King Canute won't stop the Tide!

I do love a micro-cap company with a great growth story to tell, particularly where there is relatively little risk to your capital in the long term.

Here's a company that fits the criteria called Crimson Tide (Tide) and below you'll find a link to it's website:-

http://crimsontide.co.uk//company-description/

I'm a fan of this company and my investment is currently showing a 37% gain. It's another long term hold for me since it's best days are yet to come.

As you'd expect if you read my blog on a regular basis, TIDE is a profitable, cash generative company with an excellent balance sheet. It's market cap. stands at slightly below £13m.

It has a healthy £782,000 in cash on the balance sheet with zero debt. It's gross margins are a mouth watering 86%.

Crimson Tide released their interim results at the end of September showing revenue growth of 8%, but profit down to around £4000. At first glance it doesn't look impressive, but delve further into the company's history and you'll see a terrific growth story unfolding. The temporary dip in profits is purely down to a planned investment in sales and marketing, and a measured and sensible approach  to global expansion.

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/TIDE/13807975.html

Barrie Whipp, Executive Chairman said the following:-

"Our pipeline has grown significantly and have seen additional demand from Europe and the Middle East as well as in the UK & Ireland. The Board estimates that, considering increased investment in Sales & Marketing, like for like profit would have increased by approximately 50%. We are working on a much wider range of exciting opportunities and have developed mpro5's IOT capabilities. mpro5 is now publicly downloadable from app stores for demonstration purposes and for smaller businesses. We are extremely well placed to take advantage of the opportunities generated from our marketing activities and the Board is excited to accelerate our growth to the next level. " 

If you want a company to grow strongly and succeed then they need to invest and TIDE's management have seen the opportunity and are to determined to capitalise on it. This is a very telling sentence from the interim report:-

"We currently have over 100 identified opportunities with potential clients, five times more than typical levels before these investments were made."

Whilst not obviously cheap at the moment, once growth kicks in from investments then with such juicy gross margins and a strong balance sheet I expect the share price of TIDE to make excellent progress in the years to come.

Finally, keep your eyes peeled for those large contract announcements with enterprise clients.

As ever, this is not a recommendation to buy or sell.

twitter: @michae1mouse.

 

Disappointing results - SAL, SAL, SAL?

It's always a jolt when a company issues unexpectedly disappointing results, particularly when there's been no prior warning. That's exactly what Space and People did last week which caught investors unawares.

I took a stake in Space and People (SAL) in a couple of tranches back in December 2016 when the company had been in the doldrums, and the share price was in the low 20s and mid teens. From my research I had anticipated a recovery and was duly pleased that a recovery in fortunes did indeed occur in 2017. The company returned to profit, good cash generation and the restoration of a dividend. In fact the dividend alone meant a nice 7% return on my investment. The shares shot up into the mid thirties and until last week I was sitting on a nice capital return.

However, the interims results disappointed and full year results are anticipated to be below market expectations. With the dividend included, I'm back to a mere 1% paper profit.

The shares retraced around 35% last week. It appears a little harsh to me, and I'm happy to sit tight and see how things pan out for the rest of the year and hope they get back on track again in 2019.

SAL is currently valued at £3.9m. Whilst results for the full year will disappoint, they do expect to report a profit of around £200,000 and they have a solid balance sheet with net cash around £510,000 and no debt. Whilst there was a cash outflow of £1.72m in the first six months, this is a seasonal business and they may still pay a small dividend, although I have assumed this from the following statement, "The group will generate a profit this year and it is the Board's intention to maintain our dividend policy." The all important Christmas period is yet to come so fingers crossed that they deliver on revised expectations.

All eyes on 2019 then where they make the bold statement:-

"We are confident that we can regain sales momentum for next year which combined with the costs savings already identified. Our 2019 forecasts being unchanged despite the lower than anticipated 2018 outturn."

If they do this then the shares will be the bargain that I originally hoped. Meanwhile, at SAL's lowly market cap. and with a solid balance sheet, the shares have little downside and plenty of bad news already priced in.

I do like what SAL offer as a company and I'm sure that in a tough retail environment then companies will need their services short, medium and long term. Here's their website and recent half-year results:-

http://www.spaceandpeople.co.uk/

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/13808000.html

Finally, George Watt (Non-Exec Chairman) bought around £20,000 of shares immediately following the interim results in a vote of confidence. I also notice that the share price has ticked up marginally today on a 145,000 share purchase (around £30,000) which I'd suspect may be another Director purchase, although this is speculation on my part.

As ever DYOR. I own shares in SAL and don't recommend buying or selling.

twitter: @michae1mouse

 

On the brink of collapse? What makes a company insolvent?

One of the things that brings fear into the hearts of all investors is when a company fails to release it's results until after hours on the last day before it would be suspended from trading.

That's exactly what a company called Premaitha Health did yesterday (Friday 28th September). Their full year results and details of a proposed placing were released at around 6pm. Gulp! Were investors right to be fearful. You bet they were! In short this company needs massive cash injections just to keep the lights on. I'm not an accountant, but I do wonder if the company is even solvent? I'll explain below.

I've mentioned Premaitha before in a blog post last year as "one to avoid at all costs." Even more reason to avoid now since one of two things will happen. Either the company will fall into administration or shareholders will be diluted into oblivion. Neither option is palatable.

Where do we start? Let's start with the balance sheet.

Cash was around £300,000 and borrowings around £12,000,000 at the end of March. Wow!

Total assets were around £14.6m, and total liabilities £17.2m. That's £2.6m of negative asset value.

It gets worse since £8.4m of NIPT's assets are goodwill and intangibles i.e. unquantifiable and worthless in a fire sale. Strip these out and that's a staggering £11m of negative asset value. Blimey!

Losses for the year totalled £9.6m and cash used by operations around £9.5m.

I don't know what makes a company insolvent, but surely those figures do? Absolutely awful.

It's difficult to see any positives at all. They're frantically trying to raise cash, and are hoping for an extra £2.5m at 10p per share following on from a cash call as recently as May this year which raised £3m at 4.5p.

The cash call will barely keep the company going for a month or two given the perilous state of the balance sheet.

NIPT has had litigation to deal with, but even stripping those costs out of recent results, the situation isn't demonstrably much better.

What of NIPT's growth prospects? What's happened in the 6 months since these full year results?

In the trading update it says this:-

"Six month revenues to 30 September 2018 expected to be up approximately 40% to £3.8m (H1 2017: £2.6m)"

However this is not the measure to look at. This is not a seasonal business. What you should be comparing is growth from H2 March 2018 to H1 September 2018. That's far less impressive. In fact growth went from around £3.6m to £3.8m i.e. £200,000 (around 5.5%). Nowhere near enough to survive without a massive injection of further funds.

Unbelievably the company will have a market cap around £50m if they succeed with the proposed £2.5m fund raise. I kid you not!! It takes your breath away.

All in all the situation looks perilous, and that's an understatement. The company admits that the latest fund raise is a stay of execution and they'll need further funds to survive.

If you're not convinced then read the notes at the bottom of the report. Here's what the auditors say at the very end of the report:-

"Auditor's report: material uncertainty relating to going concern
The Auditor's report includes a material uncertainty relating to going concern.  Extracts from the Auditor's report are reproduced below. In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1 of the financial statements concerning the group's and parent company's ability to continue as a going concern. The group incurred a loss in the year of £9,482,927 and, at that date, the group had current assets of £4,268,649 and current liabilities of £4,640,943. In their assessment of the group and parent company's ability to continue as a going concern, the directors have focused on the potential for future fundraising, assessing both the expected outcome of the fundraising round in progress at the time of signing the financial statements, and the requirement for a further fundraise in the coming months. The directors have also focused on the rate of growth of revenue in making their assessment. These considerations, in particular the assumed successful outcome of the fundraising currently in progress and the assumed successful outcome of the next fundraising round to be completed within 12 months, along with the other matters explained in note 1 to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the group's and parent company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group and parent company were unable to continue as a going concern." Please note well, "indicate the existence of a material uncertainty which may cast significant doubt about the group's and parent company's ability to continue as a going concern." As ever, this is a blog with my thoughts and is not intended for advice. However, I personally wouldn't touch this with a bargepole now or anytime in the future, and if I already held shares I'd be heading for the exit first thing Monday morning. As ever, AIMHO.