How much longer can AEO be ignored?

AEO (Aeorema Communications) released their full year results this morning:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/AEO/13857561.html

I've written about this company before. Here is my last blog post from around the same time last year:-

http://michae1mouse.blogspot.com/2017/11/update-aeo-no-brainer-now-surely.html

Since that time the share price has largely remained unchanged, but the company is making excellent progress. Undervalued/unloved stocks can be ignored for very long periods, but in my experience it's always worth the wait in the end.

In my last blog post, I said AEO was undervalued. Following today's results I'd suggest it's even cheaper.

This morning they recorded a 16% leap in revenues to £4.8m (2017:£4.16m) and a profit before exceptional items of £289,650, a year-on-year increase of 17% (2017: £248,368).

They maintained a strong cash position with £1,436,314 in the bank, and have proposed a final dividend payment of 0.75p (2017: 0.5p), up 50% on last year.

Taking the profit (post tax) before the exceptional items gives EPS of around 2.6p, and hence a p/e ratio of just over 10.

The exceptional items were in relation to the departure of its two founders, Peter Litten and Gary Fitzpatrick, from the board of directors.

The new management team are more focussed on growth than Litten and Fitzpatrick, and although they intend to keep paying dividends when possible, they will "use the cash reserves to invest in new talent capable of driving the business forward organically, as well as exploring new acquisition opportunities which can help the Group increase in scale and drive increased revenues and profits." 

They've certainly made an excellent start whilst maintaining a very healthy balance sheet boasting cash of £1.4m and remaining virtually debt free. 

The growth story moving forward is looking very promising indeed. The average growth in revenue from their top five clients this financial year was 29% and although some of their larger individual projects continue to be repeated every two to three years, they have added some new annual large-scale conferences to their calendar and continue to seek out repeating six figure revenue generating events to support their growth plan. They are especially pleased to report that their pitch to win ratio has increased by approximately 40%. 

Their outlook statement reads very positively:-

"Looking forward to the financial year ended 30 June 2019 and beyond the outlook is very positive. The strength of the new team has led to an excellent series of new business gains since the year end with both existing and new clients. These gains include a major new client in the technology sector and a new global brand within the media sector. The Group continues to win new film production projects and the appointment of Julian Staveley as Experiential Director is also proving successful, with the Group recently winning a roadshow event for a global electronics company."

Everything points to a company achieving excellent growth with a solid balance sheet, a forward p/e ratio in single digits and a respectable 2.7% dividend yield. At a market cap. of just £2.4m it's an opportunity to pick up a value company with very good growth prospects. Surely, AEO can't be ignored for much longer?

I am a shareholder of AEO, and no advice is offered or given in this blog.

Zesty interims!

Mediazest released their interim results this morning rather earlier than I'd anticipated (in 2017 it was mid December). I'm impressed, pleased and will continue to hold my existing shares in the company. I last commented on Mediazest in September:-

http://michae1mouse.blogspot.com/2018/09/zesty-and-promising-or-just-lemon.html

This mornings interims were very much in-line with the encouraging trading update and the key metrics are as follows:-

Revenue up 36% at £1.819m, EBITDA at a healthy £156,000 (they recorded a loss in 2017) and a maiden profit of £90,000 (they made a loss of £149,000 in 2017 at this juncture).

As mentioned in my previous blog post, the cash position is the worry for Mediazest, and on the face of it cash of £12,000 recorded at period end is insufficient. However, this is because of a late payment of EUR130,000, the bulk of which has now been received and cash is therefore healthier than the headline figure.

Gross margins have improved by 3 percentage points to a healthy 51% largely driven by their pursuit of recurring revenues which currently stand at around £700,000. They hope by year end these will increase to around £800,000 and cover 50% of costs on an annual basis.

Whilst we're all aware of uncertainty in the UK retail market, Mediazest are having considerable success overseas and :-

"the Group is developing, currently, several roll out / substantial deployment opportunities which would enable the Company to show further progress both in the current and future reporting periods." Their client list remains very impressive, and as far as I'm aware, this is their best half-year performance to date? Given all the above and a lowly market cap of around £1.4m, I don't see any reason not to stick with the shares I already own and see how things develop in the future.

Jam delivered and currently stuck in a jam!

There were very few RNS announcements in October from companies that I'm interested in, but November has started with a terrific trading update from Biome Technologies:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/BIOM/13850420.html

This was a Q3 update to 30 September. It reads very well indeed.

Firstly, overall revenues are £7m for the first 9 months of 2018 which is a 56% improvement on last year. Significantly, this 9 month revenue figure is already well ahead of the full year figure from 2017 which came in at £6.2m.

As mentioned in my previous blog post, it's the RF division that's outperforming at the moment with £5.5m of the £7m revenues generated coming from the exceptional demand for fibre optic furnaces in 2018. The remainder of 2018 also looks strong for this division, and the outlook for 2019 sounds optimistic with orders "reasonably strong" at this stage.

The Bioplastics division is the laggard at this juncture, but I believe that this division has huge potential given the publicity regarding the environmental damage being caused by conventional plastics. 

Whilst the revenues generated in 2018 by the bioplastics division are marginally down on last year at £1.5m (1.7m in 2017), 2019 could see a significant uplift in revenues. Most of the revenues from this division are currently "for the commercialised outer packaging and non-woven filter mesh for the US coffee pod market." It's worth noting that "a contract for the supply of material for the rigid ring material in this coffee market sector has been signed recently and commercial revenues are expected to commence in Q1 2019 following the completion of final validations."

Even more significantly, there are two projects underway, one in the US and one in Europe, that could lead to substantial revenues in 2019 and 2020 with "further new customer relationships (are)underway within this division which should lead to exciting projects emerging in 2019."

I'm still very excited by the prospects here, and it's a long term hold for me. The shares rose sharply this morning, but they are extremely illiquid and have since fallen back a little from profit taking (the shares are up around 4% as I write). 

At the opposite end of the scale, 7digital's share price has been falling sharply in recent weeks. There is or has been a relatively large seller in the market recently which explains some of the decline:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/7DIG/13826986.html

A major issue is that many investors are probably sitting on their hands waiting for some positive news from the company. Whilst they work towards cashflow and profitability, they have burnt through cash very quickly and recently needed an additional £1.5m loan from three shareholders for working capital as the company completes it's restructuring.

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/7DIG/13843278.html

Promises of cashflow positivity and profitability accompanied by one or two large client contracts is needed from 7digital. So far it's been too many promises without the delivery, and we need under-promising and over delivering from now on.

I remain hopeful that 7digital can achieve their goals, and of course if they do then the share price will recover and move sharply higher. Ever hopeful, but it's never comfortable until you see the evidence of success rather than just jam tomorrow.

One thing that's worth noting is that Biome Technologies was very much a "jam tomorrow" company and many investors will have left the party never to return. That's a pity because it looks like the party may well be just starting? Biome's jam is being delivered now, let's hope 7digital does exactly the same. At the moment 7digital appears stuck in a jam.

Finally and very briefly, PCF have today announced the completion of an earnings enhancing acquisition following an encouraging trading update in late October. I hold.

As ever DYOR, no advice offered or given.