Friday, August 10, 2012


Good morning! Outsourcing company Staffline (STAF) announces an acquisition of a Nottingham-based temping ageny for drivers. No details given on how much they are paying, so presume it's not material.

Stamp collectors Stanley Gibbons (SGI) puts out an OK set of interims, with sales down 2% and profits up 8% to 1.8m (sorry, using an old laptop this morning which has no GBP sign on the keyboard!). Strikingly, online sales are up 90%. EPS up 11% and interim divi up 10% to 2.75p. Balance sheet is strong, with lots of stock, as you would expect. Confident for H2 outlook - looks to be an H2 weighting to trading, so full year forecast is for 19p EPS, that puts them on a PER of 11.3 and a yield of 3% with shares at 215p.

Looks reasonable value, but who on earth still collects stamps these days? Surely it's a business that is likely to fade away over time? Sure they have an other collectibles division, but stamps are still their main business. It's not for me, as I really can't see a future that would be anything other than decline. Or at least the shares are likely to have that perception, meaning a rise in the PER is doubtful, and earnings are only rising at a fairly pedestrian pace.

Flybe (FLYB) puts out a trading update which seems to be a cunningly worded profits warning, but avoids actually mentioning the word profit! Revenue guidance is guided down, and lots of detailed KPIs are given, apart from the only one that matters - profit! They talk about cautious outlook, etc. It does however say that they expect to remain EBITDA positive. I don't like the sector, and hardly ever invest in airlines - too many moving parts, and a propensity for frequent profits warnings.

Titan International announces a recommended share offer for Titan Europe (TSW), which looks opportunistic & lowball to me (I don't hold the shares, but friends do). No real premium at 128p, and it's in shares, not cash! Will be interesting to see how this one plays out.

Software for car dealers, Incadea (INCA) puts out a trading statement that talks about contracts with BMW in India, Russia, VW in China, and other business in China. Not bad, for a 39m mkt cap company. A  big jump in profit is forecast by brokers for this year, which will take the high historic PER of 45 down to about 10. Looks potentially interesting, although I'd want to find out how much of the revenue & profits are recurring?

Interesting as a general point, that Incadea listed on AIM in May this year, and they state that their AIM listing has raised their profile and "has assisted in winning new business". Worth pointing that out to companies that are tempted to de-List - i.e. they can leverage their listing for sales & marketing purposes.

Massively indebted UK Coal (UKC) has announced an interesting restruturing arrangement where its pension fund takes over 75% of its property assets. I don't know the company, and it all looks rather involved, so I shan't comment on it other than to flag it up.

OK that's it, opening bell will ring in 1 minute, FTSE futures are down 12. Have a good day & enjoy the weekend!

Thursday, August 9, 2012

Thu 9 Aug - FCCN, HMV, PON, TRCS

Good morning! Trading statement from French Connection (FCCN), which is a stock I hold (in moderate size). We already knew from previous trading statements that things were not going at all well in the UK/Europe retail division of FCCN, so a grim H1 (to 31 July) was fully expected. But remember that FCCN is not just a retailer (and has comparatively few, and fairly small, UK stand-alone shops, at just 70).

It's brand licensing and wholesale, and operations in the US and Far East have been trading well. So the profits they make largely mop up the losses from UK/Europe retail (which I reckon could lose as much as £20m this year). My back of the fag packet calculations for the full year are for a loss of around £4-5m. Which is a survivable situation, given that they had around £32m in net cash, plus a large owned debtor book.

These are the key points from today's trading update;

"Trading has continued broadly in-line with guidance provided in the interim management statement on 17 May 2012.  Group revenue for the six months to 31 July 2012 was 7% below the level achieved last year while gross margin was also lower as a result of additional discounting.  The operating result from continuing operations for the half-year will therefore be below last year by approximately £7 million.  Net cash at the end of the period was in the region of £20 million."

Last year's interims were a profit of £0.7m, so we're looking at an H1 loss of around £6.3m this year - bad, but not disastrous in my opinion.

What is more of a concern is that net cash has fallen from £30.9m to £20m, so a third has gone in the last year. So unless they turn this thing around within the next year or two, that cash pile could disappear.

Bear in mind the share price has collapsed to 20p, and the mkt cap is only £19m, so the market is expecting dire performance & has priced it in already.

The big question is whether they can turn it around? There's not much in the rest of the statement to suggest that a turnaround is happening yet. Glimmers of hope are in "the initial reaction has been encouraging" for the new season stock which has recently gone into the shops. But they are "very cautious in our outlook for retail revenue in the second half".

Bad news about the lucrative Sears licensing deal in the USA. That's been cancelled by Sears, which will mean a £1.9m reduction in net income in future years. Oh dear.

A chink of light is that USA wholesale is continuing to do well, offsetting reductions in Europe. And new licensing opportunities (such as kidswear) are being developed.

Overall, not any reason for optimism, but the question is whether it's already in the price or not? I think we're likely to see a further slip in the share price today, realistically.

If they do manage to turn it around, then the shares will multi-bag, and of course there's got to be a high chance of a management buy-out, given the paltry mkt cap, strong balance sheet, and the founder already owning 42%.
However in the meantime, things are not looking good.

Another struggling retailer, HMV Group (HMV) reports its results for the year-ended 30 April 2012. It's pro forma loss is £16.2m (versus a profit of £17.6m). With net debt of £166.7m it's difficult to see this as anything other than a zombie company, with worthless shares - since the Banks are effectively in control.

Somewhat strangely, they state that they expect a profit of £10m (pro forma, i.e. adjusting for disposals) for 2012/13 due to changes in supplier arrangements. HMV does deserve praise for giving its suppliers a chunk of the equity (was it 10% from memory?) in order to incentivise them to give it leeway. Very clever. Maybe if Game Group had done something similar, they might still be in existence?

With this much debt, and a terrible structural outlook due to downloads & streaming, I wouldn't touch HMV shares with a bargepole, and am amazed it's still trading.

Psion (PON) results come out, but are academic as Motorola is buying it for 88p/share.

£32m mkt cap Tracsis (TRCS) has had a good run in the last year, with the shares more than doubling on a series of positive updates. Their pre-close statement today looks solid - confirming its 26 June update that revenue would be over £8.5m and adjusted EBITDA over £3.0m for the year ended 31 July 2012. Their cash position is strong at £7.5m, and debt-free.

The sales pipeline is strong, but they caution that growth in 2012/13 will be at a slower pace than 2011/12, so that might put a dampener on things. My view remains that the share price is up with events after recent rises, and a forecast PER of 22 is probably as high as it's likely to get in the short term.

On a more positive note, the FTSE 100 futures are up 30 points, so should be a pleasant start. Have a great day!

Wednesday, August 8, 2012

Wed 8 Aug - QED, SBT, AVON, ISG, TRI

Good morning. First off we have an IMS from Quintain Estates (QED), a company I've looked into in some depth - see my report of their last analyst meeting, which I attended, on the "Main Write-Ups" tab above).

It all sounds great, but I can't see anything new in there, more of a recap of what we already know. Things do seem to be going well at QED, but I struggle to calculate whether the shares are cheap or not? They have all these different construction projects and other activities, but frankly what's the point, given that shareholders don't get anything from them?! I am always scratching my head and asking whose benefit QED exists for, and the answer reluctantly is that it seems only to benefit management and Directors at the moment, providing nice secure, well paid jobs. Some shareholder value may arise at some point, but it's probably correct that the shares trade at a substantial discount to an NAV which comprises essentially two large building sites! Maybe that's a bit harsh?

That said, the financing deal with a Far Eastern investor has transformed their prospects (i.e. no chance of another Rights Issue now). It wouldn't surprise me to see these shares double in the next couple of years, if the economy recovers, so I should probably buy some. Genuinely can't make up my mind on this one.

Think I might revisit Sportingbet (SBT) at 34p/share. Their Q4 IMS today is OK - trading in line overall, with Europe weak (quelle surprise!) and Australia strong. That puts them on a PER of 9.8 and a juicy dividend yield of 5.3%, per broker consensus from Morningstar.

The last balance sheet has £57.5m of loans on it, so important to take into account. That's fairly material for a £227m mkt cap company, so perhaps not quite that cheap - that's about 25% of the mkt cap in debt, so that would take the adjusted PER up to nearer 12, which is perhaps not quite so exciting. Divi yield still looks good though.

Avon Rubber (AVON) the dairy rubber & gas masks business, puts out a decent IMS, saying H2 will be stronger than H1 (but don't comment on how that relates to market views, which is not terribly helpful). The shares have done well over the last 3 years, so not sure how much is still left in the tank? I'm looking mainly for shares with decent divis at the moment, so this doesn't work on that basis, yield only around 1%. But PER looks reasonable, around 10, but I haven't checked the balance sheet, so that view depends on debt being low.

Interior Services Group (ISG) puts out news of a £16m contract win to refurbish offices at City Tower in London. All good, but for a group with £1.2bn turnover should they really be issuing an RNS for such a small contract? Surely RNS is for investor information, not PR purposes? Although many companies blur the lines between the two.

This company looks potentially interesting though - wafer thin margins (sub 1%) on fitting-out work, but I don't see any loss-making years over the last 8 years, which implies they know how to handle fit-out contracts without slipping up. Fwd PER is only 5, and it has a history of paying out huge dividends, although that is forecast to drop to 9p this year, which would still be a 7.2% yield. Directors look seriously overpaid though, top two earning an average of around £600k apiece. That's a lot for a glorified builder!

Trifast (TRI), an industrial fastenings group, puts out a slightly oddly worded IMS (sounds like the writer had had too much coffee & got a bit over-excited!), but I can forgive that since they report trading "consistently ahead of budget, with Automotive in the UK & mainland Europe being the main driver...". Quite interesting.

Finally, if you didn't see it, I strongly recommend watching TV Doctor Michael Mosley's latest offering a couple of days ago, Horizon - "Eat, fast, live longer".
Mosley demonstrated how there is powerful scientific evidence that Western diets make us ill, and that we eat far too much. Hence he tries out various fasting strategies, which have been proven to dramatically reduce weight, but also virtually eliminate the risk of heart disease, strokes, and dramatically reduce cancer risk.

I've started following his best strategy, which is called alternate day fasting - where you eat normally one day, then the next day restrict your food intake to 600 calories maximum, comprised only of fruit & vegetables.

Yesterday was my first "fasting" day, and it was slightly unpleasant, but I had an apple late morning, a basic salad (veg only) for lunch, and a big tray of roasted veg (only one spoonful of olive oil used!) for dinner. I felt a bit light-headed and grouchy for some of the day, but overall it was bearable. And of course you only have to mildly suffer for one day, which is never too bad as you can eat what you like the next day.

Eating very little yesterday has already made me feel good today - dramatically reduced pot belly overnight, so this could be the answer! As I'm 44 now, need to improve my lifestyle, no spring chicken any more, so think I will persist with this alternate day fasting idea. But very highly recommended anyway, worth watching.

Hope you all have a great day, and thank you for the positive feedback about my Blog re-design - 85% of you like it, so that's pleasing. I'll continue to make improvements on an ongoing basis, and do of course feel free to recommend this Blog to others - the more visitors we get, and the occasional interest taken in the sponsors messages (which I've tried to make reasonably discreet, and I've also blocked the highest yielding, but tacky ones, like hot babes dating sites, etc!) mean that I get a trickle of ad revenue which might rise to enough to pay my mobile phone bill! So it's only small amounts, but even so it's fun to see the ad revenue rising, and it helps me measure the success of what I'm doing here.

Tuesday, August 7, 2012


Good morning, and quite a nice bull run we've been having recently, despite all the macro-economic gloom, with the FTSE now up to 5,800. Markets seem reassured that the Eurozone might finally pull their finger out and make this single currency work properly. Surely the main lesson from the 1930s was that  trying to eliminate deficits in a Depression doesn't work, but actually makes things worse by causing a long & painful deflationary spiral? Apparently not.

Car dealership group Pendragon (PDG) has drifted on & off my radar many times over the years. Their interims to 30 June are out this morning. £1.9bn turnover and £19m pre-tax profit, so a 1% profit margin, equivalent to 1.1p EPS for the 6 months. Full year broker forecasts are for 1.7p this year and 2.0p next year, and full year expectations are confirmed.

Can't say it excites me at a share price of 16, so that's 8 times next year's earnings, given that it has £221 of net debt, and a history of Rights Issues.
They do say that the dividend will be restored this year though. Their interest bill devours half operating profit, so that debt is pretty significant, and can't just be ignored. Balance sheet is still ropey, with negative £100m net tangible assets, so I'll pass on this one.

Electricians T.Clarke plc (CTO) put out interims to 30 June 2012. At 49.5p their mkt cap is £20.5m. Not great, with a wafer thin profit before tax of £0.5m (l.y. £1.4m) on turnover of £90.7m (£92.6m).Net cash is flat at £0.7m. Order book up significantly though, from £193m to £230m.

Interesting that they worked on iconic projects such as The Shard, Olympics Stadium, Westfield Stratford. Some nice reference sites there. The sting is in the outlook statement though, with a profits warning that margin pressures will mean full year profits highly likely to be significantly lower than expected. Oh dear. So expect a sharp fall in share price today, 20-30% would be my guess. Interim divi of 1p has been maintained though.

This is the type of business that needs a buoyant economy to make a decent profit, otherwise customers just squeeze the margins away by playing competitors off against each other in a downturn.

It's got a £12.1m pension deficit too. Possible longer term recovery play, but that might be some way off.

Walker Greenbank (WGB) shares have performed well in the last few years, surprising for a luxury furnishings company. Their trading statement this morning is positive, with sales up everywhere apart from mainland Europe (good old EU, what a great idea that was!) They confirm market expectations for the full year. That indicates a PER of 8.3 at 75p/share.

The balance sheet looks OK overall, but there is a £7m pension deficit (probably higher now), and debt which fluctuates throughout the year, but is minimal at year-end. Potentially interesting though - as a company that does well in a bad economy will tend to do very well once recovery is underway.

Gresham Computing (GHT) interim results don't look particularly exciting, with turnover up a bit to £6m, and PBT up from £0.6m to £0.7m. Historically this company has managed to hype itself up enough to attract a stratospheric rating, and it doesn't look cheap now, on a PER of 24 times this year's forecast, which they confirm. Too warm for me.

Stockbroker Share plc (SHRE) report unimpressive interims, with operating profit halved to £0.4m. Difficult to justify a £34m mkt cap, although it does have £10.6m of its own cash, and no debt. Balance Sheet looks good. Seems to be tying up capital for little reward though. I suppose it might be an interesting recovery play, operationally geared, but some of that already seems priced-in, so not for me.

Market research company YouGov (YOU) outs out an in line trading statement for y/e 31 July 2012. Can't get excited on a forecast PER of just under 17. Although at £7m, net cash is about 10% of the mkt cap.

Zotefoams (ZTF) results look OK, with basic EPS up 10% to 7.3p for the 6 months to 30 June. In line expectations for the full year. H1 is stronger half, so full year forecast is 11.8p, for a PER of 14.5, looks about right. Another one with a pension deficit, but only £4.7m. Maybe I just haven't noticed pension deficits so much in the past, but they seem to be everywhere at the moment, a real problem.

That's it for now, have a good day!

Monday, August 6, 2012


Hello. Yes, we've had a revamp over the weekend! I hope you like the new layout. I've added some bells & whistles, and hopefully made it easier to see where everything is, and what it's for.

Plastics Capital (PLA) is a niche plastics product group which myself & David Stredder met for our first "Mellocast" interview a few weeks ago (see link to the video on the right hand column of this Blog). They have announced 2 new contract wins totalling £0.5m p.a. Whilst this is welcome news, it doesn't seem material in the context of £32m annual turnover, so I'm scratching my head a bit as to why they decided to RNS it?

Another day, another De-Listing. This is now a serious problem on AIM, and the latest to announce an intention to de-list is 3D Diagnostic Imaging (3DD). The mkt cap has fallen to less than £1m, so it is difficult to see what the point is in maintaining a listing. But the reason it has fallen so much is that results have been rubbish! As part of a package of measures, Directors and all staff are taking substantial pay cuts, so they are sharing investors' pain.

But surely they owe it to shareholder to turn the business around first, and let shareholders properly see the upside with their shares Listed, and hence easily tradeable? People have bought those shares on the basis that they are Listed. Taking away that facility greatly reduces the appeal of holding the shares for many/most investors.

It seems to me the crux with de-listings is twofold. Firstly, it must be recognised as a major risk in any company with a mkt cap of less than about £10m, which is why I tend to avoid such companies shares altogether.

Secondly, it all hinges on who the major shareholders are, and what percentages they hold. With Lighthouse, where a de-listing attempt was defeated, shareholdings were fairly fragmented. However, with 3DD shareholdings are more concentrated, with 2 holders owning over 50%. So this is a much riskier situation. Something to bear in mind when looking at micro-caps - approach with extreme caution if a small number of shareholders have a controlling stake.

PuriCore (PURI), a £13m mkt cap healthcare company, announces interims to 30 June. The balance sheet looks stretched, with loan repayments deferred, but the sales are up 35% and a strong turnaround has moved it from $4.4m EBITDA loss last interims, to $0.7m positive EBITDA this year. Gross margins are low, at 33%, so not a great deal of operational gearing. But might be worth a look, if you think the products have more growth potential?

Another Director is leaving the sinking ship at HMV Group (HMV), this time the FD David Wolffe. Never a good sign. Like JJB Sports, this looks like a zombie company in terminal decline, hence I am not interested in looking at the shares.

Epistem Holdings (EHP) puts out a broadly in-line (i.e. slightly below!) trading statement. But the £36m mkt cap looks very warm for such a small company with only £6m turnover and around breakeven. Must have lots of blue sky potential to justify that. It also announces a supply deal with Becton Dickinson for its Genedrive product.

Escher Group (ESCH) is a software company to the postal industry. It puts out an in line trading update, and has won its largest ever contract from the USPS. The £41m mkt cap looks warm on the historic figures, but if broker forecast of a doubling of profit in 2013 is met, then the PER drops to 6.6. Might be worth a look, but personally I don't like paying up-front for success which may or may not happen.

Interesting RNS from Fiberweb (FWEB) whose results were last week. It has received £16m cash from a loan note, adding to its £8m net cash at 30 June 2012. So net cash now becoming material cf. its £121m mkt cap.

Good, that's it! All other results are from companies I don't cover (i.e. resource sector, sub-£10m mkt caps, large caps, financials, and overseas companies with a secondary UK listing).

Futures are flat, for a quiet open. As usual, the Eurozone crisis will be centre-stage, hopefully we seem to be inching towards some sort of end-game, one way or another. I don't really see how any country can leave the Euro, since if they do so, the population will reject the new currency and continue using Euros but in a cash-only transactions economy. Hence the entire economy will move outside the scope of taxation, public services will collapse, and the end result will probably be a revolution and authoritarian Government, perhaps preceded by a civil war.

It's difficult to think of a historical parallel where a strong currency has been replaced with a weak currency. It's always the other way around. So trying to replace the Euro with the New Drachma simply won't work, as nobody will use it! Also, the Greek Govt has failed to balance its budget with a strong currency, so there's no chance it will do so with a weak currency. They will just print constantly to pay civil servants, who will immediately convert their wages into Euros to spend in the black economy. Therefore the New Drachma will be worthless within a year or two, think Weimar Germany or Zimbabwe all over again. So I cannot see how leaving the Euro is the apparently easy fix that some are suggesting.

The only answer is for the Eurozone countries to essentially become a single country, with transfer payments from North to South, in return for discipline and restructuring imposed by the North. But that's what the EU fanatics have wanted all along - a single country - so let them get on with it. This dangerous cult of the EU now has no option but to proceed to federalism, or to collapse entirely. Sitting on a fence that is disintegrating is not the answer either way.