Regular readers of my blog will remember that I have commented on the IP-CCTV company Indigovision several times. Most recently in 2013. After today's lack lustre trading statement
(http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/IND/12821676.html)
from the company it appears that nothing has changed. Here's a reminder of the blog written back in July 2013:-
http://michae1mouse.blogspot.co.uk/2013/07/indigovision-disappoints-again.html
I don't have much to add really, however over the years I have realised that when you invest in a company in a 'hot' market sector then you must remain vigilant. When warning signs appear that the company you have invested in has lost it's competitive advantage and it's momentum then cash in profits.
At the current share price, and given that Indigovision's current TNAV is above it's market capitalisation then I wouldn't rule out a bid for the company. Will it ever be a multi bagger again though? Very unlikely in my opinion.
Thursday, 19 May 2016
Saturday, 7 May 2016
Well.i.am
I've mentioned 7digital before on my blog since I inadvertently acquired shares in this company through an investment in UBC Media. 7digital reversed into UBC media in 2014. I have carefully watched the progress of 7digital since the reversal, and recently started increasing my holding in the company.
For an overview of what 7digital actually does and for an idea about the size of the opportunity that exists, I'd recommend watching the following interview with CEO Simon Cole:-
https://vimeo.com/152277844
Let's deal with the risks first. 7digital has been loss making to date and is likely to report further losses this year. Cash burn has also been an issue, and this year the company reported a cash outflow from operating activities of £4.7m (2014: outflow £6.3m). Cash on the balance sheet at the end of December was around £1.66m.
Clearly, unless cash burn is reducing significantly then the company will need to raise more cash otherwise they could be in trouble.
Why I have invested then? Several reasons.
I love the business model which seems to be gaining considerable traction and the company is anticipating that it will be generating profits by the end of this year. Monthly recurring revenues are growing strongly, as are gross margins which suggests that cash burn will rapidly reduce. If all goes to plan then in future years 7digital will be highly cash generative and visibility of earnings will be strong. Eventually, it could throw off cash for further investments and hopefully dividends.
Interestingly, the "going concern" statement does not hint at a further cash raise, although in my opinion it can't be discounted. However, either way, if the company can reach cash flow positive without a raise then that would be a superb achievement, but even if a raise is necessary then it's likely to be for a relatively small amount and would be seen as a positive since they have re-iterated their belief that they will start to turn a profit at the end of this year. It's also worth remembering that 7digital is debt free.
7digital is currently valued at around £8.5m which could be a price anomaly caused be two recent events. IMG were a major share holder in 7digital. IMG's woes meant that they decided to offload their entire shareholding. This was followed closely by the departure of Ben Drury (founder of 7digital) who resigned to pursue other non-competitive opportunities. Drury was another large share holder. He also decided to offload his shareholding. Both these events caused a slump in the share price. The good news is that the shares have been taken up by Henderson and Miton Group.
Returning to the market opportunity for 7digital, it's worth noting that they are operating in an area where barriers to entry are high. From the annual report:-
"Our unmatched combination of market leading technology, broad music rights and deep industry relationships can create significant barriers to entry for others in the sector."
This week, news that one of their main competitors, Omnifone, has gone into administration gives 7digital a further fillip since it provides a real opportunity for them to become the dominant force in this exciting and growing market place.
Again from the finals:-
"Our pipeline is strong, with a healthy number of current customers looking to expand their activities and, as of the year end, discussions were underway with over 60 new prospects across a range of services and geographies."
Since then the recent trading statement has indicated that six of these have been converted already with a total value of £3.9m. On Thursday they also released details of a contract win with musical.ly and a further strengthening of their relationship with i.am+.
Finally, referring back to Simon Cole's interview, if they can capture even 30% of their market, estimated to be £0.25 billion in the next three years, with gross margins already approaching 70%, strong recurring revenues and a reasonably tight grip on expenditure then some simple mathematics will tell you just how massive the company could be. Of course you should always bear in mind that this is a new space that they are expanding into, and hence estimating the market opportunity is quite difficult. As ever, do your own research. Are you going to invest? Well.i.am.
For an overview of what 7digital actually does and for an idea about the size of the opportunity that exists, I'd recommend watching the following interview with CEO Simon Cole:-
https://vimeo.com/152277844
Let's deal with the risks first. 7digital has been loss making to date and is likely to report further losses this year. Cash burn has also been an issue, and this year the company reported a cash outflow from operating activities of £4.7m (2014: outflow £6.3m). Cash on the balance sheet at the end of December was around £1.66m.
Clearly, unless cash burn is reducing significantly then the company will need to raise more cash otherwise they could be in trouble.
Why I have invested then? Several reasons.
I love the business model which seems to be gaining considerable traction and the company is anticipating that it will be generating profits by the end of this year. Monthly recurring revenues are growing strongly, as are gross margins which suggests that cash burn will rapidly reduce. If all goes to plan then in future years 7digital will be highly cash generative and visibility of earnings will be strong. Eventually, it could throw off cash for further investments and hopefully dividends.
Interestingly, the "going concern" statement does not hint at a further cash raise, although in my opinion it can't be discounted. However, either way, if the company can reach cash flow positive without a raise then that would be a superb achievement, but even if a raise is necessary then it's likely to be for a relatively small amount and would be seen as a positive since they have re-iterated their belief that they will start to turn a profit at the end of this year. It's also worth remembering that 7digital is debt free.
7digital is currently valued at around £8.5m which could be a price anomaly caused be two recent events. IMG were a major share holder in 7digital. IMG's woes meant that they decided to offload their entire shareholding. This was followed closely by the departure of Ben Drury (founder of 7digital) who resigned to pursue other non-competitive opportunities. Drury was another large share holder. He also decided to offload his shareholding. Both these events caused a slump in the share price. The good news is that the shares have been taken up by Henderson and Miton Group.
Returning to the market opportunity for 7digital, it's worth noting that they are operating in an area where barriers to entry are high. From the annual report:-
"Our unmatched combination of market leading technology, broad music rights and deep industry relationships can create significant barriers to entry for others in the sector."
This week, news that one of their main competitors, Omnifone, has gone into administration gives 7digital a further fillip since it provides a real opportunity for them to become the dominant force in this exciting and growing market place.
Again from the finals:-
"Our pipeline is strong, with a healthy number of current customers looking to expand their activities and, as of the year end, discussions were underway with over 60 new prospects across a range of services and geographies."
Since then the recent trading statement has indicated that six of these have been converted already with a total value of £3.9m. On Thursday they also released details of a contract win with musical.ly and a further strengthening of their relationship with i.am+.
Finally, referring back to Simon Cole's interview, if they can capture even 30% of their market, estimated to be £0.25 billion in the next three years, with gross margins already approaching 70%, strong recurring revenues and a reasonably tight grip on expenditure then some simple mathematics will tell you just how massive the company could be. Of course you should always bear in mind that this is a new space that they are expanding into, and hence estimating the market opportunity is quite difficult. As ever, do your own research. Are you going to invest? Well.i.am.
Saturday, 30 April 2016
Long term investing eventually pays dividends
I noticed I haven't posted since January so I thought I'd provide a brief update, although please read this http://www.michae1mouse.blogspot.co.uk/2016/01/the-last-post-well-not-quite-probably.html which explains why I'm no longer a regular blogger.
Firstly, a quick reminder to regular readers and any new readers why I started writing my blog. Simply put, it's an account of my personal experiences investing in (largely) micro-cap companies. I am not making recommendations with buy or sell advice and I'm certainly not paid to promote or discredit (ramp up or down) companies for the financial gain of myself or others.
Regular readers will know that I am a practitioner and advocate of a long term buy and hold strategy.
Without going into too much detail, I have largely found that by far my most profitable investments are in micro-caps that have many or all of the followings qualities:- A share price close to or below net tangible asset value, manageable debt (preferably very little), cash on the balance sheet, a growing revenue stream with clear future visibility (i.e. recurring revenues), profitable, cash flow positive and a strong client base. There are other criteria, but as you can see for yourself it's already quite an ask list and more often than not I have had to concede on more than one of these criteria. However, where I have deviated significantly I have often found to my cost that the investment has largely been disappointing.
Two notable successes that regular readers will be more than familiar with are Avesco and Trakm8.
Firstly, let's start with Avesco. I started buying Avesco shares back in 2009 between share prices of 20p-30p. At times, I sat on paper losses (unbelievably now), as the share price fluctuated within this range. However, the company stood at a colossal discount to it's quality assets and, although loss making at the time, it had cash on the balance sheet and the potential to generate plenty of cash. I continued to accumulate. The rest is history as they say. Avesco currently has a current share price of 213.5p. Needless to say, capital gains have been excellent to date, and I believe that there is far more to come. If anything, Avesco hits more of the criteria that I have detailed above now than at any time since I have owned the shares.
However, capital gains in Avesco are only part of the story.
When I bought shares in Avesco they had temporarily suspended the dividend, but as I suspected when the company began it's recovery, a progressive dividend policy was re-introduced. At present the dividend stands at 7p per annum. For me, that equates to an approximate 28% return each year on my original investment. Avesco also paid a huge £1.10 special dividend following it's successful litigation against Disney. All in all, including the special dividend my return in dividends alone is around 5 times my original investment.
Imagine my delight then this week when Trakm8 released a very positive trading statement including the unexpected bonus of them introducing a 2p dividend. I started accumulating Trakm8 shares back in 2011 at prices in the teens. Of course with the shares currently standing at 275p, the capital gains to date have been fantastic. The introduction of the dividend (hopefully progressive) is the icing on the cake. Whilst a 2p dividend represents around 1% in terms of the current share price, for me it represents a dividend of around 13% on my original investment.
Similarly, like Avesco, I expect Trakm8 still has plenty of growth to come in future years with a more than useful income stream to boot.
Trakm8's trading statement is extremely encouraging with revenues up 44%, like for like revenues up 28%, recurring revenues up 50%, and strong cash generation (as confirmed by a maiden dividend payment). Contract wins with Iceland Foods, Kubota UK, the AA and BT Fleet are substantial, and I'm not sure that the market has woken up yet to the fact that the agreements with the AA and BT are transformational. These two heavyweight companies are resellers for Trakm8 products and solutions to their respectively huge client bases.
The great thing about Trakm8's business model is it's revenue visibility (i.e. the growing recurring revenues generated from devices reporting to their servers). This in turn continually enhances their strong cash flow year on year,
"Strong cash generation during the second half of the year resulted in year end net debt of GBP0.97m, being GBP1.3m better than expectations."
which in turn allows them to invest heavily in organic growth and through acquisition (all three recent acquisitions have bedded in nicely) and pursue a progressive dividend policy.
The outlook statement states,
"The full year benefit of the two acquisitions, recent contract wins, including the important new reseller contracts with the AA and BT Fleet, and the continuous increase in devices reporting to our servers means the Board expects another strong trading performance in the new financial year."
and John Watkins, Executive Chairman of Trakm8 commented:
"Trakm8 has continued to build on the momentum established over recent years based on strong organic growth supplemented by selective acquisitions. These acquisitions and our own significant investment has given the Group an unrivalled portfolio of in-house capabilities to take to market.
"The cash generative model of our business not only enables us to make considerable investments in capital assets, IP and acquisitions, but also now to join the list of AIM companies paying dividends.
"We are well positioned to build on the excellent platform that we have established and to capitalise on the outstanding current market opportunities."
Given all the above and a forward p/e for 2016/2017 of just 16, it's an investment I'm sticking with for the foreseeable future.
Firstly, a quick reminder to regular readers and any new readers why I started writing my blog. Simply put, it's an account of my personal experiences investing in (largely) micro-cap companies. I am not making recommendations with buy or sell advice and I'm certainly not paid to promote or discredit (ramp up or down) companies for the financial gain of myself or others.
Regular readers will know that I am a practitioner and advocate of a long term buy and hold strategy.
Without going into too much detail, I have largely found that by far my most profitable investments are in micro-caps that have many or all of the followings qualities:- A share price close to or below net tangible asset value, manageable debt (preferably very little), cash on the balance sheet, a growing revenue stream with clear future visibility (i.e. recurring revenues), profitable, cash flow positive and a strong client base. There are other criteria, but as you can see for yourself it's already quite an ask list and more often than not I have had to concede on more than one of these criteria. However, where I have deviated significantly I have often found to my cost that the investment has largely been disappointing.
Two notable successes that regular readers will be more than familiar with are Avesco and Trakm8.
Firstly, let's start with Avesco. I started buying Avesco shares back in 2009 between share prices of 20p-30p. At times, I sat on paper losses (unbelievably now), as the share price fluctuated within this range. However, the company stood at a colossal discount to it's quality assets and, although loss making at the time, it had cash on the balance sheet and the potential to generate plenty of cash. I continued to accumulate. The rest is history as they say. Avesco currently has a current share price of 213.5p. Needless to say, capital gains have been excellent to date, and I believe that there is far more to come. If anything, Avesco hits more of the criteria that I have detailed above now than at any time since I have owned the shares.
However, capital gains in Avesco are only part of the story.
When I bought shares in Avesco they had temporarily suspended the dividend, but as I suspected when the company began it's recovery, a progressive dividend policy was re-introduced. At present the dividend stands at 7p per annum. For me, that equates to an approximate 28% return each year on my original investment. Avesco also paid a huge £1.10 special dividend following it's successful litigation against Disney. All in all, including the special dividend my return in dividends alone is around 5 times my original investment.
Imagine my delight then this week when Trakm8 released a very positive trading statement including the unexpected bonus of them introducing a 2p dividend. I started accumulating Trakm8 shares back in 2011 at prices in the teens. Of course with the shares currently standing at 275p, the capital gains to date have been fantastic. The introduction of the dividend (hopefully progressive) is the icing on the cake. Whilst a 2p dividend represents around 1% in terms of the current share price, for me it represents a dividend of around 13% on my original investment.
Similarly, like Avesco, I expect Trakm8 still has plenty of growth to come in future years with a more than useful income stream to boot.
Trakm8's trading statement is extremely encouraging with revenues up 44%, like for like revenues up 28%, recurring revenues up 50%, and strong cash generation (as confirmed by a maiden dividend payment). Contract wins with Iceland Foods, Kubota UK, the AA and BT Fleet are substantial, and I'm not sure that the market has woken up yet to the fact that the agreements with the AA and BT are transformational. These two heavyweight companies are resellers for Trakm8 products and solutions to their respectively huge client bases.
The great thing about Trakm8's business model is it's revenue visibility (i.e. the growing recurring revenues generated from devices reporting to their servers). This in turn continually enhances their strong cash flow year on year,
"Strong cash generation during the second half of the year resulted in year end net debt of GBP0.97m, being GBP1.3m better than expectations."
which in turn allows them to invest heavily in organic growth and through acquisition (all three recent acquisitions have bedded in nicely) and pursue a progressive dividend policy.
The outlook statement states,
"The full year benefit of the two acquisitions, recent contract wins, including the important new reseller contracts with the AA and BT Fleet, and the continuous increase in devices reporting to our servers means the Board expects another strong trading performance in the new financial year."
and John Watkins, Executive Chairman of Trakm8 commented:
"Trakm8 has continued to build on the momentum established over recent years based on strong organic growth supplemented by selective acquisitions. These acquisitions and our own significant investment has given the Group an unrivalled portfolio of in-house capabilities to take to market.
"The cash generative model of our business not only enables us to make considerable investments in capital assets, IP and acquisitions, but also now to join the list of AIM companies paying dividends.
"We are well positioned to build on the excellent platform that we have established and to capitalise on the outstanding current market opportunities."
Given all the above and a forward p/e for 2016/2017 of just 16, it's an investment I'm sticking with for the foreseeable future.
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