A relatively short blog post this one. It's really for those who are relatively inexperienced in 'stock picking' and those fretting about the current situation.
This is the third bear market/huge correction I've encountered since starting my 'stock picking' passion.
I suspect it's more of a bear market than correction because it feels very much like 2007/2008. Just when you think a company's share price can't get any lower, it does.
In truth, the huge sell off has been a long time coming. I thought last year would be the year, but of course there were no triggers. However, along comes Covid-19, mass hysteria, mass panic and stock markets around the world plummet as potential worldwide recession casts it gloom across the globe. It's the end of the world!! Again.
In future, some of the signs to look for before a mass sell off are stock pickers relatively new to investing believing they're demi-gods after a couple of years or so of positive returns, a rise in the 'investment gurus' on social media and elsewhere where their mere mention of a company moves it's share price up regardless of it's valuation (I'll come to this in a minute), a significant number of companies on p/e ratios of 30+ which can all be justified of course because earnings will eventually reach infinity and beyond, companies with market caps that are a significant multiple of it's revenues. These are just some signs, but I could go on.
Largely, I learnt my lesson (and it was an invaluable lesson) in the dot-com boom and bust (look it up if you're new to stock picking or a youngster). I wanted a piece of the 'stock market' action, but knew sod all about balance sheets, p/e ratios, balance sheets etc. I got lucky at first, every one's a winner!! Big percentage rises, easy money! Of course, along came the non too friendly bear and oh dear!
Here's the thing though. At that stage of my 'stock picking' excursion I thought I was being sensible and conservative. Two of the companies in my portfolio were GlaxoSmithKline and British Telecom.
I bought GSK for about £20 and BT for around £8 per share. During the bear market, their share prices plummeted. These are quality companies (certainly in GSK's case) but in nearly 20 years the share prices of these companies has never returned to these levels. I should add however that at least you'd have received a nice income stream, but capital appreciation would have been less than zero. Quality companies but not great investments at those prices.
The bear market was the best thing that happened to me however. I couldn't understand why the share prices of these two stalwarts of the market had fallen so dramatically?
That's when I started to read extensively. I'm not talking about the shite website tipsters, the bloggers, the twitter gurus or bulletin board heroes. Ignore all these. Get some books and information about the proven great investors with track records e.g. Buffett, Graham, Lynch, et al and learn about dividends, p/e ratios, net asset values etc.
When I did this in the early 2000s it was transformational. I quickly ditched GSK and BT and took the losses on the chin. The stock market made sense and was no longer a scary place. Knowing how to value companies sensibly is the key to successful investing. Bear markets create huge opportunities. Life changing opportunities.
Of course, I still make mistakes and pick some howlers, but being able to pick companies on a cheap valuation gives you an edge. Where's the evidence then? Well here's one example. The majority of the shares were bought around the 25p mark. The company eventually got bought out for £6.50, not to mention all those dividends and special dividends along the way:-
https://uk.advfn.com/cmn/fbb/thread.php3?id=20681152&from=1
If you read no further than post 2 on this thread it'll give you an idea of why the valuation of this little known company was fantastically appealing. It'll also give you an idea of how low valuations can sink in times of irrational panic.
In conclusion, valuations matter!
Thursday, 12 March 2020
Monday, 3 February 2020
Can it rise from the ashes once more?
It's difficult to believe that SpaceandPeople (SAL) was a former darling of the stock market, as the share price languishes at 11.25p down a further 6% after today's trading update. I think today's fall may reflect a lack of interest in a forgotten micro-cap rather than a reaction to today's news, but more of that later.
In summary the company describes itself as follows:-
"SpaceandPeople (AIM:SAL), the retail, promotional and brand experience specialist which facilitates and manages the sale of promotional and retail merchandising space in shopping centres and other high footfall venues"
In 2007 the share price of SAL hit the dizzy heights of 220p only to fall sharply to around 45p (like so many other companies at the time), and then rise once more like a "phoenix from the flames" to around 150p in 2014. Sadly, and perhaps not surprisingly, the share price alongside the company's fortunes has slid back to today's 11.5p seemingly mirroring the demise and troubles of the high street.
Can it rise once more?
Firstly, let's be realistic and confront the negatives. Over recent years SAL has been a serial disappointer, always on the verge of returning to growth, but never quite managing it. Indeed this morning's trading update reported revenues below expectations and slightly below last year at £7.7m.
https://londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/14407056.html
On the plus side, they have recorded a very small profit before tax (around £100,000) which is broadly in-line with expectations. It should be noted these were revised targets following higher expectations at the beginning of the year. So not inspiring so far.
However, context is everything and SpaceandPeople is valued at around a measly £2m, and there are some positives worth considering.
Their year end cash position was £1.2m with £0.6m of bank debt.
Most interestingly, they've upped the dividend payout by 50% to 0.75p from last year's 0.5p. If you bought the shares at today's price of 11.5p then you'll get a nice yield of 6.5%. Perhaps, more pertinently, the dividend hike suggests that they're confident of an improved performance in 2020.
So what has inspired that confidence?
In today's trading statement, they also announced a contract win with Abellio and a contract extension with Network Rail:-
"The Group is also pleased to announce that a multi-year agreement has been signed with Abellio to provide commercialisation activity in the Greater Anglia and West Midlands rail regions. This is the first time that SpaceandPeople has worked with Abellio and we look forward to growing this relationship.
In summary the company describes itself as follows:-
"SpaceandPeople (AIM:SAL), the retail, promotional and brand experience specialist which facilitates and manages the sale of promotional and retail merchandising space in shopping centres and other high footfall venues"
In 2007 the share price of SAL hit the dizzy heights of 220p only to fall sharply to around 45p (like so many other companies at the time), and then rise once more like a "phoenix from the flames" to around 150p in 2014. Sadly, and perhaps not surprisingly, the share price alongside the company's fortunes has slid back to today's 11.5p seemingly mirroring the demise and troubles of the high street.
Can it rise once more?
Firstly, let's be realistic and confront the negatives. Over recent years SAL has been a serial disappointer, always on the verge of returning to growth, but never quite managing it. Indeed this morning's trading update reported revenues below expectations and slightly below last year at £7.7m.
https://londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/14407056.html
On the plus side, they have recorded a very small profit before tax (around £100,000) which is broadly in-line with expectations. It should be noted these were revised targets following higher expectations at the beginning of the year. So not inspiring so far.
However, context is everything and SpaceandPeople is valued at around a measly £2m, and there are some positives worth considering.
Their year end cash position was £1.2m with £0.6m of bank debt.
Most interestingly, they've upped the dividend payout by 50% to 0.75p from last year's 0.5p. If you bought the shares at today's price of 11.5p then you'll get a nice yield of 6.5%. Perhaps, more pertinently, the dividend hike suggests that they're confident of an improved performance in 2020.
So what has inspired that confidence?
In today's trading statement, they also announced a contract win with Abellio and a contract extension with Network Rail:-
"The Group is also pleased to announce that a multi-year agreement has been signed with Abellio to provide commercialisation activity in the Greater Anglia and West Midlands rail regions. This is the first time that SpaceandPeople has worked with Abellio and we look forward to growing this relationship.
Also, the Network Rail agreement that was due to expire in September 2020 has been extended by a further year and we look forward to continuing to expand on this very successful relationship."
Furthermore, at the interim stage the company had this to say about prospects for 2020:-
"However, the foundations for a sustainable and significant turnaround have begun. Although the resurgence of German RMUs has come too late to have a significant impact on 2019, the new venues joining our service this year and the pipeline of additional venues in development for 2020 is the most positive it has been for many years. This will result in substantial revenue improvements next year."
As mentioned, they've disappointed in recent years, and who's to say they won't disappoint again this year? However, with such a tiny market cap., a current progressive dividend policy, and hints of a turnaround (I suspect they would payout at least a 1p next year or 8.7% at today's share price), there is the potential for a significant upside surprise from this tiddler imo.
As ever, no recommendations are made and it's AIMHO.
Saturday, 25 January 2020
Madness? Probably, but profitable madness.
A man who writes this vitriol about a company and his losses is surely not daft enough to even contemplate a punt in the same company at any future date? Only an idiot would do such a thing.
https://michae1mouse.blogspot.com/2019/04/liars-incompetence-and-foolhardy-choices.html
Yes I'm an idiot or maybe not so much actually? I'll explain, and I'll keep it brief.
On Tuesday, 7digital released a trading statement. If you read my blog regularly you'll know I am extremely au fait with this company.
I read the statement several times, and decided to risk some "punt" money. The market took some considerable time to react to 7digital's news, and hence I managed to purchase at below 0.2p. The shares finished up a little on the same day and advanced a little more on Wednesday. On Thursday the share price went berserk. I sold and took a 78% profit. If I'd held until Friday then I'd have made twice as much profit. Slightly galling, but a very successful trade nonetheless. I wish I could do that every week.
What next then? No idea short term, but here's my thoughts.
I know this company very well. I like the technology. I've always liked the story. I love the gross margins. The trading update gives cause for hope, but context is everything.
Things I liked. Trading for 2019 is in line with management expectations and their new strategy is performing well (apparently). They've significantly reduced operating costs. They've secured much of their expected revenues for 2020 and should achieve operational profitability by the end of the half year 2020. Plenty of positives and fortunately for me it clearly enticed many short term traders.
What could possibly go wrong?
Firstly, since I've been following 7digital, they've often said they're on the verge of profitability. Vintage 2018 trading statement:-
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/7DIG/13527293.html
"Following the acquisition of 24-7 in June, operational restructuring has already begun and has resulted in the closure of the Company's office in Paris and a reduction in headcount. The Board is pleased to report good progress towards its goal of profitability in the current financial year."
Didn't quite happen. In fact the company nearly went bust.
Secondly, despite all the positive noises, where are the figures that matter in the latest trading statement? There is no mention of cashflow, cash remaining or indeed revenue for 2019.
They have raised money over the last 12 months, but if you take a look at their last interim statement I can't for one moment imagine it'll be enough? They lost £3m between January and June 2019, and their balance sheet is just awful. They had a negative net asset balance of around £7m. Horrendous even after considering the cash they raised during the year. My guess is another major dilution is on the way. The last one was at around 0.2p.
I've no idea what will happen to the share price in the short term, although after such a hefty spike I know what normally occurs. What I can say is that at the current £12m market valuation and a very good chance of further dilution and losses for another 6 months before the possibility of operating profitability, I'll stick to the sidelines again and watch for developments. There are some great little micro-caps that are currently priced less than 7digital with much stronger balance sheets. Some already having achieved profitability.
Having been wrong about this one in the past, I don't offer any advice and maybe 7digital will pull the proverbial rabbit out of the hat, but with the share price having already 3-bagged in as many days, other options appear a better risk/reward unless they release earth shattering transformational news!
As ever, DYOR and this blog doesn't offer advice.
Good luck if you're a holder.
https://michae1mouse.blogspot.com/2019/04/liars-incompetence-and-foolhardy-choices.html
Yes I'm an idiot or maybe not so much actually? I'll explain, and I'll keep it brief.
On Tuesday, 7digital released a trading statement. If you read my blog regularly you'll know I am extremely au fait with this company.
I read the statement several times, and decided to risk some "punt" money. The market took some considerable time to react to 7digital's news, and hence I managed to purchase at below 0.2p. The shares finished up a little on the same day and advanced a little more on Wednesday. On Thursday the share price went berserk. I sold and took a 78% profit. If I'd held until Friday then I'd have made twice as much profit. Slightly galling, but a very successful trade nonetheless. I wish I could do that every week.
What next then? No idea short term, but here's my thoughts.
I know this company very well. I like the technology. I've always liked the story. I love the gross margins. The trading update gives cause for hope, but context is everything.
Things I liked. Trading for 2019 is in line with management expectations and their new strategy is performing well (apparently). They've significantly reduced operating costs. They've secured much of their expected revenues for 2020 and should achieve operational profitability by the end of the half year 2020. Plenty of positives and fortunately for me it clearly enticed many short term traders.
What could possibly go wrong?
Firstly, since I've been following 7digital, they've often said they're on the verge of profitability. Vintage 2018 trading statement:-
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/7DIG/13527293.html
"Following the acquisition of 24-7 in June, operational restructuring has already begun and has resulted in the closure of the Company's office in Paris and a reduction in headcount. The Board is pleased to report good progress towards its goal of profitability in the current financial year."
Didn't quite happen. In fact the company nearly went bust.
Secondly, despite all the positive noises, where are the figures that matter in the latest trading statement? There is no mention of cashflow, cash remaining or indeed revenue for 2019.
They have raised money over the last 12 months, but if you take a look at their last interim statement I can't for one moment imagine it'll be enough? They lost £3m between January and June 2019, and their balance sheet is just awful. They had a negative net asset balance of around £7m. Horrendous even after considering the cash they raised during the year. My guess is another major dilution is on the way. The last one was at around 0.2p.
I've no idea what will happen to the share price in the short term, although after such a hefty spike I know what normally occurs. What I can say is that at the current £12m market valuation and a very good chance of further dilution and losses for another 6 months before the possibility of operating profitability, I'll stick to the sidelines again and watch for developments. There are some great little micro-caps that are currently priced less than 7digital with much stronger balance sheets. Some already having achieved profitability.
Having been wrong about this one in the past, I don't offer any advice and maybe 7digital will pull the proverbial rabbit out of the hat, but with the share price having already 3-bagged in as many days, other options appear a better risk/reward unless they release earth shattering transformational news!
As ever, DYOR and this blog doesn't offer advice.
Good luck if you're a holder.
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