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.

Network Data - sunk costs but the business is still swimming

The news today that the introduction of Home Information Packs (‘HIPs’) will be delayed until 1st August not surprisingly brought about a sharp fall in the share price of Network Data (AIM: NDH). Although with only c£3,000 value of shares traded today’s fall was hardly representative of wider shareholder opinion!

The AIM quoted group has committed a great deal of its hard earned money (it didn’t raise any new money on float) to supporting HIPS and today’s classic government back track will have probably caused Chief Exec and 78% shareholder Richard Griffiths to question the wisdom of his decision to whole heartedly invest in HIPs through his Hipstar operation which was due to kick off in earnest on 1st June. It now appears to be doubtful that they will be ever be brought in at all at least ti any extent.

Yes, it is clearly bad news for NDH but there is a lot more to this £13.6m market cap business than just HIPs. A look at the annual results to 31st December 2006 revealed pre-tax profit of £220,000 but this was after writing off £1.4m on Hipstar. So the results excluding Hipstar would have resulted in a profit of c£1.6m and this was after incurring a loss on the new Network Surveyors business.

If one assumes that the original core mortgage broking business continues to perform, factor in some profitability for Network Surveyors (it turned profitable in the first half of 2006) and even allowing for further Hipstar cost write offs, the shares don’t look bad value.

Any further share price falls would appear to represent a buying opportunity. Unfortunately this is where the problems really begin because, with Mr Griffiths holding 78% of the shares and no money raised on float, there just aren’t any shares out there.

So they came to AIM but didn’t need any new funds and the Chief Exec and staff hold nearly all of the shares.

Once again I question why they on earth they came to AIM in the first place!


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