One to watch.....?

Very little news around this morning, as is often the case on a Friday, but a contract win by a company called Newmark Security did catch my eye.

Newmark Security describes itself as a leading provider of electronic and physical security systems.

This morning they announced a $6m contract that had been secured for the delivery of Workforce Management Technology.  The contract is for a period of 10 years with guaranteed revenues of $6m over the first five years.

I have briefly had a look at Newmark Security in the past, but never been tempted to buy the shares. The company is valued at around £18.2m on a fully diluted basis with £4.2m cash on the balance sheet and a tangible net asset value of  £4.9m.

The company generated a very healthy cash flow from operations last year of around £4.6m, and has very little debt on the balance sheet. FCF was around £3.2m with makes the current valuation look very interesting on a multiple of 5.7 times.

In addition, EPS came in at 0.43p on a fully diluted basis putting the shares on a historic p/e ratio of just 8 times earnings. The company pays a dividend which was increased by a third from 0.075p to 0.1p giving a current yield of 2.7%.

All of these figures look very attractive, so what's the catch?

Well, in the final report they say the following:-

"Overall, we believe that the profits of the Group in the current year will be lower than that for the year ended 30 April 2015 whilst we build up new markets and products from which the benefits will be seen in the following year and beyond."

Unfortunately, I am unable to find any broker forecasts for 2016 and beyond, but as a medium to long term prospect, it's one I'll add to monitor and carefully watch progress.

Temporary dips in revenues and profits can produce excellent buying opportunities in small/micro caps since they often mask the longer term prospects. I like their confidence in raising the dividend pay-out and, as already mentioned, operating cash flows look very attractive indeed.

Take a butcher's at this one.....

Crawshaw Group is an easy business to understand, it's a fresh meat and food-to-go retailer. This morning the Group released a positive trading statement saying,

"like-for-like sales have been particularly strong in the last quarter, with the growth being realised across the entire estate. This has been accompanied by a strengthening gross margin position"

and adding that they:-

"now expect the Company to exceed market expectations for the year ended 31 January 2016".

Good news indeed. An investment made since 2012 will have been handsomely rewarded.
Chartists and momentum traders will no doubt be attracted by the rising chart that appears to be reaching new highs today.

The company is currently valued at around £57m. The company made a operating profit of £1.1m last year and reported EPS came in at 1.3p putting the shares on a historic p/e ratio of 55. Looking at forecast figures for 2016 and 2017, brokers have predicted pre-tax losses but significantly improved revenues. The estimated dividend yield for 2016 and 2017 is just less than 1%. If I was interested in investing I would definitely conduct more research on those figures though.

Cash stands at a very healthy £9.1m, and tangible net assets at around £12.3m. The cash  generation was around £1.5m last year. The Group is debt free. In their last report they said,

"It is a very exciting time for the business and whilst short term profits will be held in check for a while as we add infrastructure costs ahead of the curve, we very much look forward to reporting on our progress as we build scale as quickly as practically possible."

and today's statement indicates that they are delivering on this.

Whilst Crawshaw is not a company I shall be investing in, they appear to be progressing nicely and it will be interesting to see if they can deliver substantial profits in the long term.

Not quite sure why Directors have been recent sellers of their shares without stating any specific reason though?

On the current fundamentals, the company does look expensive, but of course the jury remains out until they have built the significant scale that they refer to.

Something for bears and bulls I would suggest, but certainly the trading statement provides encouragement for the bulls and momentum, at least in the short term, remains in an upward trajectory.

High barriers to entry.........and gaining traction?

Another company that I hold a modest stake in is Avanti Communications. This morning they released their full year results that were in-line with market expectations. Revenues were up 30% to $85.2m  with a recorded loss of $73.1m. EBITDA (before share based payment charges) increased to $16.0m from $1.7m in 2014.

Avanti is a speculative investment, but I am pleased that the company does appear to be gaining traction and I am encouraged with the progress that is now being made.

In the past Avanti has been a popular target for short sellers, chiefly because of the company's significant debt pile and slower than hoped for progress.

However, I have maintained my modest holding in the company throughout the oscillations in it's share price in the hope that Avanti will eventually reach it's full potential. As they state in today's report, "We have now invested over $1.2bn in developing a business that can meet the huge latent demand for affordable connectivity in high growth markets. Together with the investments that we will make over the next two years, this will create a company with the potential to generate over $500m of EBITDA once the fleet is filled." Clearly if this can be achieved then with the company currently valued at £300m, the shares have multi-bagger potential.

A big factor in my holding the shares for the long term is neatly summed up in the following two paragraphs of today's report:-

"The satellite industry has very high barriers to entry. These include the intellectual capital that is needed to design and run a satellite network and the requirement for orbital slots and spectrum.

 

The risks to Avanti's business model through technological change are low, primarily due to the very long lead times needed to develop and launch new satellite technologies."

 

If you couple the above with the following:-

 

 "Avanti is no longer regarded as a new entrant. We are delivering excellent service for our customers using superior technology, today. Our technology platform is proven across our markets and our brand is understood and well regarded."

 

then it's possible to envisage that the company is on the way to reaching a tipping point in uptake for their services.

 

Risks remain of course, but having come this far and with a recent significant backer in MAST Capital Management, LLC, a Boston-based investment firm, I remain cautiously optimistic and shall continue to hold.