Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

EG Solutions - a problem that can't be solved.

I noticed that EG Solutions (‘EGS’), the AIM quoted IT software and services company had to issue a profit warning a day before the Christmas break.

Apparently as a result of slower than expected conversion of opportunities into sales since October 2006, the Company anticipates that the operating results for the year ending 31 January 2007 will fall significantly below current market forecasts.

It went to say that while it ‘expected (although one can’t be too sure now) to close further contracts before the year end, these will not have a significant impact on the results for the year and would be fulfilled during the next financial year.

We were shareholders in EG but thankfully got out many months ago. Quite frankly we just didn’t understand the business and having made a nice short term return thought it prudent to quit when we were winning.

I have great admiration for what Elizabeth Gooch (Chief Exec and principal shareholder) has achieved with EG but for me it remains the sort of business that really isn’t suited to the stock market as a stand alone entity.

With the shares having fallen c45% following the announcement Elizabeth Gooch, Chairman Rodney Baker-Bates and Finance Director David Blain each ploughed in to buy shares in the company. Gooch herself Gooch bought 131,578 shares at 76p, raising her total holding to 54.21% stake.

Despite their efforts to restore investor’s faith I feel it’s going to take hard numbers to encourage investors to return to the fold.

Having announced on 3rd October that it was ‘on target to meet its expectations for the full year’ the picture has changed dramatically in two and half months. Clearly this is a business where a few chunky contracts have a material impact on results. Whilst this is good news on the one hand, when delays do occur they don’t go down well with us short term stock market types who generally like management to consistently meet (or preferably exceed) expectations.

EG floated in June 2005 with a market cap of c£12m and its market cap rose at one stage to as much as £24m! In our opinion this was somewhat inflated for a business that was so clearly reliant on one person.

The EG website tells us that they are ‘Market Leaders in improving Operations Management’ and that their mission is to ‘transform Operations Management in the financial services industry through Operations MI, Production Management and Continuous Improvement’.

Unfortunately, having never worked in a business that has required EG’s unique skills I remain none the wiser as to what the company actually does and it’s unique selling point, other than the abilities of its Chief Exec-perhaps someone can enlighten me!

International Greetings - the Christmas Classic

If you are looking for an all time Christmas classic share then look no further than International Greetings, the AIM quoted designer and manufacturer of gift wrap, bows and ribbons, Christmas cards and Christmas crackers.

The group's website tell us that each they manufacture:

120 million Bows
220 million Cards
38 million Crackers
and 1 billion feet of Wrapping Paper.

The company floated on AIM in 1995 (it's one of the AIM old boys) at 50p/share and it's share price has risen to the current level of c437p resulting in a market cap of just over £200m.

It has the unusual distinction of having Joint Chief Executives. There are those in the City who frown at this odd arrangement, however, it seems to have worked well up to now, so why change a winning formula.

The stock yields just over 2% and receives a good following from the Inheritance Tax portfolio managers who are on the look out for larger AIM stocks like International Greetings.

With a relatively lacklustre share performance in 2006 the shares might be cause for celebration in 2007!

Vertu Motors-off to a good start

The EIS qualifying new issue Vertu Motors got off to a good start closing at Christmas at 68p or c14% on the issue price.

It should be one to follow in 2007 with plenty of deals anticipated.

ACM Shipping Group

ACM reported interim results this morning that were strongly up on last year and essentially in line with the broker’s expectations-I should hope so as they only floated a few weeks ago!

There was double digit growth in both sales and operating profit for the 6 months
ending 30/09/06. Management expects a strong second half of the financial year and are confident of hitting full year expectations.

The broker remains confident of their full year forecasts of £1m from the GFI joint venture as, despite the slow start to the year, the £500k figure was achieved by the end of October 2006.

All other areas of the business appeared to have performed strongly in the first half of 2007. ACM concluded its 1000th spot fixture last week, time charter pipeline remains strong and business levels within Sale & Purchase are currently slightly ahead of target.

ACM now trades on c11X 2007 estimates and c10x 2008 and continues to represent an interesting proposition especially for investors looking for AIM exposure for tax planning purposes.

It’s always a pleasure to come across a ‘real business’ on AIM with a track record of strong earnings, excellent growth prospects, cash in the bank and a forecast dividend yield approaching 4%.

We realise there is always the worrying dollar exposure and the impact of material sale and purchase deals but all in all ACM looks a great little business with an enthusiastic and committed management.

PM Group-what a lot of rubbish!

It was interesting to see that the Investors Chronicle tipped PM Group as one of its potential AIM recovery shares for 2006.

The short article points out that PM is not a ‘one trick pony’ and that the ‘acquisition of Pitts Wilson Electrical transformed its performance last year’.

Although the article goes on to state that a ‘bet on PM’s recovery remains risky’ it fails to cover any of the actual events that occurred over the last 18 months that contributed to the fall in the group’s share price and which, more importantly, could be of relevance to any potential recovery.

Having met the management of PM Group approximately 18 months ago we weren’t convinced about the business model. To be honest, the thought of accurately weighing my rubbish each week and asking the refuse collector to administer things just sounded too far fetched and unworkable over a large population-I might be wrong!

We also considered the Pitts Wilson acquisition in June 2005 to be highly questionable. The original excuse given for this was that ‘PM has headroom in terms of manufacturing capacity but is currently constrained by the number of electrical engineers available for fitting its weighing systems’.

Digging deeper into the announcement covering the acquisition revealed that:

- Pitts Wilson is highly reliant on one longstanding major customer that is responsible for over 85% of turnover over the next 2 years. We believe this to be large supermarket group.

- Geoff Mountain (Chief Exec of PM) is both a director and shareholder (of Pitts Wilson), outside his interests and responsibilities at PM Group. The announcement went on to state that the ‘acquisition has the benefit of bringing these interests together into one organisation’. Surely Mr Mountain should have devoted all his attention to struggling PM Group in the first place.

On 23rd November 2005 Mrs Mountain the wife of the Chief Executive sold 350,000 shares in PM Group at 235p per share. Clearly she didn’t think the shares looked very good value!

On 17th Oct 2006 PM Group was forced to put out a statement stating that it knew of no reason for the fall in its share price.

On 15th November 2006 (less than a month later) the Chairman reported that the prospects for the Company for the year ending 30 June 2007 were poor and that ‘due to the problems the Company is facing, the non-executive directors have begun to conduct a strategic review of the options for the Company's future direction, either via a sale or a management buyout. As part of this, they have agreed to allow the executive directors to pursue a possible management buy-out of the Company.’

I find it somewhat fanciful (to say the least) that Investors Chronicle actually considers PM to be a potential recovery story.

With the sort of shenanigans that have been going on over the past 18 months one surely has to question the credibility of the existing management.

We definitely won’t be buying at this stage (and unfortunately can’t short it) but look forward to seeing how things unfold in 2007!

Chieftain Group-one of AIM's forgotten minnows

We originally reported on Chieftain Group (CFT) the AIM listed engineering business at the beginning of September.

Today it announced that its R. Blackett Charlton unit had won a contract from Huntsman Pigments to provide engineering maintenance and project services at Huntsman's Greatham site on Teesside. The contract is initially for three years, with an option to extend for a further two years.

Since our note on 8th September the shares have climbed c22% to 167.50p.
The house broker’s full year forecasts for £1.3m of pre-tax profit appear to look increasingly undemanding and even after the recent run the shares still appear to trade at only c10.5x 2006 full year estimates which were issued several months ago.

As one of AIM’s forgotten minnows, which is only covered by the house broker, Chieftain might warrant a little more attention.

Renewable Power & Light-questionable bonus arrangements

Renewable Power & Light plc ('RPL'), the renewable power producer, began trading on AIM this week. The Placing, at 70p per share, raised £40 million and went to a quick premium.

Renewable Power & Light was established in 2006 to become an independent power producer, generating "green" or renewable power. The Company's power generation activities will be based on the use of renewable fuels, such as biodiesel, and renewable power generation technologies. Initial operations will be located in the United States, but the Directors expect the Company to pursue opportunities across North America, South America and Europe. The group has completed the acquisition of two cogeneration plants in the United States and intends to convert these plants to run on biodiesel.

It also intends to build a biodiesel manufacturing facility to provide greater control over cost and quality of fuel supply.

I met with the company during the IPO roadshow and was quite interested in the offering.
However, what really put me off were the Director's remuneration packages.

The Executive Directors appear to be remunerated via a separate service company that they control, no doubt because it is preferable from a US tax perspective. The pay rates were, in my opinion, somewhat over generous, which I always find peculiar in the case of a startup where management are also material shareholders. However, I could have lived with this. What I found particularly galling are the additional bonuses that appear to be triggered in the event of deals going through or simply operations coming on stream.

I can't understand how these are necessary or appropriate. Surely it is a fundamental responsibility of the Directors to ensure that the power plants come on stream-it is supposed to be a power company after all!

US related IPOs like RPL seem to be awash with strange arrangements like this where the interests of management are not necessarily aligned with those of the new supporting shareholders.

But good luck to RPL, the concept looks good.

Zytronic-a great little company that could really fly.

I met the management of Zytronic yesterday, a business based in Blaydon-on-Tyne which is involved in the development and manufacture of optical filters and glass composites to enhance electronic displays.

Applications for its products include touchscreens for ATMs, vending machines, ticketing machines, passenger information systems, petrol dispensing equipment; in fact the potential applications appear to be endless. Next time you purchase a rail ticket from a machine you might be touching a Zytronic screen.

In support of the market growth it is noticeable that many simple controls are also starting to use sensor technology, an area in which Zytronic appears to be a world leader.

In the current AIM climate of consolidation, roll-up vehicles (key buzz words), resource hopefuls (more often hopeless) and an increasing number of ‘green’ floats, it really was a joy to sit down with a normal business that is seeking to grow organically in a measured and responsible manner.

Not that exciting you say! Well Zytronic seemingly has a potential blockbuster in its new ZYPOS product which is well placed to replace incumbent technologies through offering superior performance at a competitive price.

Recent results were excellent with Turnover up 16.2% (all organic and that’s nothing to do with food!), gross profit maintained at c31% and EPS up 70%. Although it is in the middle of a key expansion phase the business is highly cash generative with operating cash just over 100% of operating profit.

Zytronic appears to have everything; great products, patented technology huge market potential, manufacturing capacity, excellent cash generation etc.

Priced at 27x 2007 estimated earnings the shares might look fully valued to many but this little business really looks like it could start to fly.

Please send an email if you would like to receive a copy of my full note.

Myhome plc - Taken to the cleaners!!!

The share price of Myhome Plc, the franchisor of domestic services including home cleaning, lawn mowing and oven cleaning has more than doubled since we participated in the placing earlier this year. Despite our belief that this is an excellent business with a very strong business model we were disappointed by the way they handled a recent issue of new shares to consortium of investors led by Nigel Wray and Stephen Helmsley, the management behind the success of Domino’s Pizza UK & Ire Plc.

The shares were trading around 55p when they announced that the consortium would be acquiring 10,000,000 shares at 40p per share representing 22% of the enlarged share capital. Furthermore the consortium would also be granted a further 7,500,000 warrants at the same level. Now, we have nothing against these guys getting involved as their extensive experience and success in the franchise business can only be good for the company but we were upset at the price entry level especially as the deal was not extended to existing shareholders.

We are of the opinion that the management were ‘seduced’ by the reputation of the Wray and Helmsley and therefore sold themselves too cheap. The company was growing very nicely before they came along so were hardly desperate for the cash injection.

With the shares currently trading at 72p, it appears that the management and shareholders may have been taken to the cleaners!!!!

La Tasca-what about the product!

I have just read a broker note on La Tasca, the £71m market cap AIM quoted restaurant group.

The broker rates the stock a BUY covering all the usual elements-impact of World Cup, opening programme, investment in new brands, like for like sales, key Christmas trading etc.

However, somewhat amazingly this 8 page document fails to mention anything about the restaurants themselves or the food.

Having experienced La Tasco congealed rice (the menu said paella) on 2 occasions I am not a fan of the La Tasca offering. The openings might be going to plan and like for like sales (ex World Cup of course) up 2.6% but to my mind the product stinks-quite literally and gives Spanish food a bad name.

Perhaps I frequented 2 of the less well run establishments and I will indeed endeavour unfortunately) to obtain a more balanced view over the coming months by visiting some of their other restaurants. Paid for, I hasten to add, out of my own pocket

I particularly like the line in the note which says that 'cash generation is very strong and remains a key attraction of the business'!

Long term estimates are ultimately dependent on the quality and price competitiveness of the company's product offering i.e. the restaurants, the food, the ambience, cleanliness etc. Surely this merits a few column inches!

Vertu Motors-fund raising exceeds expectations

The fund raising for Vertu Motors appears to have significantly exceeded initial expectations with £25m being raised.

The original objective was to raise between £5m and £15m but clearly the large institutions liked the story and asked for more.

We look forward to following the acquisition trail over the coming months.

Let's hope for shareholder discounts on cars bought from Vertu dealers!

Sovereign Oilfield Group-could it be a ten bagger?

I met with the management of Sovereign Oilfield Group today to discuss their interim results to 30th September 2006.

Sovereign was formed in October 2003 and floated on AIM in September 2005.
With its head office in Aberdeen the group’s strategy is to ‘build a large integrated international oilfield services group’ split between fabrication and drilling services.

Since coming to AIM it has made 3 acquisitions, one of which, the conveniently named ‘OIL’, has dramatically, altered the top line. The group now comprises 7 distinct operating entities.

Turnover for the 6 months ended 30th September was £23m and the net profit (after the exceptional items and goodwill amortisation) was £0.4m.

Whilst the interim results demonstrated strong top-line growth with a higher than expected rise in central costs and disappointing performance from one of the divisions the house broker reduced their full year pre-tax profit forecasts from £2.7m to £2.5m and lowered their recommendation from Buy to Hold-whatever that means!

The shares floated at price of 140p, have been as high as 250p but currently stand at 210p, some 50% above the float price which results in a market cap of c£34.5m.

I like Sovereign but as a classic roll up vehicle that is regularly making acquisitions it is very hard to make accurate comparisons between one period and the next.

With the oil price at current levels market conditions are obviously in its favour and some of the operating businesses in the group appear to be doing very nicely. Others, notably those located in France and Belgium (typical!), appear to have caused a few headaches but are apparently on the road to recovery.

Perhaps of greatest concern to me are the increasing working capital demands on the expanding business and increasingly diverse business. With net debt at £6.1m at the interim stage and banking facilities of c$8m there isn’t much room for manoeuvre if they want to fulfil their ambitions of establishing an operation in Abu Dhabi and support all the other projects. In the short term future acquisitions are likely to be debt funded which should also result in some interesting negotiations with the banks-which are harder to convince than willing shareholders!

It’s a tough job for a small operation such as Sovereign to manage the demands of the City, acquisitions and restructuring but management appears to have a handle on things having standardised the financial reporting function across the group and put in new management at poorly performing operations.

I would like to see period of consolidation but am obviously unlikely to see this with further acquisitions on the cards.

There appears to be great potential in several of the businesses I just hope they can effectively manage working capital demands. If some of the hitherto poor performers start to come good they should easily meet 2008 house broker’s forecasts, which is really what investors should be looking for in a high risk, small cap, roll up vehicle such as this. With the likelihood of further acquisitions the current forecasts will probably be rendered meaningless by the end of 2007 or sooner!

I remain a little concerned that they are biting off more than they can chew in the case of the proposed Abu Dhabi expansion which could also start to tie up a lot of cash and resource. You can be assured that the City won’t be very patient if things take a lot longer than anticipated.
However, to repeat, I think this is what investors should be looking for; otherwise surely it would be better to play the CFD in one of the bigger quoted oil service groups.

As usual it would be nice for other ‘independents’ to pick up coverage on the stock. I’m sure that Graham Burgess the Chief Exec would be more than happy to communicate the story.

Cosentino-another AIM wine company struggles

I see that another small wine producer is struggling on AIM.

Cosentino Signature Wines, the Napa based producer of luxury wines appears to be going through a torrid period. Since announcing widening interim losses in September it announced in November that wholesale sales had been even lower than expected and that debt has risen to US$22.5 m, the limit of its existing available facilities. The fact that it also announced that discussions were ongoing in seeking a buyer for non-core assets worth around US$10m probably spooked investors even more.

One has to question whether AIM and indeed the stock market in general really is a good place for businesses such as small wine producers where a longer term outlook is such a fundamental requirement.

Stock market investors are notoriously short term in their outlook and have little understanding for the sort of mishaps that can befall small wine producers with a limited offering.

We have been big supporters of Palandri the AIM listed Western Australian wine producer over the past 12 months but have seen its shares drift lower and lower. Palandri's 'innovative' financing structure using Australian Managed Investment Schemes hardly makes it an easy business for a UK investor to understand and it has finally decided to call it a day on AIM and decamp to the Australian market. I for one will miss its unsual financial statements!

Advent Air-the Chairman only appears to think the shares are worth 14.5p

Growth Equities & Companies research (via UK Analyst) issued a very bullish note on Advent Air this morning highlighting the groups significant contract win with Rio Tinto in respect of a charter contract which will 'significantly enhance revenues and the visibility of forward earnings'.

The note waxed lyrical about Advent's 'dominant position within the resources sector' and emphasised how the group's growing fleet would 'enable it to service an increasing number of similar contracts'. It went on to state how the shares trade on a prospective enterprise value to earnings multiple of just 6.4 and yield 3.4% concluding with a 21p target price as a conservative initial objective.

Advent Air the owner of Skywest, the Australian charter airline has looked an interesting story in 2006, however, the Executive Chairman's share trading antics back in August would put anyone off. Having acquired 10 million shares in the company on 24th August 2006 at a price of 11.22p/share Mr Chatfield conveniently sold 9 million shares at 14.5p/share 7 days later at a price of 14.5p/share pocketing just under AUS$300,000 in the process.

Antics like this will hardly endear him to fellow or indeed potential shareholders, notwithstanding the stellar performance of the group or the encouraging contract wins. It simply begs the question- what next?

On the one hand we have a research note telling us how the shares are worth 21p but on the other we have the Chief Exec selling out at 14.5p and making a nice quick turn. The Chief Exec appears to be of the view that there is little value in the business beyond 14.5p/share.

I just wonder why the Growth Equities & Companies Research failed to mention Mr Chatfields share dealings in their note. Perhaps it's because the note was commissioned by Advent Air itself!

Of greater concern is that there are people who will have invested on the basis of this piece of biased nonsense.

Adept Telecom-I have had enough of 'strong acquisition pipelines'. How about some good old fashioned organic growth.

Adept Telecom promised so much when they came onto AIM back in February.

However, when I met with management at the time of their results in July I had concerns.

Results at the trime were 'in line with expectations', although ‘managing expectations’ was relatively easy to achieve given the number of revisions to estimates as a result of the 4 acquisitions completed in the year and the ongoing resulting updates. In short, with all the acquisition activity it was hard to gauge anything from the numbers.

The company focused on the efficiency of its back office and lower head count compared with competitors. Given the small size of the company a lot of responsibility rests with Amanda Woodruffe (Operations Director) for efficient integration of acquired businesses and general operations. Amanda has extensive experience running operations of major companies and impressed during the pre-IPO road show. But I was amazed that a person as fundamental to the success of the business as Amanda was not a shareholder, other than through share options, which we are unable to quantify. She still isn't a buyer even at these levels!

The company also stated that ‘organic growth is insufficient to meet their growth aspirations’. With a base of 17,000 business customers and 20,000 residential I couldn't believe that there weren't significant cross selling opportunities-my business would relish 37,000 customers.

Having now made 13 acquisitions I was expecting management to have announced new marketing initiatives relevant to the existing customer base. This would have also mitigated the risk of always having to rely on successful integration of acquired businesses.

They announced that growth would continue to come through acquisitions, some of which are likely to be in the area of Mobile and Broadband. Clearly these are higher growth areas; however, they are also far more competitive.

The flotation in February was well timed from the market’s perspective and the shares went to a rapid premium. Contrary to the house broker’s research which indicated a share price target of 203p I thought the shares look over priced-it turned out to a good call.

I had concerns over a number of issues as follows:

- Intention to move into broadband through acquisition.
- Likelihood of further acquisitions in the short term and quality of customers being acquired.
- Inability to generate organic growth from what amounts to a good sized customer base.
- Dependence on single member of the team who is not a significant shareholder.

Management should have really spent some time concentrating on what it’s got rather than look for further targets. Empire building always seems to take over.

I'm not an expert but the key growth areas at the moment in the telco market appear to be broadband, VOIP and mobile. Adept has little or non exposure to these highly competitive areas which are currently dominated by larger players. They are able to pick up businesses cheaply essentially because none of the main players are really interested in the sort of low growth customers that they have acquired. There is much to be said for this strategy of buying cheap, however, in our view they have to start announcing some new marketing initiatives.

I can assure you it's not just hindsight investing and I would be happy send anyone my report from 10th July.

ACM Shipping Group-off to a nice start

I am pleased to see that ACM Shipping Group got off to a nice start on AIM.
It wasn't the meteoric rise that one sees with some IPOs but given all the dollar worries that have hit ship brokers it's still encouraging.

The group floated at a discount to both Clarkson and Braemar Seascope on 2007 estimates which isn't surprising as ACM have a tighter tanker focus and are the new kids on the AIM block.

As usual, the originally suggested valuation was somewhat higher but was soon reduced following investor comment!

We were very impressed with the management team and the simplicity of the business. ACM has already started some interesting developments in the Far East and the derivatives joint venture with GFI in the US appears to be a success

The post IPO management holdings remain material and locks-ins (up to 3 years) more stringent than most floats we have come across. Perhaps of more concern is management’s ability to balance the demands of the City and broking world. It should be emphasised that all the senior management (including the Chairman who is acting FD) are currently active in the broking/operations arena. The group will also probably appoint a dedicated FD in the not too distant future.

The group also appears to have been highly successful in attracting, developing and retaining key staff since its founding in 1982.

It really was also a pleasure to meet with a team who evidently remained so passionate about their business and who had yet to be tainted by City speak-long may it continue!

It was also highly unusual to find a business of this quality (25 years old, highly profitable and cash generative) offering the added attraction of EIS eligibility-a quirk of the system.

We supported the IPO and look foward to good news over the coming months.

I have a summary note covering the IPO if anyone is interested.

Western & Oriental-it all appears to be proceeding as planned so why no interest in the shares

Western & Oriental (‘W&O’), the luxury travel group and an IPO in which we participated in March announced its maiden results today for the 12 months to 30th September.

Sales increased by 76% to £14.4m broken down into continuing sales of £8.2m and sales from acquisitions made during the period of £6.3m. Whilst continuing sales compared to the same period last year were flat at £8.2m, apparently there was a strong second half turnaround with sales up 8% over the same period last year. A loss was anticipated at this stage and in line with expectations so there is nothing to read into this. A good reflection of the turnaround can be seen from the forward orders with the continuing business at the end of September up 56% to £2.0m.

The strategy appears to be proceeding nicely

W&O only came to the market in March so it is somewhat premature to cast judgement as to whether the strategy is a success or not.

It appears to me that the stated strategy of rolling up luxury travel assets is going along very nicely. For a small company of W&O’s size to have already made six acquisitions since March, all of which have strengthened its geographic and product offering, is terrific.

Today’s announcement also confirmed that there is a healthy pipeline of potential acquisitions which should continue to bring synergies both through back-office integration as well cross-marketing opportunities.

They also have just under £5m of cash on the balance sheet as a result of all those holiday makers having to pay in advance.

'Unusually', I support the house broker’s view and am encouraged by the rate and quality of companies acquired since float.

The business model appears to be great with lots of cash being received up front from wealthy people booking expensive holidays. On the other side the group doesn’t have to actually commit in advance to flight and hotel inventory.

Cost savings are already starting to come through and the forward order book looks good. Assuming they keep on top of things operationally margins should also increase as it benefits from scale and better purchasing power.

They can look forward to IFRS accounting for the year ended September 2008 which remains some way off.

I like the following from the Chairman’s statement:

‘The Board expects that the acquisitions made to date should now generate sufficient cash profits to support the group's revised cost base on an annualised basis. We also view the future with optimism and remain confident that we can create a substantial group and deliver significant shareholder value in the medium to longer term.’

Very positive stuff!

The shares dramatically fell to as low as c10.5p post float and have now climbed back to c16p. They shouldn’t have been punished this much.

Today’s statement is full of lots of information on progress to date and worth reading. The trade in 8,900 shares appears an odd response!

Dart Group-a great IHT stock although the Chief Exec needs a spell at charm school

I met the management of Dart Group recently following their half year results announcement.

Dart is an unusual combination of the low cost airline as well as the Fowler Welch-Coolchain (FWC) distribution business.

Although the Chief Executive (and principal shareholder) exuded the sort of charm normally associated with a sulky teenager one can’t question the excellent results, with pre-tax profit before exceptional items of £21.8m for the first half to 30th Sept 2006 up from £14.4m, on turnover of £198.6m from continuing operations.

I was just thankful that the FD was there to commuincate the story.

We have started to hold Dart in a number of our AIM IHT portfolios. With a market cap of c£173m it is a well established and sizeable AIM company and we like the quirky mix of the airline and distribution business.

According to the house broker the shares continue to trade at a discount to both its distribution and aviation peer groups (25% and 20% respectively) but you would expect this for a hybrid group such as this. The forward PE is also reasonable at just over 14x 2007 and 13x 2008.

The key issue in the cost base is obviously fuel which impacts both the airline and distribution business. The group hedges all its aviation fuel and is 100% hedged for 2006/2007 and 57% for 2007/2008.

Investing in AIM for IHT purposes is expanding rapidly and we think Dart is attracting a big following in this regard. The business is highly cash generative with operating cash flow c100% of operating profit. Cash flow benefits from advanced ticket sales of flights.

On some of our IHT portfolios we structure capital protection around Dart shares (and other larger AIM stocks) through a combination of going long the stock and short the CFD (using the stock to satisfy the margin on the shares). I would be happy to expand if anyone is interested.

The Chief Exec clearly needs to have a spell at charm school, having also called French air traffic controllers ‘lazy frogs’; not the wisest move when his company is reliant on these people to safely land their planes! Shareholders should hope he keeps out of the way should the group ever receive a friendly approach.

Velosi start to fly-long overdue in my view

Velosi Group, an oil services new issue in which we participated in August issued a very positive trading update today.

It stated that it expected results for the year to 31 December 2006 to be ahead of expectations with strong demand for its services in Nigeria, the US and Qatar where contracts won during the first half of the year have shown significant growth.

As a result the house broker has increased their earnings forecasts for this year by c10% with a similar increase for 2007. With strong demand and a significant tender pipeline they see room for further upgrades in 2007 and have set a 12 month target price of 130p.

It's always a bit tricky when one only gets the opinion of the house broker but I am inclined to support them here.

Given the underlying strength of the sector in which they operate and the business itself (especially relative to a lot of the rubbish you see on AIM) we have been surprised at the weakness in the share price since floating at 90p.

The interim results to 30th June, announced in September, were also very encouraging with a doubling of pre-tax profit, a more than 100% increase in sales and a very confident Chairman's statement.

The shares have risen c16% today standing at c97p but surely there should be a lot more to come.

China Shoto - mad share price moves

I don't know what's been happening to the share price of China Shoto, the AIM quoted Chinese battery manufacturer and power supply group.

Down 10% one day and up the same the next.

Clearly some kind of rumour went around the bulletin boards which was dispelled 24 hours later.

Having participated in the IPO and secondary fund raising it's our favourite Chinese stock which hasn't disappointed so far.

Perhaps the excitement of battery manufacture is starting to turn off the bulletin boys!

We await the news.

Traction Technology-what a rip off, investors beware.

I have been keen a follower of the AIM new issues market over past few months having participated in many exciting primary and secondary issues brought to the market by responsible brokers. I therefore take a keen interest in opportunities that land on my desk. However, I have recently noticed a notable decline in the quality of new issues coming to market (both AIM and Plus). This decline, in my opinion, reaches its zenith in the Traction Technology issue.

In a nutshell, it looks like this:

A cash shell is being resurrected through the acquisition of a business that went into administration which has now miraculously assumed a value of £9m. It just so happens to possess all the desired 'green' credentials operating in the field of hybrid and all-electric vehicle systems.

Arc Fund Management, the sponsor clearly have their eye on making a nice quick turn through selling down some of their stake and pocketing an additional £347,500 sales commission-they are only raising a net £1.4m!

The documentation is also appalling and extremely hard to follow. To cap it all, it doesn't look as if any new money is being raised and the issue is not even EIS qualifying.

Maybe I'm missing something.

Surely investors deserve protection from this sort of thing!

Investor's Champion is a registered trade mark of Investors Champion Ltd.  Investor’s Champion Limited is a company registered in England and Wales under number 03577867 whose registered office is at Langwood House, 63-81 High Street, Rickmansworth, Herts WD3 1EQ. Investor’s Champion Ltd is associated with Fundamental Asset Limited who is authorised and regulated by the Financial Services Authority.