Belgravium Technologies and Synety

A very brief update from me this weekend.

Firstly, Belgravium Technologies, a company in which I hold shares.

http://michae1mouse.blogspot.co.uk/2013/08/13-rise-for-belgravium-technologies.html

Belgravium released their final results last week.

In my view the results were encouraging and confirm my conviction that the shares are still cheap.
The bull points are quite straightforward. Adjusted EPS came in at 0.4p putting the shares on a p/e ratio of 12 with an outlook statement that reads positively, " 2014 will prove to be a significantly more successful year". The predicted forward p/e ratio is around 8 for 2014.

The dividend was held at 0.1p giving a current yield of 2.1%, but broker forecasts suggest a doubling of the dividend next year to 0.2p and hence a forward yield of 4.4%.

Significantly gross margin has jumped from 45.3% in 2012 to 49.6% in 2013.

Last year Belgravium acquired a company called Feedback Data which is already contributing to profits with a gross profit £535,000 and operating profit £95,000. The balance sheet remains debt free.

Their quest for organic growth continues, but they do hint at the possibility of further earnings enhancing acquisitions. Given the quick and successful integration of Feedback, I would view this as a positive step should a suitable target be identified.

Overall, I view the results and outlook very favourably and shall continue to hold.

Another company in which I hold shares is Synety. This was a speculative purchase which I reported on back in November.

http://michae1mouse.blogspot.co.uk/2013/11/synety-very-promising-speculative-stock.html

The company continues to deliver on it's promises, and most recently announced details of a significant customer win and CRM integration with SSP.

Simon Cleaver, Executive Chairman of SYNETY Group Plc commented:-

"SSP's customer base includes many large and prestigious companies which are well-known household names. Our partnership with SSP to offer integrated services to this customer base represents not only a huge and exciting prospect, but is also an enormous endorsement for CloudCall and SYNETY."

This is just the latest in a series of extremely encouraging updates from the company.

On pure value metrics, and at this early stage in it's development, you could strongly argue that Synety looks overvalued. However, the company believes that it can "capitalise on its first-mover advantage and land grab a market niche where the Directors believe there is limited competition and significant potential." That's exactly what they appear to be doing at the moment, and although the market cap. at £18.6m may appear expensive, given the current valuations of other companies in a similar space, and Synety's considerable potential and current growth rate, you could equally argue that the shares are undervalued.

I'm certainly hanging on to these for the foreseeable future.

Buffet's letter to shareholders

Warren Buffett's letter to Berkshire Hathaway shareholders was released at the weekend, and it's always an educational read. I'm not particularly interested in Berkshire's portfolio per se, but moreover their investing principles. From page 16 onwards there are some absolute gems.

http://www.berkshirehathaway.com/letters/2013ltr.pdf

Try these for size:-


"Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough

estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every

investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
 

 If you instead focus on the prospective price change of a contemplated purchase, you are speculating.

There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I

am  skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first

toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that

a given asset has appreciated in the recent past is never a reason to buy it.


 With my two small investments, I thought only of what the properties would produce and cared not at all

about their daily valuations. Games are won by players who focus on the playing field – not by those

whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock

prices, give it a try on weekdays.
 

Forming macro opinions or listening to the macro or market predictions of others is a waste of time.

Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear

TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s

scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth”).

 

My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market

might do in the years immediately following – 1987 and 1994 – was of no importance to me in making

those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the

chatter, corn would keep growing in Nebraska and students would flock to NYU."
 

 

And further:-
 

 
"Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners

cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest

rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet,

important to consider acting upon their comments.


Those people who can sit quietly for decades when they own a farm or apartment house too often become

frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an

implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the

unqualified benefit it should be to a curse."

 

He then goes on to say:-

" I learned most of the thoughts in this investment discussion from Ben’s (Graham)  book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase."

 

I’m certainly no Warren Buffett, but I can say that Graham’s book was transformational for my investing fortunes as well!

In other matters, I decided to have a look at Pinnacle Technology over the weekend. Although when I say have a look, it didn’t take very long.

I noticed that the Director’s had recently stumped up a large amount of cash in an equity issue to raise further funds for general working capital. In other words the company was rapidly running out of money.

I’ve come across this micro-cap before, but for various reasons I’ve never been tempted to purchase any shares. Anyway I got to the highlights of their 2013 financial year released in February, and read this:-

“Despite the trading loss, recurring and renewable revenues* increased to 85%”.

That sounds impressive, but then comes this:-

“*Note: Recurring and renewable revenues relate to customers who have entered into ongoing or fixed term contracts with the group to supply services for a duration exceeding 1 month.”

I’m not an accountant, but is that some sort of accounting joke or am I missing something here?

Since when did recurring revenue become anything that exceeds one month? In fact anything less than a year can't be classified as recurring can it?

Here's a scenario. Two people decide to join a Leisure Centre, one pays the full year's membership of £600 (let's say) and the other pays in monthly instalments of £50 per month for 12 months. Great the Leisure Centre can book customer two to recurring revenue because they've signed a contract for 12 months, but not customer one because it was a one off fee?

Maybe I'm just being a bit thick, but I'll still leave this one alone thanks very much.

The share price rose 24% on Friday and maybe there is something I don’t know, but I’m afraid that statement alone says to me “not with a barge pole”.  Incidentally the company made a loss of £2.4m in 2013, although I know somebody made a tentative bid for the company in the not too distant past (was it COMS?). Anyway, perhaps a potential suitor is giving it the once over again given Friday’s price action. Definitely not one for me though.

Avanti - today's FT

As a brief follow-up to my recent commentary on Avanti's interims, from today's FT - Small-cap week:-

"Avanti Communications rallied 7.6% after the satellite operator, which has regularly been a target for short sellers, announced a three-year agreement to supply bandwidth to Vodafone.

Analysts at Natixis said the deal hinted at "enormous potential" demand from mobile operators as well as "substantially" boosting Avanti's sales, which it forecast to rise from $20m in the first half of 2014 to $45m in the second half."

The Vodafone contract has come hot on the heels of encouraging interims where revenues had increased by 81%, and it would appear that sales momentum is truly gathering pace.

In fact on Friday this appeared on the official website:-

http://avantiplc.com/news-media/pressreleases

"Multi-million dollar partnership will extend broadband coverage to thousands in Burundi"

It will be interesting to see if Avanti announce further lucrative contracts in the near future.