It's a fact that in the long run 'value' shares outperform 'growth' shares. What I look for is a growth company that's currently great value. It's a bit like looking for hen's teeth sometimes, but they are there to be found most notably amongst the micro-caps.
Here's some financials for you:- This company has a £3m market cap with a current NAV of £3.7m (a discount of 19%). Whilst part of that NAV is goodwill and intangibles, the company boasts a cash balance of £1.44m.
The company has zero debt.
In the past four years turnover has increased as follows:-
2014 - £1.26m
2015 - £1.52m (+21%)
2016 - £1.76m (+16%)
2017 - £1.89m (+7.4%)
EPS was 0.14p in 2014 and doubled to 0.28p in 2015. In 2015, 2016 and 2017 EPS was largely flat at around 0.28p. The historic p/e ratio is around 9 (2017).
Cash on the balance sheet has been as follows:-
2014 - £1.09m
2015 - £1.09m (+0%)
2016 - £1.30m (+19%)
2017 - £1.47m (+13%)
The company pays a progressive dividend that has increased from 0.05p in 2013 (excluding the special dividend of 0.10p) to 0.10p in 2017. That's a 100% increase with a further increase expected in 2018 (interim dividend has been hiked by 25%).
Gross margins stand at around 98%-99%. Yes you've read that correctly.
Now that's a 'value' company!
Why are the shares currently rated so lowly, and what about the growth going forward?
Well firstly, 2018 is going to see a dip in earnings and from the interim results it appears that the company is going to be around break-even for the full year. This is "principally due to the expiry of a three year customer contract for Migrate". Migrate being one of their principal software offerings. The market is aware of this and from the figures above, it seems that this information is more than priced in (ridiculously so in my opinion).
Principally the company boasts three key products OmniMark, Migrate and AuthorBridge (a very recent addition). It's fair to say that sales of all three have been steady rather than spectacular so far.
With 99% gross margins however, they don't need to be spectacular, steady will be just fine (do the maths!). It should also be noted that the company boasts an impressive client base.
The expiry of the Migrate contract this year should prove to be a temporary blip in an otherwise steady growth trajectory, and (hopefully) a resumption to growth will occur in 2019 and beyond (year end is December), particularly with sales of AuthorBridge beginning to gain traction.
The company in question is Stilo International, and if they do return to growth in 2019 then I fully expect the share price to re-rate significantly from it's current lows. Meanwhile whilst you're waiting you'll be entitled to a 4%+ dividend with the comfort of a very strong balance sheet.
At the current share price Stilo is a real steal in my book!
Please note that Stilo is a real minnow and the shares highly illiquid. From observation on Friday, 22,000 shares traded (as far as I can see) moved the bid up 0.3p (6%).
As ever, I am a holder of shares and I'm not giving advice so please DYOR.
twitter: @michae1mouse
Saturday, 22 September 2018
Wednesday, 19 September 2018
Zesty and promising or just a lemon?
Serial disappointer Mediazest gave a welcome update to the market yesterday with an excellent (and somewhat unexpected) trading update:-
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MDZ/13793984.html
In short "for the half year ending 30 September 2018, the Board expects to report revenue in the region of £1.8million (2017 £1.3million) and a maiden Net Profit for the Group of approximately £90,000 (2017: loss of £149,000)."
Now that's impressive for a company with a market cap. of less than £1.5m.
So what's my relationship with this company? Well I have a small amount invested in Mediazest which is just enough to keep me interested.
Late 2016, almost on a whim I bought a reasonable sized holding in MDZ when I was seduced by it's lowly market cap., promises of imminent profitability and hints at game changing contracts in the offing. Sadly, over the next year, these promises and game changers came to nought and the share price sank accordingly and I was left sitting on paper losses.
Bizarrely, at the back end of 2017, out of nowhere up pops a guy called Ian Hallett who begins the process of buying 20% of Mediazest, and the share price quickly accelerates upwards. I'm not complaining, I sell the majority of my shares into the rise and make around 10%. Not great but significantly better than the losses I'd previously been sitting on.
In truth, I half expected an offer to materialise for the company so I held a few but I'd reflected on my initial impetuousness and decided that given Mediazest's history and less than convincing balance sheet that I couldn't look a gift horse in the mouth and was largely happy to sell the vast bulk of my shareholding for a small profit.
Equally bizarrely, Ian Hallett then sold his entire 20% holding within a year and the share price slumped again as quickly as it had risen, so overall I feel I've made the right decision but I'm equally happy to have a small holding in Mediazest given yesterday's trading update.
I've mentioned a couple of bear points and until we see the interims it's impossible to guess how the balance sheet looks. Clearly cashflow and cash at hand are important measures that were not referred to in the trading update. However, the fact that they've made a maiden profit (albeit for six months) is very encouraging, particularly in the context of a significant amount of recurring revenues being
generated and the associated higher margins. It's also worth noting that Mediazest boast an impressive client roster including Volkswagen, Clydesdale and Yorkshire Banking Group, HP, Opel, BMW, Ted Baker, Diesel, Kuoni, HMV, Halfords, Hyundai and several others. That's not bad is it?
I consider my holding here speculative. However, given the market cap. and illiquidity of dealing in the shares, if Mediazest do continue their growth and consistently deliver increasing recurring revenues and profits going forward then the share price will undoubtedly multibag.
As ever, these are just my thoughts and dealings and no advice is intended.
twitter: @michae1mouse
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/MDZ/13793984.html
In short "for the half year ending 30 September 2018, the Board expects to report revenue in the region of £1.8million (2017 £1.3million) and a maiden Net Profit for the Group of approximately £90,000 (2017: loss of £149,000)."
Now that's impressive for a company with a market cap. of less than £1.5m.
So what's my relationship with this company? Well I have a small amount invested in Mediazest which is just enough to keep me interested.
Late 2016, almost on a whim I bought a reasonable sized holding in MDZ when I was seduced by it's lowly market cap., promises of imminent profitability and hints at game changing contracts in the offing. Sadly, over the next year, these promises and game changers came to nought and the share price sank accordingly and I was left sitting on paper losses.
Bizarrely, at the back end of 2017, out of nowhere up pops a guy called Ian Hallett who begins the process of buying 20% of Mediazest, and the share price quickly accelerates upwards. I'm not complaining, I sell the majority of my shares into the rise and make around 10%. Not great but significantly better than the losses I'd previously been sitting on.
In truth, I half expected an offer to materialise for the company so I held a few but I'd reflected on my initial impetuousness and decided that given Mediazest's history and less than convincing balance sheet that I couldn't look a gift horse in the mouth and was largely happy to sell the vast bulk of my shareholding for a small profit.
Equally bizarrely, Ian Hallett then sold his entire 20% holding within a year and the share price slumped again as quickly as it had risen, so overall I feel I've made the right decision but I'm equally happy to have a small holding in Mediazest given yesterday's trading update.
I've mentioned a couple of bear points and until we see the interims it's impossible to guess how the balance sheet looks. Clearly cashflow and cash at hand are important measures that were not referred to in the trading update. However, the fact that they've made a maiden profit (albeit for six months) is very encouraging, particularly in the context of a significant amount of recurring revenues being
generated and the associated higher margins. It's also worth noting that Mediazest boast an impressive client roster including Volkswagen, Clydesdale and Yorkshire Banking Group, HP, Opel, BMW, Ted Baker, Diesel, Kuoni, HMV, Halfords, Hyundai and several others. That's not bad is it?
I consider my holding here speculative. However, given the market cap. and illiquidity of dealing in the shares, if Mediazest do continue their growth and consistently deliver increasing recurring revenues and profits going forward then the share price will undoubtedly multibag.
As ever, these are just my thoughts and dealings and no advice is intended.
twitter: @michae1mouse
Friday, 14 September 2018
Interesting assumptions
In a follow up to my previous post on Trakm8, whilst I was unable to attend the recent AGM, I've just caught up with the video now available on their website:-
https://www.trakm8.com/corporate-videos
If you're a shareholder or prospective share holder then it's an hour well spent, and is very informative. Most notably for me are the assumptions looking forward.
They are certainly ambitious assumptions in terms of the growth in number of units.
One of the slides assumes that by 2021 (2.5 years) recurring revenues could be £26m.
John Watkins says that recurring revenues would then cover overheads and the profits reported will be the gross margin on everything else they do.
Back of a fag packet guesstimates by me. Assume recurring revenues make up 50% of total revenues then £52m revenue. Gross margin at 49% of £26m is approx. £13m profit.
P/E ratio of 20 for a growth company gives a market cap. of £260m. That's a share price of over £7.
If they achieve anywhere near those assumptions then the next 2.5 years could be rewarding from a current share price of 62p.
As ever DYOR, but short, medium and long term the company is looking cheaper by the day.
Twitter: @michae1mouse
https://www.trakm8.com/corporate-videos
If you're a shareholder or prospective share holder then it's an hour well spent, and is very informative. Most notably for me are the assumptions looking forward.
They are certainly ambitious assumptions in terms of the growth in number of units.
One of the slides assumes that by 2021 (2.5 years) recurring revenues could be £26m.
John Watkins says that recurring revenues would then cover overheads and the profits reported will be the gross margin on everything else they do.
Back of a fag packet guesstimates by me. Assume recurring revenues make up 50% of total revenues then £52m revenue. Gross margin at 49% of £26m is approx. £13m profit.
P/E ratio of 20 for a growth company gives a market cap. of £260m. That's a share price of over £7.
If they achieve anywhere near those assumptions then the next 2.5 years could be rewarding from a current share price of 62p.
As ever DYOR, but short, medium and long term the company is looking cheaper by the day.
Twitter: @michae1mouse
Subscribe to:
Posts (Atom)