Well it's full steam ahead for the current Bull market which has been running for five years now. Surely it's time for a correction. Well possibly, but as I commented back in February, I think that this Bull run might continue well beyond some of the most optimistic forecasters predictions.
Why do I believe this? For very simplistic reasons. Firstly, the 2008-2009 market capitulation was extremely severe. Stock prices were pummelled so much that some quite ridiculously low valuations were created by investor panic and forced selling. At the time, I stated that I believed that this had created the investing opportunity of a lifetime, and for many investors this has certainly been the case.
Whilst some stocks are clearly running ahead of themselves, and it's becoming more difficult to find outstanding bargains, they haven't completely disappeared and with a few exceptions, valuations of many UK companies are relatively modest. Euphoria is still some distance away.
Significantly though, true global economic recovery is yet to appear, and when it does earnings for many UK companies may rise significantly. During the recession, companies that survived have become leaner and more efficient and some have benefitted from competitors going to the wall.
Furthermore, low interest rates still prevail. Where else do you invest your money? Gold, coins, wine...? No thanks.
Finally, bears will argue the risk comes from the withdrawal of quantitative easing in the US and interest rates rising sooner than expected. Surely these circumstances will only occur when it is clear that economic recovery is assured and sustained. Doesn't this bring us back to improving earnings for many of our leaner and meaner companies? Indeed many companies on modest earnings ratings may look cheap again as recovery takes a stronger foothold.
Anyway, we shall see, and as stated in a previous blog:-
http://michae1mouse.blogspot.co.uk/2013/02/datong-up-for-sale-markets-overheating.html
"As a long term investor and stock picker I'm only ever concerned whether or not the stocks I hold are undervalued or overvalued, if it's the former then I continue to hold and acquire and if it's the latter then I sell."
There is a good article written in the FT today by Dominic Picarda.
http://www.ft.com/cms/s/0/9e8d7730-3c97-11e3-86ef-00144feab7de.html#axzz2iqAZvLz8
"I would not be at all surprised if UK equities produced double-digit annualised returns over the coming five years".
Anyway, it's a bit of a mugs game predicting the direction of the markets and my next blog will stick with my stock picking experiences and news stories that have been released recently.
Saturday, 26 October 2013
Saturday, 12 October 2013
Trakm8 acquires Box - a good deal?
This week TRAKM8, a company that I have mentioned several times on my blog, announced a proposed reverse takeover of BOX TELEMATICS, one of the UK leading providers of fleet management systems. The acquisition comprises an initial cash consideration of £3.5m plus the repayment of a Director's loan of £750,000.
The acquisition is being funded from TRAKM8's cash reserves, a new debt facility of £2.5m and a subscription by the Directors for new ordinary shares at a price of 22p to raise £720,000. They will also raise £1.35m through a placing at 22p for additional working capital purposes.
Is this a good deal for TRAKM8's existing shareholders?
On the face of it, it looks like an outstanding deal.
Firstly, BOX brings with it £8.4m in revenues and profit before tax of £850,000 (2012). The combined group will boast revenues in excess of £13m (based on 2012 figures) which I would expect to rise substantially in future years. I'm not going to guess at profit, but suffice to say, with the enhanced business opportunities and cost savings for the enlarged group, I would expect profits to be very healthy indeed alongside strong cash flows.
The market reacted very positively to the deal and the share price leapt up over 40% on the news, but even at 29.25p per share the combined group has a market cap. of just £8.5m, and looks a snip at that price to me.
Both groups have a very strong and healthy recurring revenue base, and TRAKM8 will also have access to BOX's manufacturing and assembly facilities which should help to improve margins for the combined group. In 2012 TRAKM8's gross margins had improved to 72%. In addition BOX brings with it a Blue Chip client base.
The enlarged group will further benefit from synergies, cross-selling opportunities and scale advantages.
I like TRAKM8's management and believe that they have secured an excellent acquisition here to enhance their organic growth. The Director's take relatively modest salaries whilst seemingly always purchasing shares above the market price, indeed the current placing with institutions and Directors was at a small premium to the share price before the announcement.
They also have a substantial amount of 'skin in the game' and hold around 55% of the enlarged group's share capital. Such a large stake would make me nervous in certain circumstances, but the great thing about this company is that the Director's have consistently shown that they act in the best interests of all shareholders.
Finally John Watkins, Chief Executive Officer had this to say about the deal:-
The acquisition is being funded from TRAKM8's cash reserves, a new debt facility of £2.5m and a subscription by the Directors for new ordinary shares at a price of 22p to raise £720,000. They will also raise £1.35m through a placing at 22p for additional working capital purposes.
Is this a good deal for TRAKM8's existing shareholders?
On the face of it, it looks like an outstanding deal.
Firstly, BOX brings with it £8.4m in revenues and profit before tax of £850,000 (2012). The combined group will boast revenues in excess of £13m (based on 2012 figures) which I would expect to rise substantially in future years. I'm not going to guess at profit, but suffice to say, with the enhanced business opportunities and cost savings for the enlarged group, I would expect profits to be very healthy indeed alongside strong cash flows.
The market reacted very positively to the deal and the share price leapt up over 40% on the news, but even at 29.25p per share the combined group has a market cap. of just £8.5m, and looks a snip at that price to me.
Both groups have a very strong and healthy recurring revenue base, and TRAKM8 will also have access to BOX's manufacturing and assembly facilities which should help to improve margins for the combined group. In 2012 TRAKM8's gross margins had improved to 72%. In addition BOX brings with it a Blue Chip client base.
The enlarged group will further benefit from synergies, cross-selling opportunities and scale advantages.
I like TRAKM8's management and believe that they have secured an excellent acquisition here to enhance their organic growth. The Director's take relatively modest salaries whilst seemingly always purchasing shares above the market price, indeed the current placing with institutions and Directors was at a small premium to the share price before the announcement.
They also have a substantial amount of 'skin in the game' and hold around 55% of the enlarged group's share capital. Such a large stake would make me nervous in certain circumstances, but the great thing about this company is that the Director's have consistently shown that they act in the best interests of all shareholders.
Finally John Watkins, Chief Executive Officer had this to say about the deal:-
"The acquisition of BOX is a significant milestone for Trakm8, bringing strong financial and strategic benefits as it will enable us to exploit the growing demand for vehicle telematics in a fragmented market place.
"We have been delighted by the positive reaction to acquire this profitable and complementary business and furthermore are pleased to welcome a number of high quality UK institutions to our share register."
As ever, no advice is intended or given.
Saturday, 28 September 2013
Hopeless cases portfolio takes the lead!!!
Time to re-visit the battle between the FTSE-250 vs. the hopeless cases portfolio which I started back in August 2011:-
http://michae1mouse.blogspot.co.uk/2011/08/very-little-research-but-are-these.html
Whilst the FTSE-250 has done well with a current return of 48.9%, I can reveal that the hopeless cases portfolio has now taken the lead with a gain of 51.6%.
The two top performers (by far) in the portfolio remain ITV and Thomas Cook with gains of 215% and 239% respectively, then comes Vodafone with a gain of 33%. Vodafone has recently risen on the back of it's Verizon Wireless disposal, and shareholders will have had and will still receive substantial amounts of cash back from dividend and special dividend payments.
Next up is Aviva with gains of 26% and 24% respectively. As mentioned in previous blogs I reinvested the profits from the Cable and Wireless takeover into more Aviva shares.
Cable and Wireless Communications is up 22%, leaving Man Group as the worst performer in the portfolio, down by 58% (not forgetting that Game Group went bust).
I don't hold shares in any of the hopeless cases portfolio, and it was started just for a bit of fun. It will be interesting to track it's performance over the next two years though and see what lies in store for the remaining six companies. Please note that I have not taken into account any dividends paid in my calculations, and the comparison is strictly on capital gains.
On another note, there is a great article by John Lee in the FT Money section today on small cap investment. He writes as follows:- "I believe there are two key prerequisites for investment: common sense and patience. When stock selecting, I seek six characteristics: a stable, experienced board with significant directors' shareholdings; cash positive with low levels of debt, and preferably good asset backing; profitable companies with a record of paying a dividend; firms registered in the UK with British governance and audit standards, but with global turnover; a trading activity that I can understand; and optimistic recent comments made by the chairman or chief executive."
Couldn't agree more John. I can't say that I always follow the above criteria to the letter, but for me to make a substantial investment in a company then most of the above is an absolute must.
I've just noticed that John Lee has a book coming out in December entitled, "How to make a million - Slowly". Certainly one that I will buy. It's a shame that he doesn't write a regular column anymore.
http://michae1mouse.blogspot.co.uk/2011/08/very-little-research-but-are-these.html
Whilst the FTSE-250 has done well with a current return of 48.9%, I can reveal that the hopeless cases portfolio has now taken the lead with a gain of 51.6%.
The two top performers (by far) in the portfolio remain ITV and Thomas Cook with gains of 215% and 239% respectively, then comes Vodafone with a gain of 33%. Vodafone has recently risen on the back of it's Verizon Wireless disposal, and shareholders will have had and will still receive substantial amounts of cash back from dividend and special dividend payments.
Next up is Aviva with gains of 26% and 24% respectively. As mentioned in previous blogs I reinvested the profits from the Cable and Wireless takeover into more Aviva shares.
Cable and Wireless Communications is up 22%, leaving Man Group as the worst performer in the portfolio, down by 58% (not forgetting that Game Group went bust).
I don't hold shares in any of the hopeless cases portfolio, and it was started just for a bit of fun. It will be interesting to track it's performance over the next two years though and see what lies in store for the remaining six companies. Please note that I have not taken into account any dividends paid in my calculations, and the comparison is strictly on capital gains.
On another note, there is a great article by John Lee in the FT Money section today on small cap investment. He writes as follows:- "I believe there are two key prerequisites for investment: common sense and patience. When stock selecting, I seek six characteristics: a stable, experienced board with significant directors' shareholdings; cash positive with low levels of debt, and preferably good asset backing; profitable companies with a record of paying a dividend; firms registered in the UK with British governance and audit standards, but with global turnover; a trading activity that I can understand; and optimistic recent comments made by the chairman or chief executive."
Couldn't agree more John. I can't say that I always follow the above criteria to the letter, but for me to make a substantial investment in a company then most of the above is an absolute must.
I've just noticed that John Lee has a book coming out in December entitled, "How to make a million - Slowly". Certainly one that I will buy. It's a shame that he doesn't write a regular column anymore.
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