Get to know the companies you invest in, and keep them on your monitor-Indigovision

Regular readers of my blog will remember that some time ago I sold the remainder of my holding in Indigovision to bank an overall profit of 750%. You can read the previous posts which detailed my reasoning, but in summary their trading statements indicated that growth and margins were faltering, and I predicted that the share price would fall back below £2 which it subsequently did.

However, I also wrote that I would keep the company on my monitor and that it was vulnerable to an opportunistic bid approach.

Late afternoon on Friday 25 Nov 2011, Indigovision suddenly released one of the most bullish trading statements I’d ever seen from this company. Knowing the company well, and the implications that an improvement in margins, and a reduction in operating costs would have on the bottom line, I bought shares for around £2.70.

I had no idea about the drama that was to subsequently unfold, but the opportunistic bid did appear from the most unlikely source i.e. the now ousted Chief Executive, and although the final bid (rumoured to be around £4) was rejected, the company appears to have regained momentum.

Final results released on Thursday (27/9/12) are encouraging with a resumption of double digit growth in the second half which has carried over into the current trading year. Most pleasingly they have hiked the dividend by 33% year on year, and proposed a special dividend of 70p per share. Fantastic. I always interpret these moves as a positive sign. They don’t need the cash to fuel growth, and investors get the opportunity to reinvest or spend their money however they like.

For those investors who know this company well, the implications for operating profits from double digit top line growth are exciting, and I’ll be holding tightly for the foreseeable future.

If growth doesn’t retain its current momentum then don’t be surprised to see Vellacott return with another offer. Overall, the balance of probabilities is favourable for further share price rises, and meanwhile I’ll gratefully accept the dividend and special dividend payments.

Finally, over the past year or so, I have been accumulating shares in other small/micro-cap companies whilst there is still a sale on. More to follow in later blogs.

Avesco's Murray puts his money where his mouth is

Very pleasing set of third quarter numbers from Avesco. Given that the company is only valued at around tangible NAV but is highly cash generative, profitable, paying dividends, possibly due a windfall of up to £1.40ish per share and has been recording double digit growth into severe economic headwinds over the past few years, it's hardly surprising that Richard Murray has just spent a further £77,000 on shares.

My argument would be that at the current share price, you're just paying for the company's assets and getting the business and any possible windfall for free.

The company is extremely cheap on any number of measures. From the third quarter report, the following statement from Murray says, "we believe that the outlook for the Group has never been better.", and he's just put his money where his mouth is. That's good enough for me.

Furthermore, how much would a potential acquisitor have to pay for this company?
Certainly a hell of a lot more than the 1.5 times EBITDA it's currently valued at. Given the market that they operate in and prospective growth (particularly as world economic conditions begin to improve), all things considered, I wouldn't want to part with my holding for anything less than £4+. Still very much a long term hold for me.

Growth and dividends through turbulent times

“Personally I think that the London Stock Market is about to enter one of the longest bull runs in living memory” is the bold statement I made in my last post. Of course I have no idea really, and I’ve never met anyone who can accurately predict the future gyrations of the Stock Market, although it won’t stop many of the so called experts having a go.

One consideration to ponder though is where else are you going to put your money for the next few years to get a decent return? Savings account, property, gold…..? None of these appeal to me.

At the same time, there are a number of companies that have prospered despite the economic turmoil, and pay a very decent dividend yield. It’s food for thought.

Let’s take one of my favourites – Avesco. It’s a company that is sensitive to economic conditions, but despite a less than ideal world economy (note the understatement), growth has been impressive. 2012 always promised to be a good year for Avesco because of the London Olympics, Diamond Jubilee and European Championships. In their recent interims they appear to be on track in achieving an impressive set of figures, and underlying growth bodes extremely well for the future.

Without going through all the details, the key features of the report (for me) include an improvement in margins over the 3 months from Jan- March. During this period last year, margins were 34% (2011) and now they are 37.5%. The 8% increase in revenues over this same period coupled with the margin improvement has had a dramatic effect on the bottom line taking them from a loss of £186,000 in 2011 to a profit of £1.6m. The sixth month improvement is equally impressive, and the even year effect hasn’t even kicked in yet. Analysts’ predictions of an EPS around the mid-teens look very conservative to me.

As a long term holder what also caught my eye in the report was the following statement,

“We have come a long way over the last few years and these results reflect that progress. In the past we have placed greater weight on organic growth and building a truly international business in order to create long-term value.

With our international platform now more developed, the Board believes that the future emphasis should be turned towards increased profitability and free cash flow.

The Group's operations are inherently cash generative and, after the major capital expenditure programme in 2012, we believe that we can continue to develop the business with a reduced level of investment. With improved profitability, combined with more modest capital expenditure requirements, Avesco is expected to generate surplus cash, which should enable funds to be used for debt reduction or to be returned to shareholders.

We believe that the successful execution of this strategy will optimise the financial performance of the operating business and enhance shareholder value.”

Avesco have re-introduced healthy final and interim dividend payments, and it looks like these are set to continue and increase.

The outlook statement is extremely encouraging.

When the world economy does fully recover, and it will eventually, a shareholding in Avesco appears even more enticing.

N.B. Also not forgetting that Avesco have net tangible assets of £1.46 per share, and may receive a pay-out from Disney of £1.40 per share (Disney’s appeal is due in the ninth court of appeals this summer).