MS international and Hydro International

Two further companies from the value portfolio.

Firstly, MS international which is already up by 12% since I included it in my January 5th blog.

On first glance this is a company that appears to have been hit by difficult trading conditions in the Defence sector, and a move from the main market to AIM which can cause institutional investors to become forced sellers of the stock.

After a cursory look, the financials do look attractive, and this could prove to be a good recovery stock. At the current share price of 195p, the company is backed by 143p of tangible assets and pays a dividend yield of 4.1%. The current p/e ratio is around 8, and since 1998 they have clearly implemented a progressive dividend policy.

Whilst earnings for the current year will be below expectations, encouragingly they have maintained the interim dividend and the longer term prospects appear quite positive:-

"the structure of the 'Defence' division's order book provides a solid base load of business stretching out to the end of the decade. This means that, despite any current market slackness, the division not only has contracts to be completed within the current year, but also has the positive benefit of a continuous stream of business, scheduled by customers for delivery in each successive year through to 2020."

A recent purchase of the shares by the Finance Director (around £20,000) may give rise to further confidence.

Hydro International (AIM: HYD) describes itself as a leading provider of environmentally sustainable and innovative products for the control and treatment of water.

Dealing with the financials first; it has a market cap. of £16m, a yield of 3.2% and a historic p/e ratio (based on last year's figures) of 9. The net tangible asset value is 50p. Again the dividend policy has been progressive.

Although the interim results were slightly ahead of last years with revenues up 6%, the company states :- "Our view remains, therefore, that both revenue and profitability in 2013 will be materially lower than 2012 levels, and that results for the year will again be weighted significantly to the second half-year." Hence the currently low p/e. As far as I can see there is no indication of their intention on the dividend policy this year.

In November the new Chief Executive announced a Global Leadership Team to drive forward growth. The shares have remained fairly static since earlier in the month.

As ever, no advice intended or given

Market correction and updates

Market's are currently looking a little jittery. There has been plenty of talk in recent months about share prices getting ahead of themselves, and that a Market correction was looking a distinct possibility. Whilst ratings on certain stocks may be a little toppy and suffer a setback, my personal view is that in the long term this Bull market still has considerable legs. Having said that, it does largely depend on the portfolio of stocks that you currently hold. Economic recovery is happening, but it's still in it's early stages (hence the low interest rates), and when it really does build momentum then I expect earnings reporting from many companies to surprise to the upside. Ultimately it's earnings that dictate the share price direction. So far my portfolio has managed to shrug off the current nervousness in markets, and most have issued robust trading statements. If any prices suffer because of general market sentiment then I will see that as an excellent opportunity to increase my holdings.

On this subject, at last week's Avesco GM the share-buy-back, and B/C Share scheme was approved by shareholders, and £1.10 will be returned at the end of this month. The share price dipped on Friday to reflect the return of cash as the shares went ex-dividend. Avesco's shares now trade at £1.25. With a declared dividend of 5p this year, the yield is a generous 4% with a progressive dividend policy in place. To see why I believe that the 2014 dividend could be considerably more generous read below:-

http://michae1mouse.blogspot.co.uk/2013/12/proposed-share-buy-back-and.html

The shares of course trade at a considerable discount to NTAV, and needless to say, I consider the shares to be undervalued.

In other news, another of my holdings Trakm8 released a RNS detailing their biggest ever contract win with  a UK insurance group. Whilst the £1.2m hardware order is significant, the bit I like best is this:- "This hardware order is expected to be followed by a service support contract providing additional and long-term recurring revenues for the Group."

http://uk.advfn.com/news/UKREG/2014/article/60634813

The group boasts a significant percentage of revenues as recurring, and coupled with high margins and good cash generation, Trakm8 remains a very promising long term hold for me. For further details:-

http://michae1mouse.blogspot.co.uk/2013/12/trakm8-interims-and-brief-updates.html

Finally, a mention of my speculative holding in Angle. It's becoming increasingly difficult not to get excited about this company and it's Parsortix product following a string of positive news flow. Following on from the news last year of CE mark approval, they have recently announced the appointment of an eminent Scientific Adviser, Dr Harold Swerdlow and an agreement with the Medical Research Council's Cancer Unit at the University of Cambridge to investigate "several exciting research avenues to test different applications of the Parsortix system in the diagnosis and personalised treatment of cancer."

Angle will release their interim results on Thursday this week (30th January). I don't expect to see much evidence of revenues from sales yet, but I am looking forward to reading about any further progress.

As ever, no advice intended or given.

Fairpoint and H&T Group

Continuing with my very brief analysis of the value portfolio, I shall take a look at Fairpoint and H&T. Please note that this is not intended to be in-depth research, merely a snapshot based on the current financials of each company.

Starting with Fairpoint. The company describes itself as :- "The leading provider of advice and solutions to financially stressed consumers".

An initial glance at the figures reveals that the company is currently trading on a P/E ratio of less than 7, and yields a 4.3 % dividend which is covered more than three times by earnings. The company appears to be highly cash generative. Net cash at the June interims was £2.8m vs. net debt of £2m at the same period in the previous year. The current market cap. is around £54m. They operate a progressive dividend policy, and increased the dividend by 10% at the interim stage to 2.15p (2012: 1.95p).  Basic EPS was also up at the interim stage by 21%. Their outlook statement indicated solid progress.

Based on the financials and outlook it certainly appears to be an attractive investment, and probably undervalued? We shall see.

H&T Group has had a decent week, and the shares are up around 5%. They released a trading statement on 7th January confirming that full year profit will be in line with management expectations. The trading statement also mentioned that they had reduced net debt by around £7m to around £20.8m, although they mention that market conditions are challenging.

H&T are a pawnbrokers, and based on last year's earnings the historic p/e ratio is less than 5 and the dividend around 7.7% covered more than three times by earnings. It should be noted however that at the interim stage the dividend pay out was reduced from 3.8p to 2.1p in light of the challenging trading environment. EPS (interim) had fallen from 14.5p to 9p. If you strip out goodwill and intangibles from the balance sheet then tangible NAV is around £68m against a market cap of £56.5m.

This is one of those stocks where most of the bad news could already be priced in? Again only time will tell.

It's probably not too surprising that both of these companies have appeared on the value list given the nature of their businesses. Certainly, investors would perceive (possibly) that their prospects are inversely proportional to the health of the economy, and all indications point to a growing recovery.