Following on from yesterday's share tips in the Sunday Telegraph, I thought I'd now add some numbers to Monitise, Home Retail and Imagination Technologies.
Starting with Monitise, it certainly appears to be in the right place at the right time, and according to yesterday's article it's now a FTSE-250 company which provides the technology for mobile banking to 350 financial institutions worldwide. Great story, however for me there is a big "BUT" coming with this one.
The market cap. is currently a staggering £1.1billion. That's an awful lot of expectation already priced in. Now I'll freely admit that sometimes growth companies early results are deceptive, and revenues and profits can suddenly jump very significantly justifying a seemingly ludicrous share price. However, the simple mathematics are these. At a market cap of £1.1 billion and were I to give it a very generous p/e ratio of 50, then this implies profits of £22million. Currently Monitise is loss making. Net tangible assets are around 3p compared to a share price of 67.5p.
Good luck with this one if you're a shareholder, but it's not for me. By the way, if anybody compares the valuation to Twitter (or something similar) then my reply would be so what? One silly valuation doesn't justify another. In fact sometimes you do hear share prices justified by comparison, for instance share xyz is cheap compared to it's sector peers. What a nonsense that is. It could just mean that the whole sector is grossly overvalued including company xyz.
As I've said in many previous blogs, I would never short shares because they can stay on very high valuations for many years (ASOS is a good example), but unless I'm very badly mistaken I can't see any justification in the numbers for the current share price never mind any further increases this year. I'm happy to be proved wrong though.
Home Retail group is more my kind of investment, although I do feel I've missed the boat to a certain extent with this one. Nobody wanted to know this company during the dark days of the recession for a variety of reasons, not least the business model of it's Argos stores. However, as the article says it is now sensibly using it's stores as collection points for online orders.
Home retail has solid tangible asset backing at around 130p per share, and although the current dividend yield is less than 2%, they do have a track record of paying decent dividends and if retail conditions improve further dividend hikes are possible.
I'm not tempted to buy the shares at the current price, but certainly missed out when they were hovering around their lows at about 50p. Experience has taught me that if a company has solid tangible assets, and it begins to show recovery or (better still) signs of growth then the share price more often than not catches up with asset value and normally moves above it in the longer term.
Finally, Imagination Technologies has been in the doldrums this year and the share price has come back from over £5 to under £2. I'll stick my neck out here and guess that the share price will recover the ground that it has lost. I like these types of companies. Why? Although I can't justify the share price on the metrics I have used above, gross margins are around 86% which has a massive effect on the bottom line as revenue growth really starts to kick in. It's fantastic if you can spot these success stories when they are starting out.
As ever, no advice is intended or given, and in particular I have not researched these companies in any depth, just a quick glance at the financials.
N.B. For balance I should add that Monitise also has high gross margins. Around 76% in their latest set of prelims. It depends how quickly that they can grow revenues I suppose, but £1.1 billion is still a very hefty valuation at this stage in my opinion.
Monday, 30 December 2013
Sunday, 29 December 2013
Share tips for 2014
I notice that the Sunday Telegraph have published their share tips for 2014 in today's paper which include the following companies:-
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
Friday, 27 December 2013
Proposed share buy-back and implications for future dividend payments at Avesco
In a short follow-up to my comments about Avesco's recently announced distribution of the Disney proceeds to shareholders, and in particular the share buyback, I just wanted to add my further thoughts about future shareholder returns.
Firstly, at 217.5p per share (pre-Disney payout) shareholders will receive a 52% dividend within 4 months (114p) which currently implies that post Disney and final dividend pay-outs, the shares are worth 103.5p (217.5p-114p) or a £19m market cap.
As mentioned previously this leaves the shares at a very substantial discount to NTAV. The even year effect in 2014 is more than likely to put the company back on track after a disappointing 2013.
Moreover, the company have increased the dividend by 25% this year (from 4p to 5p), and have stated their intent in pursuing a progressive dividend policy. This is interesting since the reduction in the share capital (assuming the share buy-back goes ahead) from 25.9m to 18.3m implies that a maintained dividend would actually equate to around 7p next year (25.9m*5p=£1.3m, 18.3m*7p=£1.3m). In fact a 7p dividend next year would be marginally less expensive. If Avesco are truly going to implement a progressive dividend policy then is it possible that next year's dividend could be 8p plus? It will be interesting to see.
The way I see it, the company have effectively returned pretty much all of the cash from Disney to their shareholders. The buy-back increases each shareholder's stake by approximately 41%. Despite having being an investor in Avesco for more than four years, and although I have benefitted from substantial share price gains and large pay-outs, I still see the company as well below fair value.
Investor's should also take a peek at their website to view the circular re: return of £1.10 and share buyback:-
http://avesco.com/node/355
and this is also worth a watch:-
http://www.ct-group.com/news/nuformer-and-ct-team-Philips
As ever, no advice intended or given.
Firstly, at 217.5p per share (pre-Disney payout) shareholders will receive a 52% dividend within 4 months (114p) which currently implies that post Disney and final dividend pay-outs, the shares are worth 103.5p (217.5p-114p) or a £19m market cap.
As mentioned previously this leaves the shares at a very substantial discount to NTAV. The even year effect in 2014 is more than likely to put the company back on track after a disappointing 2013.
Moreover, the company have increased the dividend by 25% this year (from 4p to 5p), and have stated their intent in pursuing a progressive dividend policy. This is interesting since the reduction in the share capital (assuming the share buy-back goes ahead) from 25.9m to 18.3m implies that a maintained dividend would actually equate to around 7p next year (25.9m*5p=£1.3m, 18.3m*7p=£1.3m). In fact a 7p dividend next year would be marginally less expensive. If Avesco are truly going to implement a progressive dividend policy then is it possible that next year's dividend could be 8p plus? It will be interesting to see.
The way I see it, the company have effectively returned pretty much all of the cash from Disney to their shareholders. The buy-back increases each shareholder's stake by approximately 41%. Despite having being an investor in Avesco for more than four years, and although I have benefitted from substantial share price gains and large pay-outs, I still see the company as well below fair value.
Investor's should also take a peek at their website to view the circular re: return of £1.10 and share buyback:-
http://avesco.com/node/355
and this is also worth a watch:-
http://www.ct-group.com/news/nuformer-and-ct-team-Philips
As ever, no advice intended or given.
Subscribe to:
Posts (Atom)