Today's updates and a share purchase

7Digital announced the launch of new services this morning and a further contract win:-

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12597876.html

The launch of the new services through Mariposa Holdings Group are with two of the largest telecommunications companies in South America: Oi and Algar Telecom.

The company states that:-

"The provision of this kind of mobile music service is key to the Company's growth, and these launches also mark a significant expansion in 7digital's South American business."

Furthermore, 7Digital has also announced that it has signed an agreement with digital multimedia streaming platform Playster, to expand their music streaming service into 15 additional territories.

I hold shares in 7Digital. Currently the company is loss making and cash burn has been quite high, however they appear to be gaining considerable traction and their business model looks promising where they are creating a recurring revenue stream with the associated improvement in gross margins (currently 64%). In their interim report they said:-

"The Company has significant deals at various stages in the contract process, with 63 new prospects as well as existing customers who are looking to expand current services or extend into further territories."
 
The shares were up 4% on the news.

Netcall released a positive sounding trading update today:-

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12598146.html

They state that:-

"We have had a positive start to the year with the total value of sales orders considerably ahead of this time last year. "

"Our significant levels of recurring revenue combined with a strong order inflow and a continuously expanding product suite give the Board confidence in achieving a successful outcome for the full year."

 

I don't hold shares in Netcall, but I mention it because Michael Jackson is Chairman of the company.

By the way "Billie Jean is not his lover,  She's just a girl who claims that he is the one, But the kid is not his son". Sorry couldn't resist.

 

This Michael Jackson is also Executive Chairman of Access Intelligence, a company in which I do hold shares.

 

I am hopeful that Access Intelligence's fortunes will follow a similar path to Netcall. Netcall is profitable with a high percentage of recurring revenues, it has a very sound balance sheet with no debt and plenty of cash. It is also highly cash generative. It is predicted to pay dividends of 3p in 2016 which equates to a yield of 5.6%. The market cap. is around £74m after a small rise in the share price this morning.

 

In a separate announcement, I further note that it has "secured a five-year SaaS contract worth GBP400,000 to provide its Liberty Customer Experience Manager solution to a Local Authority".

 

Netcall's P/E ratio is currently high at around 29 on a fully diluted basis falling to 24 next year.

 

N.B. After doing more research on Netcall, I have made a small purchase. This is a profitable company with a strong balance sheet, excellent cash flows and gross margins at a mouth-watering 91%. Recurring revenues currently make up 62% and are likely to increase going forward. Whilst the p/e ratios look high, I can envisage that they will fall quite quickly and the company will prove to have been very good value. I like their enhanced dividend policy which equates to 4% this year (ex-div on 10th Dec) and set to rise. The share price is well below it's early year highs of over 70p.

 

 

    

SCPA - Scapa Group

If you'd bought Scapa Group shares in around 2010/2011 you'd be sitting on very sizeable gains indeed. Scapa has been a multi-bagger in that time with the share price rising around 12 to 13 times. Scapa is listed on Aim and is a further illustration that stock picking and astute timing can bring rich rewards whichever market the company is listed on. Personally, I enjoy investing in Aim listed companies because you can unearth some real gems which are often far below the radar of most investors.

Scapa released their interim results this morning which look pretty decent with revenue growth of 4.0% to £119.3m (2014: £114.7m); trading profit up 17.6% to £10.0m (2014: £8.5m), adjusted profit before tax increasing 18.3% to £9.7m (2014: £8.2m) and adjusted earnings per share improving 25.0% to 5.0p (2014: 4.0p). Net debt was higher at £6.8m (31 March 2015: £3.4m net debt).


The outlook statement sounds encouraging:-

"The Group continues to make progress in executing its strategy and has delivered another good result for the half year.

 

While we are mindful of wider macro-economic factors the Board remains confident about the Group's outlook and expects continued progress for the remainder of the year and beyond."

 

The company is cash generative and pays a small dividend with a progressive dividend policy in place. I haven't looked at the balance sheet in any great detail, but at a glance it looks pretty sound.

 

Scapa doesn't interest me at the moment since I tend to concentrate on micro-caps (although not exclusively) and my attention is directed at other opportunities presently. Others might wish to do more research.

AVESCO

Just a quick mention re: Avesco. I am anticipating a trading update in mid-December and I'm hopeful that it won't disappoint. In the half-yearly results they stated that they expect full-year results to beat expectations. Judging by the projects that have appeared on Facebook and Twitter, I am optimistic that momentum has been maintained. Theoretically 2016 should also be a good year for Avesco given that more major events take place in the even years, although they do appear to be smoothing out the odd/even year disparity to good effect.

A division of Avesco which is seldom mentioned is Presteigne. Essentially Presteigne is a leading broadcast hire and rental specialist which has tended to fare better in even years. It looks like they might be doing pretty well this year though if this project is indicative of their workload:-

"Presteigne provides studio and production facilities for TFI Friday"

http://presteigne.tv/news/item/presteigne-provides-studio-and-production-facilities-for-tfi-Friday

 

 

Trakm8 - Half yearly results

Just a quick commentary about Trakm8's half-yearly results which were released this morning. Firstly, as anticipated, the results didn't disappoint and the outlook is very encouraging.

The headline figures are impressive with revenues up 38% at £11.7m, recurring revenues increasing 65% to almost £4m, EBITDA up 70% at £1.9m and adjusted profit up 89% at around £1.5m giving adjusted EPS at 5.08p.

The narrative of the report is highly encouraging with these comments of particular interest:-

"Recent contract wins and the stronger than budgeted start to the year mean we now believe that we will modestly exceed the current market expectations for the year as a whole."

"The installed base of devices reporting to our servers continues to increase rapidly and these recurring revenues are the core of Trakm8's business model and financial security."

"The value of new orders received during the period continued the good trend of recent years and were up by 21% (excluding DCS). This reinforces the confidence we have that strong organic growth can be maintained. "

 "Gross margin percentages have also benefited from the higher levels of service revenues."

"The data analytics from our data science team has been used to create service, driver risk scoring and FNOL (first notification of loss) algorithms that are proving to be of great interest to current and potential customers. We have also identified opportunities to sell some of our data in an anonymised format."

 "At the period end we had approximately 135,000 units reporting to our servers being an increase of 74% over last year. "

 "We have expanded our sales resource and as a result developed a good pipeline of opportunities, with a large number of significant trials in progress. We anticipate that revenues will continue to grow strongly in this area. "

"...we expect second half of the year revenues will be considerably ahead of the first six months."

These are just a few snippets that provide encouragement to investors for the short, medium and long term. Trakm8 have also made two acquisitions in the past two or three years which have been integrated effectively and quickly proved earnings enhancing. The narrative hints at further acquisitions being made in the not too distant future.

 "Now that DCS is operating to our satisfaction, we continue to assess further acquisition opportunities to enhance our organic growth."

Whilst the current forecast p/e ratio for this year and next come in at around 22 and 17 respectively, Trakm8 is making a habit of over-delivering. If the company were to make further strides in the USA or elsewhere overseas and/or announce a further earnings enhancing acquisition then the shares will look very good value at the current price of £2.60.

Just to reiterate, I have been a holder of shares in Trakm8 for some time.