The great short trader Mr Cawkwell (or Evil Knievil as he is known) is probably suffering a bit today with the share price of one of his short calls, Debtmatters, having recovered somewhat. We are bound to hear more from him now as he attempts to drive the price back down again.

I participated in the float of Debtmatters at 65p so with the share price standing at 176p it’s still not a bad return over 18 months or so. Admittedly the shares have been up close to 400p and I have trimmed off a bit but I really can’t complain. I wonder when Mr Cawkwell started shorting?

I have noticed that Mr Cawkwell (or his so called diarist/publicist) only appears to come out when the market suits him. With shares prices having had a great run over the past couple of years short sellers have had a very tough time making money. It’s therefore surely no coincidence that we are beginning to hear from him again when certain pockets of the market are struggling. In practical terms I assume he will also close out any of his own short positions well before those private investors to whom he communicates his ideas.

I thought it might be an idea to do a little digging into Mr Cawkwell’s other great short tips from the past. The following make interesting reading:

‘For me Easyjet is an obvious sell……..at 492p, it is on a fancy rating. Easyjet has 300p written all over it.'
Current share price 649p-oops that must have cost him!

'Hedge fund manager Man Group is my only short position in the FTSE 100 it’s capitalised at £2.5 billion. Conceivably this company might just find itself managing £15 billion of funds within the next 18 months although its high charges and somewhat patchy recent performance makes me sceptical…..with a following wind, Man might just be worth £1.5 billion.'
Current market cap of Man £10 billion with funds under management on 11th January $60 billion-that must have cost him dearly!

If he is indeed Britain’s ‘most feared bear trader’ I fear our nation’s investment skills our following the same course as our cricket team!

Those who of you who pass through the UK’s airports on a regular basis will surely have noticed the beautiful Aston Martins or Ferraris on display in the departure lounges. These are not just there to add to the scenery but by purchasing a ticket in one of their competitions, you could be the lucky owner of a ‘dream’ car!

Best of the Best, the AIM quoted business behind the concept, has suffered difficult times since their admission to AIM last summer. Shortly after flotation, the UK’s airports were hit by terrorist alerts which significantly ate into the company’s revenue and profit. It was hardly the ‘best’ time to join the AIM community!

They have made significant progress since then and with the ticket price now reduced from £60 to £20 and the length of the competition halved to 4 weeks, their competitions are attracting many more participants.

Management remain confident of hitting their broker’s estimates of c£700k PBT for 2007. It was also encouraging to see the non exec Chairman acquiring a few shares. However, their business unfortunately remains at the mercy of the terrorist alert.

I see that great hindsight investor, ‘Evil Knievil’, or whatever his name is, was at it again today with some of his great short calls.

Apparently he shorted shares in Fishworks just over a week ago ‘smelling that something wasn’t right’. Given the illiquidity of Fishworks shares I’m amazed he is able to short the stock at all and if he does I can’t see how he can do it to any material size. If one also applies a high cost of borrowing and a huge spread (c14%) the risk reward ratio would appear to make the shorting of Fishworks shares (or indeed any other micro cap minnow) to any real material level a rather fool hardy exercise.

I'm almost inclined to think that he would only put on a trade of this nature if he was more or less absolutely certain of a positive outcome within a very short period-somewhat questionable!

Debtmatters, one of the leading players in the IVA market came out with a positive statement today in response to the dramatic fall in its share price, which was actually triggered by announcements from some of the other big IVA players.

Debtmatters IVA and loan broking businesses are apparently both trading broadly in line with market expectations (Profit c£8.30m and EPS of 23.1p) for the full year to 31 March 2007.

It did acknowledge that the IVA sector is experiencing increased competitive pressure but that it has improved efficiencies in both securing and processing IVAs.

Having been a shareholder in Debtmatters since it originally floated I was happy to stick around when it acquired the Loanmakers business back in June 2006, thereby diversifying its offering. However, with the recent falls in its share price I have started to question the wisdom of my decision.

The shares closed today at 163p and assuming it will indeed meet market expectations for the year ending 31st March 2007 (as suggested) this would appear to suggest that the shares are now trading on c7x March 2007 estimates. Notwithstanding the bad press surrounding IVAs this sounds fairly good value to me-or am I missing something? I would also be interested to learn what percentage of 2008 financial year revenue is also already ‘in the bag’ (a good chunk I should think) and the level of marketing expenditure.

What I find particularly galling in all this is the reaction of the big banks. Having been responsible for all our indebtedness in the first place they are now getting upset when others are profiting from their earlier stupidity. If they had got it right in the firest place we wouldn't be in this mess.

TEG Group the AIM quoted green technology company, which converts organic wastes into natural organic fertiliser, announced today that it is a principal sub-contractor to the consortium that has been awarded preferred bidder status for the Greater Manchester Waste PFI contract.
TEG is apparently the exclusive supplier of In Vessel Composting ("IVC") technology to the consortium.

Over the period from 2007 to 2010 it is expected to build 4 plants as part of the consortium with the combined capacity of the plants 180,000 tonnes per annum, producing 125,000 tonnes of compost product per annum -lovely stuff!

The plants will all process green waste and kitchen waste collected from households in the Greater Manchester region. Depending upon the final scope of supply, the total value of the construction projects to TEG will be up to £35m over the period 2007 to 2010.

The PFI contract is the largest waste management contract offered to date in
Europe.

It should be emphasised that contracts will only become binding on financial closure, which is predicted to be achieved by June 2007.

This is obviously a fantastic contract win for TEG and the shares reacted very positively rising c30%. However, i'm still not sure what this means in terms of profit.

TEG is a very interesting and indeed commendable business, however, it also remains a business with a current market cap of c£37m that has spent an awful lot of money already in commercialising its waste technology. A few more contract wins like today’s (with profit indications) and I really might start to get excited!

Many predict that ‘green is the theme’ this year for AIM and TEG could be a major beneficiary of increased interest in green minnows. It’s all down to the delivery now.

Today’s announcement from SMC Group may have caught many unawares but I know there have been suspicions from some quarters that it was all too good to be true with the highly acquisitive AIM quoted architectural and design group.

It appears that the treatment of work in progress was a little too enthusiastic and that ‘a more conservative, consistent and centralised approach to the treatment’ should be applied going forward.

The impact of this change will result in profit before tax and amortisation for the year ended 31st December 2006 to be c£5.1m. With consensus estimates for the year (obviously prior to today) of pre-tax profit of c£7m this is clearly a fairly drastic amendment.

Interestingly the group is only covered by 3 research houses 2 of them being sponsored research (paid for by SMC) and one the house broker.

Surely a change of this materiality implies that the auditors would have seriously questioned the accounting treatment of WIP and been inclined to issue a qualified opinion.

A further question is how this will impact on the group’s deferred consideration for the numerous acquisitions it has made.

I was previously a shareholder having participated in the placing back in February. Quite frankly I got scared with all the news flow and acquisitions and decided to take my money and run.

One look at all the news that has been issued by the company over the past 12 months and you would be mistaken in thinking that this was a blue chip!

Going forward I think we should expect less of the sensation and more substance!

Ocean Power Technologies (‘OPT’) the AIM quoted wave power company made an interesting announcement yesterday.

It has filed applications for permits from the US Federal Energy Regulatory Commission (FERC) for two 100 MW wave power generation projects in Oregon, USA.

The permit applications are for the building of OPT Wave Parks near Newport, in Lincoln County Oregon. Power produced by these wave parks will be provided to the existing local transmission system. The projects are also eligible for the state energy Tax Credit and a 100MW power station is estimated to provide energy for approximately 50,000 homes.

This appears to be another vote of confidence in the OPT technology.

As at 30th July they still had c$30m in the bank to support ongoing research and the commercialisation of their dream.

Since falling to under 55p in November, the shares have come storming back to c85p.

With an increasing focus on green energies in the US which was emphasised in the President’s State of the Union address-although wave power was not specifically mentioned- hopefully OPT will attract growing interest.

It’s a great concept, led by a serious and committed management who also present a compelling investment argument. For the sake of my shareholding, and the environment, let’s hope it all works.

I met with the management of Atelis ('ATEL') earlier today, a somewhat disastrous AIM new issue in which I participated back in May 2006.

I have seen the share price fall from the issue price of 20p to today’s current level of c6p-not my best, by any stretch.

However, notwithstanding the problems encountered by this small Israeli based technology business it seems to have interesting technology that should be all the rage. Here is an extract from the admission announcement which describes it:

The Company has written a range of software applications that create what is
known as a "Softswitch", that is able to replace traditional switchboards and allows telephone calls to be made and received over the Internet. Atelis' solutions provide the full functionality of a normal telephone exchange but at a significant cost saving to the customer. This means that Atelis' range of software products allow customers to benefit from the cost savings derived from Internet telephony.

Market research suggests that the number of corporate telephone lines that use
Internet telephony will leap from 4% in 2004 to 44% in 2008 and that corporate
spending on Internet telephony will rise from $1 billion in 2004 to $5.5 billion
by 2008.


Atelis appears to have the product but having clearly used all of the money it raised at float it hasn’t got anything left in the bank to support ‘rapid’ commercialisation. From the gross proceed of £1m I sense that only something like half went into the company and when you are in the same space as the likes of Cisco and other big equipment boys this clearly isn’t enough.

Senior management haven’t even been paying themselves for the past few months which-never a great scenario for a quoted business!

But good luck to them. I hope they get a break and find some quality resellers to push what appears to be an interesting product that the customer should be crying out for.

I see there was a ‘classic’ announcement from Widney yesterday with the board of the Widney Cabs subsidiary having appointed an administrator.

The announcement explained that as a result of a ‘serious and recent’ deterioration in trading at Widney Cabs (the biggest part of the group), the board of Widney determined that its continuing support of Widney Cabs was no longer in the best interest of the Group and accordingly, is withdrawing such support.

It went on to say that the remainder of the Group continues to be profitable and that withdrawing support for Widney Cabs will ultimately leave the remainder of the Group debt free, with a turnover of approximately £35 million.

A small foot note stated that Brian Stringer the Group Chief Executive had resigned to ‘pursue other interests’ and that Joe Grimmond will be stepping up to become Executive Chairman-quick and painless!

A look back at the recent news makes interesting reading.

In their preliminary announcement on 6th December 2006 one can pick up the following:

‘Widney Cabs suffered severe volume shortfalls but is winning significant new business’

and

‘Cabs has won and is winning significant new business from a broad range of customers. Many new products have been put into production during the year which will contribute to a better balanced business, with no one customer representing more than 20% of turnover.’

and finally

‘ It is ...moving into a strong position with new cabs projects going into manufacture during the year.’

In a period of just one short month the situation has appeared to have changed dramatically! Furthermore, being the Christmas period I assume they were closed down for a lot of this time.

I sense there could be some interesting financial engineering in progress. Messrs Grimmond and Errington of Widney appear to be experts in the fine art getting the best out of administrators!

All in all, what a disaster!

I have of late contemplated 2 of the AIM quoted hedge fund groups, Absolute Capital Management (ACMH) and RAB Capital (RAB).

Absolute Capital Management is a specialist hedge fund management group that was created in 2004. It made the news last week with the acquisition of Argo Capital Management for £50.46 million resulting in the combined group’s assets under management increasing from $1.5 billion to $2.4 billion.

RAB Capital, the London based hedge fund manager was founded in 1999 and came to AIM in March 2004 with a market price of 25p. It has since seen its shares rise to over 110p. The shares currently stand at c93p resulting in a market cap of c£480m.

I have to admit a soft spot for RAB having been an early investor in one of its funds (unfortunately not the Special Sits, I hasten to add!) and a shareholder.


The Independent newspaper reported previously that having a quote makes a lot of sense for this type of business and analysts are expecting further floats. It went on to comment that it gives firms such as ACMH a currency with which to make acquisitions and also to pay staff in a tax-efficient way. A Stock Exchange listing also means that retiring partners at the firm can easily cash in on their shareholdings. I can tell you that if a key hedge fund manager retires a lot of the investors would contemplate retiring their money at the same time!

Generally speaking I don’t understand the logic behind single manager hedge fund roll ups.

For me the business model doesn't make sense at all as really good single hedge fund managers who have a core base of big institutional investor clients rarely sell up-quite frankly with all the money they can make it isn’t really isn't worth it!

The value of a hedge fund business based on the usual metric of assets under management (AUM) doesn't really match up with hedge fund manager's performance based remuneration structure and a performance based remuneration structure doesn’t really work in a public company where everyone is looking over your shoulder and there are lots of inquisitive shareholders to please. It was also an issue at Gartmore where in a good year their (lone)star hedge fund manager Roger Guy reputedly took home more than the entire board of the plc!

I used to know a really fantastic hedge fund manager who managed c$200m (small beer in the fund management business). Based on a AUM multiple of c10%, which is fairly rich, he could conceivably have sold his business for something in the region of c$20m-at the high point! Now I know he took home a performance fee one year alone of c$20m (and it wasn’t his best year). Furthermore, there were only about 5 people in his entire business.

ACMH has its base in the less well regulated domicile of the Cayman Islands. Now that doesn’t necessarily say much in the hedge fund world, but a UK regulated (and based) operation certainly gives me a little more confidence and should command a premium. Look at all the nice news flow you get with RAB as a UK entity!

My reservations notwithstanding they both look interesting stories that are probably worth following.

If you would like to receive a copy of my entire note on the merits of RAB and ACMH please email me at cboxall@fundamentalasset.com.

I have just reviewed a new research note on Majestic Wine (MJW) from a leading small cap broker.

This follows Majestic’s recent Christmas trading statement which appeared to show that sales growth was slowing at the wine retailer with like-for-like sales growth below the long-term average.

The note concludes with the observation that the shares are on an unsustainably high rating (current year PER of 22.0x) suggesting a target price of c325p to be appropriate, as opposed to the current price of c363p.

Now I am inclined to agree that Majestic’s rating is high relative to the FTSE All Share and that there is indeed better value in the retail sector. However, I also believe that the analyst is missing a key difference between Majestic and other retail stocks in that Majestic is an AIM stock and with reference to an earlier blog, Majestic is an AIM blue chip.

Now I have long questioned the valuation of Majestic but as someone who also manages an increasing number of large AIM portfolios for inheritance tax planning purposes the shares remain highly attractive.

The simple answer to the valuation issue is that it is hard to find many large companies on AIM with Majestic’s compelling fundamentals.

Looking at the interim results for the half year to 26th September 2006 reveals a business that generated an operating profit of £6.2m (up 13.6%), a business that had sales of £88.3m (up 9%) for the half year, with like for like UK sales up 4.3%, and an AIM business that yields c2.5% that is well covered.

Net cash inflow from operating activities was £7.3m with a cash balance of £7m at the half year end.

There are also tangible fixed assets of just under £35m and a good stock of more liquid assets in red, white and sparkling varieties!

Furthermore, this is an AIM quoted UK based business that is easy for the average UK investor to understand and where management is close at hand to respond to investor queries.

I acknowledge that the rate of new store openings was disappointing; however, one could also conclude that management is adopting a prudent approach.

The ongoing threat from the big supermarket groups remains a big threat and apparently the Tesco wine club now has a membership of c550,000-I question how active some of these members are. But in my opinion the Majestic wine warehouse format with a free tasting and knowledgeable staff at each site still has a big part to play in the growing UK wine market.

Referring to my earlier blog on AIM shares I maintain that there is an increasingly large pool of money finding its way into the shares of ‘qualifying’ AIM companies for inheritance tax planning purposes and that a lot of the big IHT planning money is essentially chasing the same shares to form the nucleus of managers’ portfolios.These AIM ‘blue chips’ including the likes of Majestic Wine, probably appear in the vast majority of IHT portfolios and the share price will be well supported as a result.

One can argue that Majestic is currently over valued by c10% but this is small premium to pay for a liquid AIM share with a real business that has substantial assets, generates cash and most importantly at the end of the day could save your estate 40% tax.

Majestic is approximately 30th largest AIM quoted company with a good institutional shareholder base that trades over c£250,000 value of shares a day. The company has also instigated a share buy back program to purchase up to 10% of its issued share capital up to a value of £20m.

Surely all those potential tax savings merit a premium rating!

Having only commented on the Dobbies share price a few days ago I now see that Blooms of Bressingham the other AIM quoted garden centre group has announced that it is in discussions which may or may not lead to an offer being made for the Company with an indicative offer price of 85p per ordinary share.

The share price prior to the announcment was c78p.

One leading analyst has commented that the offer is possibly from my friends Dobbies. Apparently it would be a good fit, as the geographical locations between the two companies are complementary.

The other thinking is that it could be Mr Hunter who is looking to add to his Wyevale empire.

Apparently 85p doesn’t look that appealing if one considers the potential of the property portfolio and other interested parties could appear. Once again, one can only assume that some of these garden centre properties have some great potential.

I wonder what Alan Bloom would have thought of all this-it’s certainly gone way beyond plants!

Good news this week from Sovereign Oilfield Group, the AIM quoted Aberdeen-based diversified oilfield services group, which announced a variety of contract wins with a combined value of more than £4 million.

We participated in the float of Sovereign in September 2005 at a price of 140p and saw the share price move up to as high as 277 in May 2006.

The market remained largely unimpressed with the share price barely budging.
With the shares trading at c17x 2007 broker estimates one can conclude that it is all in the price at this stage. Even the house broker concluded that ‘the shares as up with events in the short term’.

Sovereign is clearly going to have to produce a lot more to really convince the market.

I would particuarly like to see its Prodrill division really start show some growth potential. After all, investors are buying into Sovereign as a business with the potential for high growth (we can go for one of the bigger oil services players otherwise) and it's tough if a key operating entity remains a bit of a passenger.

RC Group the Hong Kong based provider of integrated biometrics and RFID security solutions issued a very positive trading updating today stating that the second half of the year had been strong and as a result it anticipated that its results for the twelve months ending 31 December 2006 would be significantly ahead of market expectations.

Apparently stronger than expected sales have been driven by recently introduced biometric access products and software, with the markets in Southern Asia and Middle East expanding particularly fast in the second half of 2006.

As a result the house broker upgraded its previous full year 2006 and 2007 sales and profit estimates by over 10%.

The share price is up over 150% over the last few months following a series of strong trading statements and now stands at c105p resulting in a markey cap of juts ovedr £200m.

According to the house broker the upgraded earnings momentum still leaves RC on an estimated P/E multiple of no more than 11x.

My congratulations to RC on seemingly delivering the goods yet again, but I have to admit that even after having met with the company several months ago and having watched one of its promotional videos I am still no clearer to really understanding its products, market and the reasons for the meteoric growth.

Dr Raymond Chu, who according to the Group’s website is a solicitor who had ‘garnered 20 years' experience in property and corporate finance matters’ prior to founding RC, has done a great job in growing the business. Corporate finance and property clearly provides a good grounding for biometrics and RFID security!

I’m not sure whether to cut and run now, when I am still winning, or whether I should try and devote a little bit more time in an attempt to really understand the business and its market.

It’s good to see that Western & Oriental (‘WEST’), the luxury travel operator, remains active, with last week’s acquisition of Tropical Locations for £175,000 being the seventh acquisition it has made since floating on AIM.

Tropical Locations offers luxury tailor-made holidays with over 90% of featured hotels being classified as deluxe. The acquisition apparently increases the Western’s overall scale and reach to the key destinations of the Indian Ocean, South Africa and the Caribbean and a significant Far East product, where Tropical Locations specialise.

Although Tropical Locations will initially remain in its current West London office it’s positive to note that back office synergies will be available immediately and the business is expected to bring a profitable contribution to the Group in the current financial year.

Western which has just moved broker to Collins Stewart even got a mention in the Investor’s Chronicle last week. All this coverage should help the share price which is still trading c22% below the float price.

For me it remains an interesting little stock at these levels.

Dobbies Garden Centres came out with another positive trading statement this week.
For the 10 weeks to 7th January 2007, total sales increased by 31.7% and on a like-for-like basis, excluding new and refurbished stores, sales increased by 6.3%. Seemingly very impressive!

The Company's Preliminary Results for the year ended 31st October 2006 will be announced on 30th January 2007 and should be good reading.

With all the negative sentiment in the retail sector Dobbies has proved to be an exception to the rule. I can recommend visiting one of their excellent centres for the full retail experience, but notwithstanding the excellent results and the fact that with all that nice real estate support Dobbies’ shares represent an ideal inheritance tax portfolio stock it’s the presence of Tom Hunter that has driven the price up to the current heady level.

Have a look at the price chart and remind yourself that this is retail stock, albeit one with a few interesting properties. Having bumbled along at 550p/share for most of 2005, over the course of 2006 they have moved steadily up to the current level of c1260p-quite unbelievable!

Dobbies is now a business that has forecast revenue of c£69m for the year to end October 2006 and profit of c£5m to £6m at the top end, yet has a current market capitalisation of £126m. Even the 2007 forecast is only estimating net income of just over £6m which results in a PE of just under 30x 2007 estimates. The forecast yield is less than 1% and the net asset value at the end of last financial year was just under £40m.

I’m really beginning to wonder if they have found oil under some of their properties. It will certainly be interesting to learn about the plans for Dobbies in the Hunter stable and the justification for the hefty valuation

We shall wait and see when (and if) the Hunter gets its prey!

Tikit which provides consultancy services and software solutions, primarily to large UK and European law firms and accountancy practices came out with a reassuring trading statement this week with the announcement that trading for the year ended 31st December 2006 was expected to be in line with market expectations and a significant improvement over the prior year.

Tikit’s another great cash generator with a seemingly dominant position in its core market of law firms. I have held the shares for the past 18 months but was somewhat surprised back in September when a key shareholder sold off 100,000 shares in the company at 210p per share-was there a problem!

With all the excitement surrounding AIM commodity minnows over the past 18 months, shares in cash generative Tikit effectively went nowhere for several months but started to really move from October.

Interim results to 30th June 2006 showed turnover of £11.4m and operating profit of £1.3m. Net cash inflow from operating activities was £1.7m and the group had £3m in the bank-all looking very good.

With a market cap of about £32m the shares are now priced at 258p and trade at just 12x 2007 estimates. I would acknowlredge that only the house broker and sponsored research house cover the stock so it’s definitely one for the private investor to do a bit of work on.

Anyway, I can hopefully look forward to the preliminary results in March with confidence.

One of my AIM favourites, Broker Network Holdings (‘BNH’) came out with some great numbers this week.

The group which operates a growing network of independent insurance brokers (currently 162) reported interim turnover of £4.56m and operating profit of £2.33m.

Although the shares appreciated about 90% in 2006 one leading broker has still raised their target price to 321p (Current price 268p).

Now I have always liked the group’s simple model and the fact that it is has consistently delivered over the last few months but I am quite prepared to have to wait a little for another upward move in the price and am not holding my breath for another 20% in the short term-it’s better not to be too greedy after all!

There is an increasingly large pool of money finding its way into the shares of ‘qualifying’ AIM companies for inheritance tax planning purposes. As well as my own good firm many of the larger private client brokers are now actively promoting their inheritance tax planning portfolios to new clients. No doubt they are also investing their more elderly client’s portfolios into AIM stocks as well.

With regard to the AIM market I sense that a lot of the IHT planning money is essentially chasing the same shares to form the nucleus of many managers’ portfolios.

It seems highly likely that Domino’s Pizza, Majestic Wine, Mears, International Greetings, Young & Co and Dobbies Garden Centre, to name but a few choice AIM names, probably appear in the vast majority of IHT portfolios.

The share price of these AIM blue chips should therefore we well supported by a largely thoughtful, prudent and long term shareholder base - it all sounds ideal!

I see that John Lewis is demonstrating that perhaps there is a future for the high street after all.

The John Lewis Department Stores’ sales for the week to 23rd December apparently produced a sales increase of c13% from the department stores and for the next week an increase of c6%. The ‘sale’ has also apparently got off to a good start.

Waitrose also joined the Christmas party with sales for the week to 23rd December up +10.9% and for the following week up +12.4%.

Having had ample opportunity to sample the delights of John Lewis and the online joint venture operation Ocado over the last weeks I would recommend that representatives of other struggling retailers consider camping out in John Lewis stores (and warehouses) to learn a thing or too about retailing.

For me they just appear to be ‘high' streets ahead of the competition. It's a pity one can’t buy shares-good luck and long may it continue.