Still on trak a week on Monday?

I've found that it can be frustrating when you're a long term investor in micro-caps, so I've learnt to be very patient over the years. When I first bought Avesco it's market cap. was about £5m and very few investors wanted to know.

Frustrations include. Inertia in the share price for many months. Illiquidity issues. The share prices rise and fall by gut wrenching percentages at times. Incidentally, I've never used stop losses in illiquid micro-caps, I would have been stopped out of all of my eventual multi-baggers otherwise. The constant noise from braggarts, lunatics, chancers, and experts talking shares up or down to suit their own agendas. Just ignore them and follow your own research. Win or lose, you'll only have yourself to congratulate or blame in the end.

My favourite investing book is "One Up On Wall Street" by Peter Lynch. Whilst I wouldn't recommend it for improving your valuation skills, I found it fabulously funny in regards to what to avoid and look for in spotting potential multi-baggers. It certainly resonated with my experiences.

Moving on, I wanted to mention another of my favourite shares which is Trakm8. I've mentioned it many times before since I bought shares in 2011 for prices in the teens. The shares have gone on to multi-bag since and currently stand at about 172p.

The shares have risen close to 400p, but they're as illiquid as Avesco's shares and have indeed followed a similar roller coaster ride. Their fall from the SP highs was partly due to negative comments from a website, alongside liquidity issues. The negative noises are absolute tripe and Trakm8 (like Avesco) has an excellent management team that just gets on with the job. Just for the record, this same website were advising their readers to cash in profits on Avesco in October, as the SP price rose above £3. Oops. It illustrates the wider trait of share tipping services to try and attract punters by boasting that "We've made 180% on Avesco shares aren't we just f***ing wonderful" whilst ignoring (let's say) Stanley Gibbons where they lost investors 97%. Still I suppose they've got to make a living.  If they'd understood Avesco a little better then they'd have advised investors to hang on in there. Never mind. Incidentally, I will no longer refer to the website in question since it's really not worth the time, however it does irk me somewhat when certain individuals cast themselves as some sort of hero when they're more akin to a villain. Anyway, I'll let it go now. Most people usually sort the wheat from the chaff in the end.

Back to Trakm8. The interims will be released a week on Monday, and it's a wonderful little business. I've stated the investment case many times before, and here was my last offering back in April:-

http://michae1mouse.blogspot.co.uk/2016/04/long-term-investing-eventually-pays.html

Since then we've had the final results, and a trading statement:-

The share price came off a little as investors appeared to concentrate on this:-

"Half year profitability is expected to be less than the first half of last year, ...." and the negative impact of recent currency fluctuations.

As a long term investor, I'm encouraged more by this:-

"......a stronger second half anticipated fulfilling the growing orders received in the financial year to date."

and

"Group new orders booked have been received at a rate of 37% greater than the same period last year, of which 27% is organic growth. This continues the trend of strong growth of recent years."

Whilst the company stuck by their predictions for the full year, it is clear that investors are more cautious. This means that if there is bad news on full year expectations with the interims then it's priced in already.

My view is that with a long term view, the company is hugely undervalued. I'm not particularly bothered whether or not they hit expectations this year, as long as they keep growing that order book.

Of course, if they are still on track to hit expectations then the share price will rapidly climb back towards £4.

I'm sure that some investors thought my predictions about Avesco's value were a little ambitious. Of course, I'm happy to report they weren't.

With a medium/long view on Trakm8, I'm looking for £10-£20. In the short term, at the current lowly valuation, they are possibly vulnerable to a bid at around £5.

Monday week will be interesting.

P.S. I was gob-smacked yesterday. Not about the bid for Avesco, although that did take my breath away. It was what I have always assumed to be a traders urban myth. It's actually 100% true. My lips are sealed!!!!!!

Avesco - value realised after recommended offer

Regular readers of my blog will know that I've been a fan of AIM listed Avesco since 2009. I picked up the majority of shares in the company at prices between 20p-25p, and had been bleating on about how undervalued the company was throughout the following 6/7 years. Avesco has been a terrific progressive dividend payer including a special dividend of £1.10, and until yesterday the shares had increased around 10 fold in that period of time. Yesterday it became more than 20-fold after NEP launched a recommended bid at 650p per share.

My sincere thanks go to a fabulous management team and brilliant work force that have enabled this to happen. We shareholders merely piggyback their hard work and success, and I'm hugely grateful for all their efforts.

I have in the past hinted that a bid approach was highly likely, and indeed on October 1st of this year guesstimated what the shares could be worth:-

http://michae1mouse.blogspot.co.uk/2016/10/avesco-massive-upside-potential.html

"On last year's figures alone that gives fair value of £4.50-£6.00 for operating profits or £5.40-£7.20 working with trading profits."

http://michae1mouse.blogspot.co.uk/2015/01/playing-long-game.html

"Finally, Murray holds near 30% of the company and is 65 years old or thereabouts. When he eventually chooses to retire (of course he may decide to continue for some time yet), he might well wish to cash in his holding. If I was him, I'd be looking at far more than EBITDA for my holding. How does 3 or 4 times EBITDA sound?"

http://michae1mouse.blogspot.co.uk/2016/06/avesco-interims.html

"The margin of safety remains high here, and as mentioned before, the group is always vulnerable to a opportunistic bid."

Should you cash in your shares now or wait for the deal to complete? From the announcement I'd estimate that the chances of the deal going through are extremely high. However, the deal could collapse in unforeseen circumstances or alternatively it might attract a rival bid at an even higher price? On balance, investors will probably be swayed by how many shares they own. If you hold very few then you might be tempted to cash in, if you own a substantial number then 15p/20p per share extra is a lot of money, and you might be tempted to see it out.

I tend to look at it like this. The bid approach has given investors a true picture of Avesco's worth, if the deal fell through (although highly unlikely in my opinion) then you're still left holding a terrific company with plenty of cash, paying substantial dividends. It might even be worth £8+ in a year or two. You also have a chance that a rival bid emerges. Anyway, it looks pretty much a done deal to me and investors should make their own choice depending on individual circumstances.

Once again "Hats Off" to all the Avesco team.

Deals with the big boys take longer and are often less lucrative than you think

Copied and pasted from the OptiBiotix thread. A few thoughts about this start-up company.

Why is it taking so long for OptiBiotix to strike a deal with a multi-national?

In a way, Nanoco's "exclusive" deal with Dow Chemical is a excellent reference point. When the deal was announced, it was too much excitement and the SP duly shot up on general euphoria. However, the share price has since come back to earth with a bump and the "exclusive" deal is now a "non-exclusive" deal.

This line from Nanoco's August trading update tells you a compelling story,

"The Company has received notification of its royalty payment from Dow for the quarter ended 30 June 2016 and, although modest, it is higher than the first royalty received earlier this year."

The big companies call the shots.

Think about OptiBiotix and the Slimbiome technology platform for instance.

Let's say that Opti want a licensing deal with a multi-national. The multi-national will feel it is taking all the risk. Why should the multi-national do all the marketing? i.e. convince consumers that the products are safe and indeed do what they say on the tin. It's not as if there aren't thousands of dietary products or (so-called) cholesterol busting products already out there. They might like the technology but they're not going to spend multi-millions in marketing and offer Opti a big slice of the pie. Why would they? There's already plenty of diet shakes and bars out there already, and there will be plenty of rival technologies.

That's why I believe that they've cut a deal with the Healthy Weight Loss Company for GoFigure, and taken a 51% stake. A small company where OptiBiotix will be stumping up cash for marketing but taking a bigger share of any revenues.

Howvever, if you google diet bars and shakes I'll bet you'll get literally thousands of pages. See if you can locate GoFigure? Marketing spend will be horrendous to get even decent sales in an overcrowded market.

They are not providing a must have technology. In fact, a Mediterranean diet will be far healthier in the long run, far tastier and a fraction of the cost. Indeed a healthy Mediterranean diet is better than statins for reducing cholesterol.

In short, you can apply the same principles to all their technology platforms. They are not "must have" technologies, and hence if they are trying to cut deals with multi-nationals then the multi-nationals will be playing hard-ball and that's why it's taking so long.

If any deals do crop up then the devil will be in the detail. Don't get overly exuberant and expect lots more cash raisings in the months and years to come before they (if they ever do) reach meaningful revenues (never mind cashflows or profits). A £50m market cap. is too large a valuation at this point in my opinion.