Investing in illiquid small caps is not for the faint hearted. I should know since it's where I concentrate all my efforts. Yesterday I experienced the worst one day share price collapse in a company I hold (if memory serves me correctly) since I started investing seriously in the early 2000's. The company in question is Trakm8. I'll address yesterday's debacle later.
Of course these things work both ways. Yesterday largely reflects the panic and irrational behaviour of a current bear market in micro-caps pushing their share prices well below fair value. Bull markets do just the opposite with the exact same companies.
With all the above in mind, whilst I'm constantly banging on about being a long term investor, it's vitally important to keep personal goals in mind and act accordingly.
I bought all my shares in Trakm8 back in 2011 when the share price was even lower than it is now i.e. it was in the teens. Here's my blog post from that time:-
http://michae1mouse.blogspot.com/2011/09/your-m8-my-m8-trackm8.html
Trakm8 was one of my largest investments. It ticked so many of my personal investing criteria for a micro-cap.
Fast forward to Spring 2015 and Trakm8's share price had risen above £1, and I took a gamble. Trakm8's results were improving, trading statements were excellent and the share price had real momentum. I quit the day job with a (hopeful) £2 plus price target in mind which would make my dream of full time investing possible. In early October of the same year (2015), as the share price rose above my £2 target, I attempted to sell half my holding. I managed to sell a good portion, but given the huge illiquidity of the shares, I didn't sell all that I wanted to. As luck would have it, share price momentum continued and I actually sold the rest of that 50% for well over £3.
My two sales gave me a 12 bagger and a 20 bagger respectively. This translated into more than 6 times my original investment with the remaining 50% to hold for "free".
I hope this doesn't sound like bragging because it's not, I'm just trying to state the importance of having personal goals when making buy or sell decisions.
Trakm8 changed my life and I'll always be grateful to the management team that had done so well up until that point in their development. For regular readers, I hope this also goes some way to explain why in the past I've defended them so vociferously (and clearly I still hold 50% of my original investment).
My personal experience in the micro-cap sector has taught me to pick 10-15 such companies that you believe have significant potential. Carefully consider their financial situation and prospects before investing and buy them as cheaply as possible. Hold tightly unless the story changes or you've reached a personal goal. One or two of these success stories will change your life. There are other successful strategies of course, but buy and hold works for me. Never forget with all the best research in the world then you'll still need a bit of luck, but "the more you practice the luckier you'll get".
Hot on the heels of Trakm8 came another success story. Avesco. What I don't think I've mentioned about my investment here is that before I started the thread below, I'd bought a small maiden purchase at around 80p, which I thought was very reasonable at the time.
https://uk.advfn.com/cmn/fbb/thread.php3?id=20681152
How I laughed as the price plunged to as low as 20p. I kept thinking maybe I was missing something, but the shares seemed ludicrously cheap. That's when I bought the bulk of my holding. In 2016, Avesco was bought out for £6.50 and along the way investors enjoyed generous dividends that included a bumper £1.10 payout after winning damages against Disney.
http://michae1mouse.blogspot.com/2016/11/avesco-value-realised-after-recommended.html
This brings me back to yesterday's interims and trading statement from Trakm8.
The interims and trading statement were extremely disappointing there is no denying it, but a near 70% drop in the share price is just plain silly.
As a long term investor, what you need to decide is where will they be in 5 years or more?
I see a company that's still making good progress (albeit slower than hoped) but had a bit of bad luck in regaining momentum. It's recurring revenues make up 58% of total revenues which in 2018 are likely to be around £22m or so. Lexis Nexis and EE are two major contract wins recently announced and join the AA, Scottish Power, Direct Line, Marmalade, E.ON etc in employing Trakm8's cutting edge technology. Reading yesterday's report again, I still believe the company has excellent medium and long term prospects.
I don't give advice, but I'll be holding my shares now until the end game which I'm hopeful will conclude in a few years time in a similar manner to Avesco i.e. huge capital appreciation, dividends when appropriate and an eventual buyout at a premium.
ATB to regular readers, and if you're relatively new to investing then don't be depressed by the current sell off in micro-caps, it's an opportunity and not a negative.
As ever, AIMHO and please do your own research.
Saturday, 17 November 2018
Wednesday, 7 November 2018
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.
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.
Monday, 5 November 2018
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.
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.
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