Disappointing results from Belgravium....Bull and Bear points for consideration

Belgravium Technologies released their interim results this morning. They are very disappointing.

More than anything I was unhappy that the dividend has been scrapped with no mention of the potential acquisition. As a reminder, in their final report they hinted that if the acquisition did not go ahead then a dividend would be reconsidered. As it happens neither has occurred, and no reasons are given.

I first mentioned Belgravium Technologies back in 2013 where I said that I had been accumulating at prices below 3p. I gave my reasons for my purchases in the blog below:-

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

The share price did achieve a high of around 5.5p, and my initial optimism appeared to be justified with improving results. Sadly, the recovery appears to have run out of steam, at least in the short term anyway.

I sold my entire holding this morning for a small profit. Whilst I am a long term holder by nature, I constantly re-examine the reasons for my original purchases and will continue to hold or add if the story remains in-tact and sell when it changes. From my original blog (link above) you will see that my original reasons for an investment are no longer valid.

Whilst revenues at the interim stage are not drastically down many of the other measures are certainly less attractive.

The company is going to be loss making for the full year after restructuring costs. Cash on the balance sheet has fallen to £414,000 and the net tangible asset value is around £1.8m.

As the new chairman states, "the Company has a strong cash generative ability and maintains a conservative balance sheet."

He also says:-

"Our plan is to reduce the cost base by approximately £500,000 on an annualized basis and make the business more effective."

He goes on:-

"This year will therefore be a year of transformation. As we move into next year we will be moving out of this current period of consolidation and restructuring. Next year and subsequent years will benefit from a much lower cost base, coherent structure and a new energy."

Ian Martin may well be just the man for the job, he certainly did well with Avesco and I do like this statement:-

 "To conclude, although financial results in the short term may be disappointing, the changes that are now being made are essential to the future prosperity of the business. In a turnaround situation it is always difficult to predict the actual point when the benefits will become visible, but change is happening. We are investing in our future and have not been afraid to sacrifice some of the present to do so."

Plenty of bull points remain and there is always the possibility of a takeover. However, this was not one of my larger holdings, and since there are always opportunities elsewhere, I have decided to take my small profit here, run my winners and invest in new opportunities.

Belgravium was a pick of mine to double this year at 4.25p, sadly it doesn't look like the best choice after today's news. Never mind you can't win them all, and when you're choosing micro-caps you should expect some disappointments.

It's worth remembering that it's your portfolio performance that counts not individual shares. Simple maths tells you that if you choose let's say ten micro-cap stocks and eight break even with just two 5-bagging then your portfolio has grown 80%. In fact, two 5-bagging and eight going bust still leaves you at break-even. Of course these should be worst case scenarios and in reality with research, judicious stock picking, a bit of luck and patience you are likely to do extremely well.

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.