In my very earliest investing days I remember receiving a circular from a company whose name escapes me now. However, I do remember that in the circular there was a raft of information about micro-caps which were listed or about to be listed on the LSE. I don't remember too many of the companies that were mentioned, apart from one called Eckoh. I tended to concentrate my efforts on medium and large cap. shares at that time, and certainly never entertained purchasing any of Eckoh's shares. Times have changed of course, and now I like to focus my attention on the micro-cap sector of the market. Yes, it can be perceived as more risky and there will be inevitable disappointments, but the rewards can be phenomenal. With a little bit of luck and judgement the winners will dwarf your losers, and even one or two multi-baggers will enable you too easily outstrip the indices year in and year out even if the others are duds. Anyway, I digress.
Eckoh plc caught my attention today because they have just released a positive sounding trading statement.
http://uk.advfn.com/news/UKREG/2015/article/68611575
The key summary line is:- "We remain confident that the high levels of growth seen in previous years will continue through the new financial year and beyond with current trading remaining in line with market expectations."
Today I am not looking at the current investment case for Eckoh, but the parallels between it's fundamentals and the type of companies I try to identify.
Firstly, a look at Eckoh's chart will tell you that the company hit the market towards the end of the 90s on a far too heady valuation. This is far too often the case, and I would argue that nobody is ever going to get rich by buying into IPOs. By the early 2000s the share price has plummeted, and then went nowhere for several years. However, look at 2009 onwards. A multi-bagger. Timing is crucial. These are the situations that I often look for. Interesting businesses where investors have lost patience, but where the company looks like it is about to turn the corner.
What else though? Well for me, sufficient cash on the balance sheet and a company that is capable of producing good cash generation. Little or no debt. High gross margins. Securing contracts with blue-chip and/or reputable companies/household names. A bullish outlook statement.
Now take a peek at Eckoh's final results from 31 March 2010.
http://uk.advfn.com/news/UKREG/2010/article/43300791
The share price chart from this point tells it's own story.
Will the story continue from here? Certainly the trading statement is encouraging. I haven't re-examined the most recent fundamentals so I've no idea if the current valuation is cheap, expensive or about right? I'll leave that to your own further research, but investors who bought shares at Eckoh's lows will have done very well indeed.
Wednesday, 23 September 2015
Tuesday, 22 September 2015
Will we have to wait until the 22nd Century......?
I last wrote about 21st Century Technology in January 2014, and since they released their half-yearly results yesterday, I thought I would take a look and see if the new management team had made any progress. In my last report, I mentioned that over the years C21 had been somewhat of a serial disappointer:-
http://michae1mouse.blogspot.co.uk/2014/01/21st-century-technology-plc.html
A quick glance at today's share price would appear to suggest that despite a change in the management team, it remains a poor performer.
So what did yesterday's interims look like? Well not entirely impressive or convincing in my opinion. Firstly, underlying profit was down to just £30,000 from £250,000 in the comparable period last year. Gross profits were £2m on reported revenues of £4.7m. Net cash had fallen to £1.3m from £2.6m and the basic and diluted loss was 0.38p per share.
If you strip out goodwill and intangibles on the balance sheet then NAV is zero.
The company usually generates good operating cash flow, but at the interim stage, there was an outflow of £362,000.
Russ Singleton, CEO of 21st Century plc did provide some positives for shareholders with the following statement:-
"We have made good progress in the first half of the year as we continue to implement our strategy to become a broadly-based systems Integrator in the transport industry. In line with our strategy the acquisition of RSL is serving to diversify earnings, add software capability and move the Group beyond providing individual solutions to our customers.
"First half trading encountered delays in the delivery of a rail contract which is now due to be delivered in in H2. As a result revenue for the second half is due to grow significantly and is underpinned by a GBP4.5m order book. We are currently undertaking a planned retendering for a major bus contract and therefore continued to be exposed to some risk. However we believe our strategy is sound and therefore look forward with cautious optimism."
Whilst there are positives to draw on going forward, they do operate in a highly competitive arena and given their past performance, I can't see anything attractive enough to make me want to invest at the moment. Current management have skin in the game and therefore have plenty of incentive to turn things around, however it may take longer than anticipated.
In many ways, the current situation at C21 reminds me of the task facing Belgravium (mentioned in yesterday's blog). Turnaround situations are unpredictable by their nature with no guarantee of eventual success. I am happy to have sold my shares and deployed my money elsewhere for the time being. The market always presents other opportunities.
http://michae1mouse.blogspot.co.uk/2014/01/21st-century-technology-plc.html
A quick glance at today's share price would appear to suggest that despite a change in the management team, it remains a poor performer.
So what did yesterday's interims look like? Well not entirely impressive or convincing in my opinion. Firstly, underlying profit was down to just £30,000 from £250,000 in the comparable period last year. Gross profits were £2m on reported revenues of £4.7m. Net cash had fallen to £1.3m from £2.6m and the basic and diluted loss was 0.38p per share.
If you strip out goodwill and intangibles on the balance sheet then NAV is zero.
The company usually generates good operating cash flow, but at the interim stage, there was an outflow of £362,000.
Russ Singleton, CEO of 21st Century plc did provide some positives for shareholders with the following statement:-
"We have made good progress in the first half of the year as we continue to implement our strategy to become a broadly-based systems Integrator in the transport industry. In line with our strategy the acquisition of RSL is serving to diversify earnings, add software capability and move the Group beyond providing individual solutions to our customers.
"First half trading encountered delays in the delivery of a rail contract which is now due to be delivered in in H2. As a result revenue for the second half is due to grow significantly and is underpinned by a GBP4.5m order book. We are currently undertaking a planned retendering for a major bus contract and therefore continued to be exposed to some risk. However we believe our strategy is sound and therefore look forward with cautious optimism."
Whilst there are positives to draw on going forward, they do operate in a highly competitive arena and given their past performance, I can't see anything attractive enough to make me want to invest at the moment. Current management have skin in the game and therefore have plenty of incentive to turn things around, however it may take longer than anticipated.
In many ways, the current situation at C21 reminds me of the task facing Belgravium (mentioned in yesterday's blog). Turnaround situations are unpredictable by their nature with no guarantee of eventual success. I am happy to have sold my shares and deployed my money elsewhere for the time being. The market always presents other opportunities.
Monday, 21 September 2015
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.
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.
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