One I hold and one I don't!

First of all, a very quick mention of a company I hold.

PCF group released a trading statement this morning which has been well received since trading is in-line with market expectations. The growth metrics are looking very good, and as I write the shares are up almost 6%.  Here's their statement:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/PCF/13836455.html

A recent earnings enhancing acquisition should also aid growth prospects going forward:-

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/PCF/13819226.html

A very neat summary of where they are at the moment and what they hope to achieve can be found in the Midas article below:-

https://www.thisismoney.co.uk/money/investing/article-6146579/MIDAS-SHARE-TIPS-invest-PCF-Group-bank-thats-horsebox-expert.html

I'll be holding for the long term because I like the growth prospects, particularly as they continue to improve operational gearing and I'm always happy with a progressive dividend policy. Although the dividend is modest at the moment, for long term holders this income source can become quite substantial over time.

One I don't hold is Croma Security Solutions (CSSG) who released their final results this morning.

I've managed to contrive to miss out on buying into this company on two separate occasions now, in the mid teens and then early twenties. That's the share price I'm referring to btw and not my age. The share price is over £1 now. Never mind! :-(

They released a great set of figures this morning with a 59% increase in revenues to £35.1m (2017: £22.1m), a  significant rise in EBITDA to £2.5m (2017: £0.80m), a massive increase in pre-tax profits to £1.98m and earnings per share to 9.89p (2017: 0.36m and 2.13p respectively) and paid and proposed dividends up to 1.6p (2017: 0.5p). 

An outstanding performance all round. 

The share price has risen a very modest 1% as I write, chiefly I suspect due to the fact that this stellar performance won't be repeated next year:-

https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary/GB00B5MJV178GBGBXASX1.html

"In the current financial year, we can expect to replicate some but not all of the project income we received in FY 2018 due to some large exceptional projects that are unlikely to be repeated.  However, there has been a substantial increase in contracted income and this together with the expectation of some further project work make the Board confident of achieving a good result for the year, consistent with the underlying growth in the business. "

It's a great little business which is supported by a very solid balance sheet which boasts £2.2m in cash (up from £770,000 the previous year) and has next to zero debt. The current market cap. is a very modest £15m or thereabouts. In summary, many of the qualities that attract me to micro-caps.

CSSG is back on my watchlist, although even in my most optimistic mood I can't see the share price slipping back to the teens or twenties. Sadly, I can't envisage me revisiting my teens or twenties either except by way of a mid-life crisis?

I will be monitoring any opportunities very carefully though. 

As ever, this is just a personal blog and isn't an attempt to provide buy, sell or hold advice.

twitter: @michae1mouse

7digital - A journey from cash burn to cash generation?

I've mentioned a company called 7digital before. It's a company I hold shares in. Here's the company website to find out more about what they do:-

http://about.7digital.com/services

A quick look at the share price graph will indicate what a great performer it's been for me so far. Apologies for the sarcasm. It's been a company that has consistently pulled off great defeats from the very jaws of almost certain victory. So why am I still here? Well, it may have lost some short term battles (certainly in terms of share price performance), but I'm still hopeful they'll eventually win the war.

I like their business model and I believe that the services they provide and their vision for the near future could bear fruit.

In April 2017, 7digital acquired a company called 24-7 Entertainment which provided them with considerable scale, and left them as last man standing in Europe in their field. In fact they claim to be the world leader with their PaaS offering.

However, the acquisition has come at a cost in terms of consolidating it with 7digital's existing offering and cash burn has been high. Certainly far higher than I had anticipated. In December of last year (2017) they raised around £8.5m by way of a capital raising and open offer for working capital and consolidation costs. Just over six months later they've burnt through most of this, and have taken a further loan from two existing shareholders to see them through to cash flow positive and profitability.

Not great reading so far, and indeed a delay to publishing full year accounts for the year ending 2017 in the summer months did not help sentiment, although that turned out to be much ado about nothing in the end and results showed good progress.

Back to the question. Why am I still here?

I'm hoping that 7digital are now very close to the end of needing further financing. Indications have been that by the end of this month they should be close to completing the consolidation. Once consolidation is complete, they anticipate annual cost savings of £5m a year. With gross margins around the 70% mark, recurring revenues and huge cost savings, 7digital should easily move into profit and be cash flow positive in 2019 with revenues around £20m+. At a modest market cap. of  around £12.5m, and with high operational gearing then it's easy to envisage a massive uplift in the share price.

In my view, the next few weeks will be pivotal in establishing 7digital's long term credibility and I'd expect some investors to wait on the sidelines since it's been less than a smooth ride so far. However,  are good things just around the corner?

I hope so, and shall wait to hear of further developments. If 7digital does turn cash positive and profitable in 2019 without the need for much more funding and serious dilution then the shares will multi-bag without question. Of course, it is an IF at the moment.

As ever, the shares are illiquid and can move quickly either way. I'm not a tipping service, these are just my personal thoughts and not advice so DYOR thoroughly.

twitter: @michae1mouse

Is this a bear market or a market correction?

Wow it's a bit choppy out there at the moment!

Nasty share price falls across the board today. The big question is are we going through a market correction before the bull chases ahead again? Or is this a bear market? There's a clear distinction.

Market corrections are usually sharp and short. Short term pain is normally short-lived before share prices recover and more often than not move sharply ahead again. Bear markets are more painful, and often endure for between 1-2 years.

So which is it? Nobody knows yet. We'll have to wait and see.

If it's a bear market then I'd suggest that you carefully look at the company shares you own and ask yourself the following questions:-

Does the company make a profit?

Does the company have positive cashflow?

Is the company debt free?

Is the company's P/E ratio a sensible one? (Anything above 25 is quite racy)

Does the company pay a dividend which is well covered?

Is the market cap. no more than three times the TNAV?

If the answer to (let's say) two of those questions is yes then you might want to just see the bear out? Your company is unlikely to go bust because it's got a safety net (a margin of safety). A healthy dividend yield, solid earnings in relation to share price, a strong balance sheet etc. should eventually attract buyers and stop the shares going into freefall.

However, if the answer to all those questions is no then you may want to consider cashing in your profits or losses. You're holding a highly speculative company which carries no safety net, and consequently the share prices will fall more significantly than most. Momentum plays work both ways. Value becomes king! Raising cash in bear markets can be very difficult, and by implication if you've answered no to all the above then your company will very probably need either loans or a fund raise. Banks are not so keen to lend, and institutions want their pound of flesh and will only offer cash at huge discounts to prevailing share prices. Some speculative companies will inevitably go bust.

At this stage nobody can say for sure if this is a correction or a bear market, but it's a good time to assess just how financially secure the companies you've invested in are.

As ever, I don't give sell or buy recommendations. Please do your own research carefully.

twitter: @michae1mouse