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.

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:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/14245740.html

"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.

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.

33% increase in the dividend with more to come?

Here's my second post in as many days after a self imposed hiatus of several months, and it's another update. The company in question this time is the minnow Aeorema Communications (AEO) which I previously wrote about in July 2019. Here's the blog:-

http://michae1mouse.blogspot.com/2019/07/dividends-can-keep-you-happy-whilst-you.html

So what's happened since that time?

Well most significantly full year results were released 30 Sept, and the share price has risen 46% on well received figures and an encouraging outlook statement. Despite the share price appreciation, I believe that the shares are still significantly undervalued.

Firstly, as anticipated in my previous blog post, the dividend was hiked by a more than healthy 33%. It currently stands at 1p which is a coupon of 2.6% at the current share price of 38p. It should be noted that management have a progressive dividend policy in place.

Revenues were up 40% to £6.7m with a profit after tax of £288,000. Cash in the bank was £2.2m.

Not bad in the context of this company's market cap. still being a mere £3.4m. The P/E ratio is therefore around 12. The FCF for the year was £774,847.

Think about the cash in the bank and cash generated in the context of the current market cap. and the investment case is very compelling. The dividend is covered more than 8.5 times by the FCF.

They had this to say about this year's outlook,

 "Focus remains on sustaining client relationships and effective client acquisition to ensure that a robust pipeline of business is in place. To this end, I am confident of future growth having already secured new client wins in the current financial year including a leading global law firm, a number within the technology sector and a high-profile, established confectionery brand. Another upcoming highlight is set to be the execution of an extraordinary event at MIPCOM in Cannes, an annual trade show for entertainment content, in October for a global media brand. "

The MIPCOM event was for the BBC btw and it's a three year project. I'd urge readers to take time and read their full report:-

https://londonstockexchange.com/exchange/news/market-news/market-news-detail/AEO/14245785.html

In particular, although this was a very successful year for AEO (as illustrated in the figures above) they say the following:-

"Whilst the Group has delivered an unusually high number of low profit margin events during the year, new events to be delivered in 2020 are expected to have higher gross profit margins."

A share price at least double the current value wouldn't be unreasonable at this stage in my view assuming growth remains on track.

As ever, AIMHO.