preliminary Results announcement we are working to find a solution on the writ that the Company
received in relation to the property occupied by a former Group company. The situation remains largely unchanged and we continue to work to bring this matter to a resolution as soon as possible."This is dragging on too long for my liking, and I think Densitron could eventually take a considerable hit.
As I mentioned in my last blog about Densitron, much of the bad news might already be priced in and
I'll keep them on the monitor, but another good reason for selling was to free up cash to invest in other opportunities.
It's never nice selling at a loss, but it's your overall portfolio that counts. The multi-baggers more than compensate for the losers.
In fact show me an investor that always picks winners and I'll show you a liar.
Looking back my biggest investment mistake by far was investing in a company called DCD Media. A real jam tomorrow outfit that I have mentioned on my blog a few times. I sold out a little over a year ago, and if you're interested you can read my comments in post 72 on the advfn thread below:-
http://uk.advfn.com/cmn/fbb/thread.php3?id=27683272&from=58
I notice that DCD's recent results were released around a couple of weeks ago. Same old story, the usual loss making dross with another share consolidation thrown in for good measure. If the share consolidation was 1 to one trillion, I'm pretty sure that in a few years they would still manage to bring the price back down to a penny again.
The only positive from owning shares in DCD Media was the invaluable lesson it taught me in what to look out for in the future and avoid at all costs.
As mentioned above, it's never nice when an investment goes against you, but if you have a reasonable ability to pick out the hidden gems amongst the micro-caps (mostly AIM listed) then the rewards from the winners more than negate any losses incurred elsewhere.
As a scenario, let's say that you buy a portfolio of ten micro-caps at £1000 each. Two five bag, six lose half their value and two go bust. Not particularly good stock picking, but your original £10000 investment is now worth £13000 and you've made a 30% profit.
Unless you've proven to yourself that you can pick potential multi-baggers then of course the strategy above isn't going to work for you, but if you've got a proven track record in stock picking and are confident in your own ability then you're likely to do far better than the scenario detailed above. With an added bit of luck you've also got the chance of picking an ASOS or LO-Q for instance that will multiply your original investment manifold times.
As ever, no advice is intended or given, these are just my musings based on personal experiences.
Saturday, 15 June 2013
Avesco interims and Disney windfall
Avesco released their interim results on Thursday including details of the Disney pay-out. Remarkably the share price dipped by more than 10% at one stage. I can only imagine it was a knee-jerk reaction by some investors anticipating a greater return of cash directly to shareholders. In my opinion this provided a fantastic opportunity for savvy investors to pick up shares at a truly bargain basement price.
As an investor in any company you effectively own a percentage of the business and are a part-owner of that business, however large or small that percentage is. In my mind there was a simple calculation to do following the pay-out details. Avesco have received a whopping £44.6m (far more than originally anticipated) from Disney and the current market cap. is approximately £53m. Effectively a profitable, cash-generative, dividend paying company with quality tangible assets is valued at £8.4m. That's less than the value of Fountain Studios!! At one point on Thursday the market cap had fallen to around £48m and it was no surprise when value hunters quickly pounced. The shares recovered even further yesterday.
An alternative way of looking at it is that the current NAV without the Disney cash is £1.53, add in the Disney cash and it's £3.31.
Whilst some investors may have been disappointed with the £1.10 pay-out they would receive (odd in itself??), it appears they have neglected the fact that the £14m that Avesco are keeping in the company will be used to pay down debt and effectively grow the business to keep the dividends rising and flowing in the future.
This has been a fantastic investment for me, and continues to be so. The company remains considerably undervalued in my view.
In another development for one of my investments, the takeover of Datong has now been confirmed at 50p which gives me a 31% profit within a few short months. I was hopeful that the offer would have been a lot higher than this, but at least it's a decent profit and provides some useful cash to invest elsewhere.
In wider issues markets are pretty volatile at the moment, and we are experiencing a few dips. Nobody can predict the direction of the market with any certainty, but I've stated before that I believe the current bull run may have considerably further to run. Interestingly I noticed a strong bout of Director buying this week in a whole range of companies which clearly provides some food for thought. After all they are insiders.
Anyway, as a stock picker I'm far less concerned with the direction of the markets than the price of individual companies, and if a price is a bargain then it's a bargain whatever the market direction.
As ever, no advice intended or given.
As an investor in any company you effectively own a percentage of the business and are a part-owner of that business, however large or small that percentage is. In my mind there was a simple calculation to do following the pay-out details. Avesco have received a whopping £44.6m (far more than originally anticipated) from Disney and the current market cap. is approximately £53m. Effectively a profitable, cash-generative, dividend paying company with quality tangible assets is valued at £8.4m. That's less than the value of Fountain Studios!! At one point on Thursday the market cap had fallen to around £48m and it was no surprise when value hunters quickly pounced. The shares recovered even further yesterday.
An alternative way of looking at it is that the current NAV without the Disney cash is £1.53, add in the Disney cash and it's £3.31.
Whilst some investors may have been disappointed with the £1.10 pay-out they would receive (odd in itself??), it appears they have neglected the fact that the £14m that Avesco are keeping in the company will be used to pay down debt and effectively grow the business to keep the dividends rising and flowing in the future.
This has been a fantastic investment for me, and continues to be so. The company remains considerably undervalued in my view.
In another development for one of my investments, the takeover of Datong has now been confirmed at 50p which gives me a 31% profit within a few short months. I was hopeful that the offer would have been a lot higher than this, but at least it's a decent profit and provides some useful cash to invest elsewhere.
In wider issues markets are pretty volatile at the moment, and we are experiencing a few dips. Nobody can predict the direction of the market with any certainty, but I've stated before that I believe the current bull run may have considerably further to run. Interestingly I noticed a strong bout of Director buying this week in a whole range of companies which clearly provides some food for thought. After all they are insiders.
Anyway, as a stock picker I'm far less concerned with the direction of the markets than the price of individual companies, and if a price is a bargain then it's a bargain whatever the market direction.
As ever, no advice intended or given.
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