Two quick updates.
I've held shares in Avesco since 2009, and I've been extremely pleased with the progress that this company has made in the intervening years. If you're looking for frequent news stories from the company then you're going to be disappointed. This is the type of company that I love. It just gets on with the job. It's a growing company that is cash generative and pays a good dividend. It operates a progressive dividend policy.
Avesco is a company that benefits from large events, and they don't come much larger than the Olympics. I was a little apprehensive this year since it's been apparent from various media outlets that the budget for the Rio Olympics was significantly less than for London 2012. Would this affect Avesco's earnings?
I needn't have worried. The company released a RNS this afternoon stating that trading is comfortably ahead of market expectations for the full year:-
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/AVS/12951319.html
Even after today's 13% rise in the share price, previous broker forecasts were for around 22p and 23p in 2016 and 2017 putting the forecast p/e ratios at around 12 and 11 respectively. Given that tangible NAV is around 230p (and almost certain to rise), net debt is very low following the sale of Fountain Studios and broker upgrades will follow, the shares still look very cheap to me. The World Athletics Championships to held in London in 2017 should also provide a nice boost to earnings.
Stilo International is a relatively new holding for me. See my two previous blogs:-
http://michae1mouse.blogspot.co.uk/2016/06/stilo-international.html
http://michae1mouse.blogspot.co.uk/2016/07/stilo-update.html
Stilo released their interim results today, and although I correctly predicted in my more recent blog that the results this year wouldn't "blow the bloody doors off", they have shown further progress.
Sales revenues and EBITDA were up 11%, but perhaps more significantly cash was up 30% and the interim dividend increased by 33%. This is the second significant increase in the dividend following a 33% hike last year. It's more often than not a sign of confidence in the future.
Results for the full year are expected to be in line with management expectations, and my guesstimate would be earnings around 0.30p-0.35p putting the shares on a p/e ratio in the low 20s with three months of the current year to go.
The exciting part for me is 2017 and beyond. If sales of OmniMark and Migrate show some steady growth or even remain consistent, and AuthorBridge begins to make a more significant contribution to revenues then with 99% gross margins the extra revenues will pretty much drop through to the bottom line. Costs are kept tightly under control and the company is debt free. It's worth bearing in mind that every £120,000 profit adds 0.1p to earnings. Profit for the full year in 2015 was £309,000 for earnings of 0.28p. A relatively modest lift in earnings will see the p/e ratio fall quite dramatically.
Whilst waiting for AuthorBridge to (hopefully) accelerate Stilo's growth trajectory, Stilo appears to be a relatively low risk profitable, cash generative, debt free, (progressive) dividend payer operating in a niche area.
p.s. IBM was indeed the prestigious client that is using AuthorBridge. (see previous blog).
"Its initial deployment in production at IBM, following extensive co-operation and testing by the central Information Developer Tools team, serves as a good foundation upon which we can build."
Thursday, 1 September 2016
Monday, 29 August 2016
Lulu and other mysteries
There are many unsolved mysteries that may endure for decades e.g. the Bermuda Triangle, the Marie Celeste, Jeremy Corbyn, why Lulu looks younger now than in the 60s and why BooHoo.com has a forward p/e ratio of 50 dropping to 45 in 2018?
Forecast EPS growth at BooHoo is impressive at around 39% this year, falling to 20% the year after, but why the heady forward p/e ratios of 50 and 45? Is it because everybody thinks it's the next ASOS?
In Peter Lynch's book "One Up On Wall Street" there's a wonderful section entitled "Beware the next something". It really is a must read.
Now I'll admit that I haven't looked at this stock in detail and it's possible that I'm missing something obvious, but unless a company is a tiddler then often the p/e ratio is a simple and excellent indicator of whether or not a stock is currently overpriced.
BooHoo's average EPS growth for the next two years is around 30. Even at a heady p/e of 30 for 2018, the eps figure of 1.85p would suggest a share price of around 56p (currently 80p). Good luck if you're invested here, but to reach a share price of 100p (i.e. 25% appreciation) then the February 2018 p/e ratio would need to reach 54.
Personally, I think Lulu is more likely to start looking her age sooner than BooHoo catches up with its heady rating.
Forecast EPS growth at BooHoo is impressive at around 39% this year, falling to 20% the year after, but why the heady forward p/e ratios of 50 and 45? Is it because everybody thinks it's the next ASOS?
In Peter Lynch's book "One Up On Wall Street" there's a wonderful section entitled "Beware the next something". It really is a must read.
Now I'll admit that I haven't looked at this stock in detail and it's possible that I'm missing something obvious, but unless a company is a tiddler then often the p/e ratio is a simple and excellent indicator of whether or not a stock is currently overpriced.
BooHoo's average EPS growth for the next two years is around 30. Even at a heady p/e of 30 for 2018, the eps figure of 1.85p would suggest a share price of around 56p (currently 80p). Good luck if you're invested here, but to reach a share price of 100p (i.e. 25% appreciation) then the February 2018 p/e ratio would need to reach 54.
Personally, I think Lulu is more likely to start looking her age sooner than BooHoo catches up with its heady rating.
Sunday, 28 August 2016
(The Internet of) Things often take far longer to mature than you'd expect
I don't suppose I make myself very popular when I make negative comments about a company's prospects. Notice the understatement!!
I don't do it very often, although this week has been an exception. I've no interest in going short for very many reasons. One of those reasons is that I've found going long on a stock and holding onto that stock until the story changes for the worse (if indeed it does) is far more profitable and a much safer option.
I'd like to think that in general when selecting companies for investment I'll work through the financials then apply some common sense assessing the business model, and the likelihood of success. It also helps you to avoid companies that are likely to get into distress or flatline. I have to say at this point that I don't always follow my own advice, and have been known to take a complete punt.
However, one company I did avoid investing in despite the so-called "sexy" area it's working in is Lightwaverf which is involved in the IoT market.
Since I first commented on the stock back in October 2015:-
http://uk.advfn.com/forum/search?q=michaelmouse&post_poster=on&post_post=on&index=posts&thread_id=32612016&offset=30
The stock has fallen from around the 26p/27p mark to its current 15p.
Some of my comments were a little flippant and designed to be amusing, but this one now appears to have been highly pertinent:-
http://uk.advfn.com/cmn/fbb/thread.php3?id=32612016&from=2593
"Will I ever buy shares in this company? Well never say never, but not at the moment. The reasons I've listed are good enough for me to avoid this one in the short to medium term, but my bigger concern is longer term.
I might be totally wrong but I think that this market will take considerably longer to develop than many think by which time the competition will be intense.
I would imagine that the best chances of success are selling their products to companies that will install them in new builds - both offices and new homes. However, (and I more than happy to be corrected here) it appears that they are trying to get retailers to sell them to homeowners e.g. through Maplin stores etc.
The majority of homeowners are undoubtedly aged 35+ and the majority of those are probably older. The demand for devices that remotely control your heating, lighting etc through an APP will be low for some years to come since the age group most likely to need them is the least tech savvy or interested.
In ten/fifteen/twenty years then it may be a different story as today's tech savvy cash poor youngsters eventually get onto the housing ladder, but as I stated that's a considerable time to wait.
Now I may not fully understand their business model or the full range of products they offer, but if I don't then sadly there are a large proportion of people in the same boat. Judging by this line in their finals, "Although we continue to remain alert to how we pursue our strategy in detail", neither do their management team. The sentence is total and utter gobbledygook, and illustrates that their strategy lacks any clarity."
A report in today's Telegraph suggests that my caution seems well placed:-
http://www.telegraph.co.uk/technology/2016/08/27/internet-of-things-struggles-as-use-of-smart-home-gadgets-flatli/
"The figures suggest that such connected home gadgets, which allow their owners to control their lighting without leaving the sofa or turn on the heating as they come home, are failing to resonate with consumers."
“Some of them aren’t resonating well because they offer too little,” he said. “The ability to micromanage the temperature in your house doesn’t appeal to the mainstream, and the savings aren’t significant enough to upgrade.”
In my experience, it's very easy to underestimate the amount of time it will take for a "new" market to develop. If you do buy shares in a company in these "new and sexy" areas then expect to wait many years for a decent return on your investment. Think dot-com boom. These type of stocks fly up on hype and hope, and then come crashing back down to earth when reality sinks in.
As ever though, this is a personal blog and I don't offer buy or sell advice. It's simply a record of my experiences.
I don't do it very often, although this week has been an exception. I've no interest in going short for very many reasons. One of those reasons is that I've found going long on a stock and holding onto that stock until the story changes for the worse (if indeed it does) is far more profitable and a much safer option.
I'd like to think that in general when selecting companies for investment I'll work through the financials then apply some common sense assessing the business model, and the likelihood of success. It also helps you to avoid companies that are likely to get into distress or flatline. I have to say at this point that I don't always follow my own advice, and have been known to take a complete punt.
However, one company I did avoid investing in despite the so-called "sexy" area it's working in is Lightwaverf which is involved in the IoT market.
Since I first commented on the stock back in October 2015:-
http://uk.advfn.com/forum/search?q=michaelmouse&post_poster=on&post_post=on&index=posts&thread_id=32612016&offset=30
The stock has fallen from around the 26p/27p mark to its current 15p.
Some of my comments were a little flippant and designed to be amusing, but this one now appears to have been highly pertinent:-
http://uk.advfn.com/cmn/fbb/thread.php3?id=32612016&from=2593
"Will I ever buy shares in this company? Well never say never, but not at the moment. The reasons I've listed are good enough for me to avoid this one in the short to medium term, but my bigger concern is longer term.
I might be totally wrong but I think that this market will take considerably longer to develop than many think by which time the competition will be intense.
I would imagine that the best chances of success are selling their products to companies that will install them in new builds - both offices and new homes. However, (and I more than happy to be corrected here) it appears that they are trying to get retailers to sell them to homeowners e.g. through Maplin stores etc.
The majority of homeowners are undoubtedly aged 35+ and the majority of those are probably older. The demand for devices that remotely control your heating, lighting etc through an APP will be low for some years to come since the age group most likely to need them is the least tech savvy or interested.
In ten/fifteen/twenty years then it may be a different story as today's tech savvy cash poor youngsters eventually get onto the housing ladder, but as I stated that's a considerable time to wait.
Now I may not fully understand their business model or the full range of products they offer, but if I don't then sadly there are a large proportion of people in the same boat. Judging by this line in their finals, "Although we continue to remain alert to how we pursue our strategy in detail", neither do their management team. The sentence is total and utter gobbledygook, and illustrates that their strategy lacks any clarity."
A report in today's Telegraph suggests that my caution seems well placed:-
http://www.telegraph.co.uk/technology/2016/08/27/internet-of-things-struggles-as-use-of-smart-home-gadgets-flatli/
"The figures suggest that such connected home gadgets, which allow their owners to control their lighting without leaving the sofa or turn on the heating as they come home, are failing to resonate with consumers."
“Some of them aren’t resonating well because they offer too little,” he said. “The ability to micromanage the temperature in your house doesn’t appeal to the mainstream, and the savings aren’t significant enough to upgrade.”
In my experience, it's very easy to underestimate the amount of time it will take for a "new" market to develop. If you do buy shares in a company in these "new and sexy" areas then expect to wait many years for a decent return on your investment. Think dot-com boom. These type of stocks fly up on hype and hope, and then come crashing back down to earth when reality sinks in.
As ever though, this is a personal blog and I don't offer buy or sell advice. It's simply a record of my experiences.
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