Hot on the heels of the 7digital debacle, I'm reporting a successful share sale in a company (to make myself feel better) which is the antithesis of 7digital. The company in question is Scientific Digital Imaging where I've banked a 3-bagger (203% profit to be more precise). I bought shares in SDI in December 2016, and have watched a wonderful success story where the management have done a great job in growing the company both organically and by acquisition. The company is profitable, cash generative and has a strong balance sheet. It's gross margins are very healthy at around 66%. As I said, the opposite of 7digital's fundamentals.
I love this company and believe it has far further to run, but I wanted to release some funds because I believe that there are bargains to be had and others that will materialise in the coming weeks or months. It's always a difficult decision to sell a company if it's performed well and I do believe in running winners, but the reality is that occasionally you need to raise cash for other perceived opportunities and you need to make choices. With SDI the compounding return for me after just 2.25 years was 64% per annum. If only all of my choices could do as well.
In further good news, One Media IP (OMIP) reported very encouraging interims today alongside the acquisition of a music catalogue:-
https://londonstockexchange.com/exchange/news/market-news/market-news-detail/OMIP/14033376.html
https://londonstockexchange.com/exchange/news/market-news/market-news-detail/OMIP/14033329.html
I don't envisage selling any shares in OMIP in the near future. Again it's a great little company with good growth prospects and excellent fundamentals.
As ever DYOR, and listen to nothing I say.
Tuesday, 9 April 2019
Liars, incompetence, and foolhardy choices
FFS I never saw that coming! Maybe I should have? I'll try not to be to harsh with myself, but I must show more discipline in future.
This morning's shock came in the form of a "Business Update" from 7digital. The previous CEO Simon Cole has just left the company after saying the following on 25th March, "I leave 7digital in good shape". It's now become obvious that he was referring to himself rather than the company, and has clearly been spending too much time at the gym since today's business update from the new incumbent says the following, "the Board's current view is that the business will require material further equity and/or debt funding in the next quarter without which the Company would be unable to continue as a going concern. The Board will assess financing options for the Company however, it is likely that this would entail significant dilution for shareholders."
I'm glad Simon's in good shape, and enjoyed his journey since it provides me with great comfort having today sold my entire holding for a whopping 94% loss overall. The only saving grace for me is that I wasn't suckered in by these rats when the previous share price collapse happened back in January. I have massive sympathy for those who were. In my previous two blog posts I had this to say:-
http://michae1mouse.blogspot.com/2018/12/micro-cap-christmas-presents-or.html
"7digital (7DIG) - current sp 2.3p, market cap. £9.2m. Big promises but disappointing so far. Has had a habit of pulling defeat from the jaws of victory. Up until now it's been a big cash guzzler and diluted shareholders. Major acquisition should now be fully integrated? Cost savings will be £5m per annum? Gross margins should be 70%+ , and profitability just around the corner in a potentially exciting space. Market doesn't currently believe the promises, but if 7digital proves them wrong then expect a multi-bagger in double quick time."
Followed by:-
http://michae1mouse.blogspot.com/2019/03/the-micro-cap-update-3-months-later.html
"7digital (7DIG) have probably released more news than all of the others since December. Initially bad news including the termination of a contract with Juke a significant customer, and the non payment of a tax bill. The market was spooked and the shares plunged. However, since then they settled the tax bill and received a very healthy 4m Euro settlement from Juke, alongside announcing new contracts. The share price has recovered a little and stands at 1.18p (down 49%). Very recently there have been significant changes to the management team."
Given the newsflow, shareholders had every right to believe that, despite the January issues, the company was recovering and with a 4m Euro settlement received had enough cash for the foreseeable future at least. I can't even express how angry this makes me. At best it was financial incompetence, I'll let you surmise what it was at worst.
I don't care what happens to this company or it's share price from now on since I've been 100% wrong up until this point. However, given it's history then who in their right mind is going to stump up extra cash and/or lend them money when they've pissed so many millions up the wall already. Good riddance.
In terms of lessons learnt then I'm not going to be too harsh with myself, but I'm not best pleased either since this now ranks as my worst investment since DCD Media and there were some worrying parallels e.g. crap balance sheet stuffed with intangibles, ill advised acquisitions, management promises never fulfilled etc.
Firstly, in my defence I'd say that the company was beginning to generate very healthy revenues, gross margins were around 70% (very appealing for operational gearing), they were last man standing in Europe and profitability and cash generation was promised and appeared highly likely in 2018.
It's all "jam tomorrow" bollocks though really. At the 2018 interims, despite a healthy increase in revenues, losses were over £2.5m, net current assets were nearly minus £2m and they were still burning cash like it was going out of fashion. The fundamentals will always out in the end! I know this and must do better next time.
I've been in this game for a long time now, and the successes are invariably those companies which have most of the following qualities:- Profits, good cash generation, a solid balance sheet, high gross margins, good management, dividend payments and Directors with "plenty of skin in the game". Small companies don't need to have all of them to pique my interest, but 7digital only boasted growing revenues and high gross margins. It's not enough.
What still amazes me after all this time is investors (including myself in this instance) chasing companies with none of the above and sometimes barely any revenues. 99% of the time it ends in disaster for such companies. 7digital being one of them. What on earth was I thinking?
Remember ignore all I say and do, but (just for myself) don't listen to bullshit by CEO's, sharetipsters, multi-handled bulletin board idiots, tweeters or any one else. It's always the fundamentals stupid with some potential for growth and a bit of luck thrown in! They might not always be multi-baggers, but some will be and the ones that aren't are unlikely to lose you 95% of your capital.
GLA, and commiserations if you own(ed) 7digital or indeed any other company that has lost significant value.
This morning's shock came in the form of a "Business Update" from 7digital. The previous CEO Simon Cole has just left the company after saying the following on 25th March, "I leave 7digital in good shape". It's now become obvious that he was referring to himself rather than the company, and has clearly been spending too much time at the gym since today's business update from the new incumbent says the following, "the Board's current view is that the business will require material further equity and/or debt funding in the next quarter without which the Company would be unable to continue as a going concern. The Board will assess financing options for the Company however, it is likely that this would entail significant dilution for shareholders."
I'm glad Simon's in good shape, and enjoyed his journey since it provides me with great comfort having today sold my entire holding for a whopping 94% loss overall. The only saving grace for me is that I wasn't suckered in by these rats when the previous share price collapse happened back in January. I have massive sympathy for those who were. In my previous two blog posts I had this to say:-
http://michae1mouse.blogspot.com/2018/12/micro-cap-christmas-presents-or.html
"7digital (7DIG) - current sp 2.3p, market cap. £9.2m. Big promises but disappointing so far. Has had a habit of pulling defeat from the jaws of victory. Up until now it's been a big cash guzzler and diluted shareholders. Major acquisition should now be fully integrated? Cost savings will be £5m per annum? Gross margins should be 70%+ , and profitability just around the corner in a potentially exciting space. Market doesn't currently believe the promises, but if 7digital proves them wrong then expect a multi-bagger in double quick time."
Followed by:-
http://michae1mouse.blogspot.com/2019/03/the-micro-cap-update-3-months-later.html
"7digital (7DIG) have probably released more news than all of the others since December. Initially bad news including the termination of a contract with Juke a significant customer, and the non payment of a tax bill. The market was spooked and the shares plunged. However, since then they settled the tax bill and received a very healthy 4m Euro settlement from Juke, alongside announcing new contracts. The share price has recovered a little and stands at 1.18p (down 49%). Very recently there have been significant changes to the management team."
Given the newsflow, shareholders had every right to believe that, despite the January issues, the company was recovering and with a 4m Euro settlement received had enough cash for the foreseeable future at least. I can't even express how angry this makes me. At best it was financial incompetence, I'll let you surmise what it was at worst.
I don't care what happens to this company or it's share price from now on since I've been 100% wrong up until this point. However, given it's history then who in their right mind is going to stump up extra cash and/or lend them money when they've pissed so many millions up the wall already. Good riddance.
In terms of lessons learnt then I'm not going to be too harsh with myself, but I'm not best pleased either since this now ranks as my worst investment since DCD Media and there were some worrying parallels e.g. crap balance sheet stuffed with intangibles, ill advised acquisitions, management promises never fulfilled etc.
Firstly, in my defence I'd say that the company was beginning to generate very healthy revenues, gross margins were around 70% (very appealing for operational gearing), they were last man standing in Europe and profitability and cash generation was promised and appeared highly likely in 2018.
It's all "jam tomorrow" bollocks though really. At the 2018 interims, despite a healthy increase in revenues, losses were over £2.5m, net current assets were nearly minus £2m and they were still burning cash like it was going out of fashion. The fundamentals will always out in the end! I know this and must do better next time.
I've been in this game for a long time now, and the successes are invariably those companies which have most of the following qualities:- Profits, good cash generation, a solid balance sheet, high gross margins, good management, dividend payments and Directors with "plenty of skin in the game". Small companies don't need to have all of them to pique my interest, but 7digital only boasted growing revenues and high gross margins. It's not enough.
What still amazes me after all this time is investors (including myself in this instance) chasing companies with none of the above and sometimes barely any revenues. 99% of the time it ends in disaster for such companies. 7digital being one of them. What on earth was I thinking?
Remember ignore all I say and do, but (just for myself) don't listen to bullshit by CEO's, sharetipsters, multi-handled bulletin board idiots, tweeters or any one else. It's always the fundamentals stupid with some potential for growth and a bit of luck thrown in! They might not always be multi-baggers, but some will be and the ones that aren't are unlikely to lose you 95% of your capital.
GLA, and commiserations if you own(ed) 7digital or indeed any other company that has lost significant value.
Saturday, 30 March 2019
The micro-cap update - 3 months later!
Back in early December I wrote the following blog post:-
http://michae1mouse.blogspot.com/2018/12/micro-cap-christmas-presents-or.html
Just for clarity, I may or may not have added or sold (partially or fully) any or all of the following company shares or simply done nothing since writing the above article. Indeed, I may or may not have acquired or be acquiring shares in other companies since December that don't appear in the list above. I am not recommending buying or selling any of the companies mentioned, but merely reporting on progress at regular intervals (probably every 3 months).
As I outlined in the article in December, I'm looking at a 5+ years horizon so after just 3 months we are very early on in making any judgements. It's also worth pointing out that the majority of the company shares mentioned are highly illiquid and can move very quickly in either direction so it goes without saying they're not for widows or orphans or the faint hearted.
Anyway, a quick progress check.
First up Mediazest (MDZ). The current share price at 0.09p is up 20%. Since I last reported, Mediazest now has a new Nominated Advisor, it raised £110,000 at 0.10p for working capital and to strengthen the balance sheet, and recently issued a trading statement. The full year performance will be below market expectations, but will show an improvement on the prior year. A company called "In Ur Face Media Limited" has taken a 8.5% interest in the company.
Aeorema Communications (AEO) has released one significant news item (this week) which was it's interim report. The shares stand at 26p (20% down). Despite an in-line statement and robust cash position most of the share price fall occurred this week. They intend to continue dividend payments.
Stilo International (STL) released full year results on 14 March. There were no surprises from earlier trading statements. Despite a fall in revenues they still recorded a £177,000 profit and upped the dividend again by 20%. The balance sheet is still strong with plenty of cash. The share price is 2.35p (down 15%) with the dividend yield now standing at 5%. Incidently, Stilo's progressive dividend policy has meant that the payout has doubled in 4 years.
Immedia (IME) has produced no significant news but the shares have risen to 29p (up 9.5%).
Space and People (SAL) produced a profit warning in January causing the shares to plunge, and have since released their final results. Renewals and new contracts provide for optimism in 2019, as does the payment of a dividend this year at a yield of 3.8% at the current share price. We shall see if they can recover in 2019 of course. The share price is currently 13p (fallen 38%).
Trakm8 (TRAK) released a trading statement that was a bit of a mixed bag in February although they expect to be profitable in the second half of 2018, and promise a much improved performance in 2019. They've sold their property in Dorset for £506,000. The shares are flat at 21p.
One Media IP Group (OMIP) have announced a new contract and the acquisition of a new catalogue. Finals will be on the 09/04/19. The share price stands at 5.05p (down 8%).
7digital (7DIG) have probably released more news than all of the others since December. Initially bad news including the termination of a contract with Juke a significant customer, and the non payment of a tax bill. The market was spooked and the shares plunged. However, since then they settled the tax bill and received a very healthy 4m Euro settlement from Juke, alongside announcing new contracts. The share price has recovered a little and stands at 1.18p (down 49%). Very recently there have been significant changes to the management team.
Crimson Tide (TIDE) released a very positive trading statement which bodes well for their short, medium and long term future. The shares are currently 2.65p (up 20%).
Biome Technologies (BIOM) had an excellent 2018 where it recorded the first profit in it's history, largely due to a stellar performance in it's RF division. Revenues were up 44% at £8.9m with EBITDA at £600,000 and a maiden operating profit of £100,000. The shares have fallen since I last reported chiefly because the RF division won't record the same revenues in 2019, but will outperform results in 2017 which were still very good. Investors appear to be overlooking the progress in the Bioplastics division which will be the real growth driver going forward. The Finals which were released this week read very positively and "the Board is confident in the group's outlook for 2019". The share price is currently 365p (down 33%).
Scientific Digital Imaging (SDI) is the star performer so far at 47p (up 25%). SDI released their interims results with all of the key metrics showing excellent progress, in particular cash generation was up 103% at £1.5m. The group's outlook remains positive. They have since made a further two acquisitions which should further enhance earnings alongside organic growth.
Last but not least is PCF Group (PCF). They've raised capital in the markets to accelerate their impressive growth, and a trading statement which was very encouraging in the short, medium and long term. The share price at 33p is down 8%.
It's very early stages at the moment, but if you'd invested £1000 in each company mentioned then currently you'd be sitting on a loss of 8% at the moment (average share prices), although paper losses would be greater if you include bid/offer spreads and buying fees. Not great, but in the current climate for micro-caps not a disaster either. Current political and economic uncertainty is certainly adversely affecting the performance of very small companies.
It should be noted that 6 companies in the list are now valued at less than £5m namely STL, IME, AEO, 7DIG, SAL, and MDZ with STL, AEO, IME and SAL having excellent balance sheets and plentiful cash (STL, AEO and SAL pay a dividend). Four more of the companies are capitalised below £13m i.e. TRAK, TIDE, OMIP and BIOM with the remaining two less than £100m (SDI and PCF).
As mentioned previously, the gains or losses mentioned above do not relate to my own losses or gains and I may or may not still hold all or some of the above. I may or may not have acquired shares in companies not mentioned in the list. From time to time, I will update my blog with details of my own purchases or sales of companies and report losses or gains. As a very long term holder though, these occasions are relatively rare.
Good luck with your stock picking, and enjoy. As ever no advice is given or implied!!
http://michae1mouse.blogspot.com/2018/12/micro-cap-christmas-presents-or.html
Just for clarity, I may or may not have added or sold (partially or fully) any or all of the following company shares or simply done nothing since writing the above article. Indeed, I may or may not have acquired or be acquiring shares in other companies since December that don't appear in the list above. I am not recommending buying or selling any of the companies mentioned, but merely reporting on progress at regular intervals (probably every 3 months).
As I outlined in the article in December, I'm looking at a 5+ years horizon so after just 3 months we are very early on in making any judgements. It's also worth pointing out that the majority of the company shares mentioned are highly illiquid and can move very quickly in either direction so it goes without saying they're not for widows or orphans or the faint hearted.
Anyway, a quick progress check.
First up Mediazest (MDZ). The current share price at 0.09p is up 20%. Since I last reported, Mediazest now has a new Nominated Advisor, it raised £110,000 at 0.10p for working capital and to strengthen the balance sheet, and recently issued a trading statement. The full year performance will be below market expectations, but will show an improvement on the prior year. A company called "In Ur Face Media Limited" has taken a 8.5% interest in the company.
Aeorema Communications (AEO) has released one significant news item (this week) which was it's interim report. The shares stand at 26p (20% down). Despite an in-line statement and robust cash position most of the share price fall occurred this week. They intend to continue dividend payments.
Stilo International (STL) released full year results on 14 March. There were no surprises from earlier trading statements. Despite a fall in revenues they still recorded a £177,000 profit and upped the dividend again by 20%. The balance sheet is still strong with plenty of cash. The share price is 2.35p (down 15%) with the dividend yield now standing at 5%. Incidently, Stilo's progressive dividend policy has meant that the payout has doubled in 4 years.
Immedia (IME) has produced no significant news but the shares have risen to 29p (up 9.5%).
Space and People (SAL) produced a profit warning in January causing the shares to plunge, and have since released their final results. Renewals and new contracts provide for optimism in 2019, as does the payment of a dividend this year at a yield of 3.8% at the current share price. We shall see if they can recover in 2019 of course. The share price is currently 13p (fallen 38%).
Trakm8 (TRAK) released a trading statement that was a bit of a mixed bag in February although they expect to be profitable in the second half of 2018, and promise a much improved performance in 2019. They've sold their property in Dorset for £506,000. The shares are flat at 21p.
One Media IP Group (OMIP) have announced a new contract and the acquisition of a new catalogue. Finals will be on the 09/04/19. The share price stands at 5.05p (down 8%).
7digital (7DIG) have probably released more news than all of the others since December. Initially bad news including the termination of a contract with Juke a significant customer, and the non payment of a tax bill. The market was spooked and the shares plunged. However, since then they settled the tax bill and received a very healthy 4m Euro settlement from Juke, alongside announcing new contracts. The share price has recovered a little and stands at 1.18p (down 49%). Very recently there have been significant changes to the management team.
Crimson Tide (TIDE) released a very positive trading statement which bodes well for their short, medium and long term future. The shares are currently 2.65p (up 20%).
Biome Technologies (BIOM) had an excellent 2018 where it recorded the first profit in it's history, largely due to a stellar performance in it's RF division. Revenues were up 44% at £8.9m with EBITDA at £600,000 and a maiden operating profit of £100,000. The shares have fallen since I last reported chiefly because the RF division won't record the same revenues in 2019, but will outperform results in 2017 which were still very good. Investors appear to be overlooking the progress in the Bioplastics division which will be the real growth driver going forward. The Finals which were released this week read very positively and "the Board is confident in the group's outlook for 2019". The share price is currently 365p (down 33%).
Scientific Digital Imaging (SDI) is the star performer so far at 47p (up 25%). SDI released their interims results with all of the key metrics showing excellent progress, in particular cash generation was up 103% at £1.5m. The group's outlook remains positive. They have since made a further two acquisitions which should further enhance earnings alongside organic growth.
Last but not least is PCF Group (PCF). They've raised capital in the markets to accelerate their impressive growth, and a trading statement which was very encouraging in the short, medium and long term. The share price at 33p is down 8%.
It's very early stages at the moment, but if you'd invested £1000 in each company mentioned then currently you'd be sitting on a loss of 8% at the moment (average share prices), although paper losses would be greater if you include bid/offer spreads and buying fees. Not great, but in the current climate for micro-caps not a disaster either. Current political and economic uncertainty is certainly adversely affecting the performance of very small companies.
It should be noted that 6 companies in the list are now valued at less than £5m namely STL, IME, AEO, 7DIG, SAL, and MDZ with STL, AEO, IME and SAL having excellent balance sheets and plentiful cash (STL, AEO and SAL pay a dividend). Four more of the companies are capitalised below £13m i.e. TRAK, TIDE, OMIP and BIOM with the remaining two less than £100m (SDI and PCF).
As mentioned previously, the gains or losses mentioned above do not relate to my own losses or gains and I may or may not still hold all or some of the above. I may or may not have acquired shares in companies not mentioned in the list. From time to time, I will update my blog with details of my own purchases or sales of companies and report losses or gains. As a very long term holder though, these occasions are relatively rare.
Good luck with your stock picking, and enjoy. As ever no advice is given or implied!!
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