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.

Vertu Motors - a very positive AGM statement from a car dealer

Vertu Motors came out with a very positive trading statement on a day when the market was thankfully also on the up.

Vertu now operates 46 motor dealerships and, on a turnover basis, is the tenth largest motor retailer in the UK – not bad from a standing start in December 2006!

In addition to key management changes across dealerships, cost savings have been achieved in line with group plans through the closure of the former head offices of Bristol Street Motors and the Blakes Group. Head office functions are now located in Newcastle upon Tyne.

A new internet offering is due to be launched in September and they appear to be placing a fair bit of emphaisis on this to help drive car sales – we shall see!

I like the bit about the surplus properties with estimated proceeds and book value of around £12 million and the fact that a number of these properties are conditionally contracted for sale in the first half of 2008 which will reduce debt and add some acquisition fire power.

I wonder if they are looking at HR Owen. It's doesn't really follow management's strategy but if the deal looks good, who knows!

The bad news is in the Commercial vehicles dealerships and specifically the three Iveco dealerships. Apparently nationally Iveco has under performed against other franchises with heavy truck registrations for Iveco nationally declining 20.8% in the period from April to July and light commercials declining 8.4%.

The core car business has been promising with Bristol Street Motors' dealerships putting in a good performance. While the UK used car market in 2007 has remained flat in terms of volumes Bristol Street Motors' dealerships acquired on 27 March 2007 increased used car volumes on a like-for-like basis by 8.0% in the period April to July - a fantastic performance. The new Mondeo should hopefully help.

All in all, quite a positive statement, especially given all the credit worries around at the moment.

With the share price having dipped, I even see that the Chief Exec took the opportunity to acquire some shares at 66p.

The house broker believes that Vertu ‘offers a strong long term investment opportunity' and with the shares having fallen in recent weeks they have changed their recommendation from Add to BUY – read into that what you will!

Vertu's got a great management team which has done it all before so they are probably worth following

DOBBIES GARDEN CENTRES – a profit warning, but who cares

So Dobbies Garden Centres, soon to be part of the Tesco’s empire, has announced that as a result of the poor weather over the key summer months it’s going to miss sales targets-not exactly a surprise!

Apparently sales of garden furniture, plants and core gardening products have fallen short of expectations-no amazing!.

However, the recent batch of advisory fees incurred really are impressive. Total fees payable by Dobbies in connection with the offer by Tesco Holdings and related corporate activity are expected to be approximately £2.8m-wow!

I really can’t see the relevance given the current deal situation. Dobbies’ stratospheric share price has nothing to do with trading and is simply a reflection of the efforts of the Hunter and the grocery (ok, they do sell other things) boys from Hertfordshire.

Surely those shareholders with their heads firmly attached will be lapping up the 1500p offer.

The market turns red and I blame it firmly on my colleague

Well what a day, red across the board with the FTSE 100 down a whopping 3.6% and the FTSE 250 and AIM indices down 4%. The FTSE Small Cap was actually one of the better performers down only 2.96%.

Shares in Jetion Holdings (AIM:JHL) tumbled another 8%, although it looked like some buyers returned.

Of the small caps and AIM stocks that we follow it was interesting to see what didn’t fall.

At the beginning of the day the great James Halstead (AIM:JHD) was the exception but I see that even it finally succumbed, registering a miniscule bit of red (-0.17%). I actually think some sado just couldn’t bear it!

Other notable risers from our universe were Braemar Seascope (+2.4%, after a Director bought a few shares), NWF (nothing to talk about and the shares were shot to pieces earlier in the week), Northbridge Industrial Services (+0.90%, nice little business), Titan Europe (+0.66% - loaded with debt so I can’t see the appeal here), Vantis (+3%, but it’s lost a hatful over the past month anyway) and IDOX (+2.50% and looked reasonable value a few weeks ago)

Sub Prime woes my foot – it’s my colleague whose caused this

Many seem to be blaming recent stock market falls on the sub prime woes emanating from the US. Who thought up that stupid term anyway, how can anything be sup-prime? You can’t get Sub Prime Beef, at least I’ve never heard of it. It probably wouldn’t do you any good if you could. It’s either Prime or something else but certainly not 'Sub Prime'.

Anyway, as I see it the main reason for the recent falls is my colleague’s absence on holiday.

Over the past 7 years or so nearly every material market pull back has coincided with his absence from the office on holiday. I used to think that he was only responsible for the Nasdaq but now I believe it’s a lot more sinister

I am happy to report that he is due back in the office on Monday 20th by which time there should be some bargains out there-hopefully anyway!

Jetion (AIM:JHL) - surely the fall in the share price is unwarranted with all the good news coming from the solar industry

I see that shares in Jetion Holdings, the AIM quoted manufacturer of solar cells and modules, had a poor day, falling just over 8% on generally very thin volume.

Bizarrely the dramatic fall in share price followed extremely positive news from the German solar cell manufacturers today and even more positive news from the US listed Chinese groups a week or so ago.

Even in the current market the fall in share price is surely undeserved given all the good news in this industry.

Q-Cells (QCE.F), the Frankfurt listed manufacturer of solar cells today raised its forecast for full-year sales to 800 million euros, compared with an earlier estimate of 750 million euros. One analyst at Credit Suisse who rates the shares confirmed that the results were ‘better than expected’.

Recent news from the US was also very positive with Nasdaq listed JA SOLAR (JASO) announcing on 8th August 2007 that it was raising its revenue guidance for 2007 based on current market conditions and customer forecasts. JA Solar is similar to Jetion in terms of size, scope of activities and stage of development.

JA Solar raised its outlook to a range between US$300 million and US$310 million having previously estimated that revenue would be between US$280 million and US$290 million for the year.

On 9th August 2007 NYSE listed solar panel maker Suntech Power Holdings (STP) also announced higher second-quarter earnings that beat analysts' expectations on strong demand for its photovoltaic modules in international markets.

Am I missing something?

ZYTRONIC - a really poor trading statement but I don’t think I’m ready to abandon ship yet

Zytronic, the touch screen specialists came out with a poor trading update yesterday.

I’m really not sure about this one now. The growth potential is clearly there (it has to be with the sort of multiples we are talking about), the production in place to support it and a good management team to oversee things. However there is greater pressure on their Zypos product to really fly in quick time and if sales of this slip the shares will receive another even bigger hit. Furthermore, with ‘real’ sales lead times of only 6-8 weeks there is little real visibility. The group is cash generative at the operating level but the cash is now being used to support the investment required to expand the production facilities. The yield is an encouraging (but hardly earth shattering) 1.7%.

There are many more interesting high growth stories out there at the moment with significantly more compelling valuation metrics. Zytronic isn’t the sort of business that’s ever likely to come out with earth shatteringly positive announcements confirming massive orders. You have to wait for the results statement and odd trading update. Since announcing preliminary results on 13th Dec 2006 we have had an AGM statement on 27th Feb which gave no trading news, an announcement of interims on 15th May 2007 and now a trading update on 7th August.

I wouldn’t be a buyer at the moment but have always liked this company, its products and most importantly in this case the management, so I’m not abandoning it now - I know that’s about as helpful as the trading statement itself and a little soft but what can I say!

Silverjet - another poor announcement but surely this one doesn’t warrant a c27% fall in the share price (c£14m in terms of reduction in market cap)

I see that Silverjet the low cost business class only airline has announced the cessation of its charter operation, Flyjet, at the end of October.

The Flyjet acquisition provided Silverjet with its launch aircraft, under an attractive lease, together with licences enabling Silverjet to commence flights in January this year, which was sooner than originally anticipated-so it really wasn’t a bad old deal!

The charter operation (two 757 aircraft) has had its own operational issues in an increasingly competitive market. As a result the house broker’s expected profit contribution from Flyjet in the current year of £2m EBIT will now not be achieved.

Including closure costs of £0.3m and an estimated £0.4m on maintenance on the two aircraft to satisfy return conditions to the lessor, the house broker now expects Flyjet to lose c£1.5m in the current year. So they have downgraded their current year forecast by £3.5m.

It’s interesting to note that the house broker has never allowed for a contribution from Flyjet in their forecasts beyond the current year, therefore the 2009 and 2010 numbers are unchanged. So why the big deal (the shares tanked another 27% on limited trading) about a tiny part of the business that really has no bearing on the long term potential (and value) of the business.

I am in agreement with the house broker (that’s a rare occurrence) that although this is a little disappointing it doesn’t change the underlying attractions of the Silverjet business which continues to report strong passenger growth including a 76% load factor in July.

In these markets it’s tough to gauge whether today’s big fall represents a buying opportunity but -27% on the back of this relatively insignificant news is surely a bit ridiculous.

Cape - so it's no deal!

I see that Cape has finally confirmed what I suspected would be the outcome all along (clever dick are I!), that it has been unable to reach an agreed price with the board of PCH and, as a result, discussions with the company have been terminated.

So what’s going to happen with the c£70m raised to support the deal that never materialised.

It's an utter a shambles!

Geong International - now that's what I call an AGM statement

GEONG International the Beijing based, provider of content management software and solutions came out with a cracking AGM statement yesterday.

As a shareholder and big fan of this business I admit to being a little biased but it really was a good one with the sort of clarity that is so often absent from the old stagers of the market.

Naturally the house broker came out all guns blazing (quite right too!) upgrading their profit forecast for 2008, 2009 and 2010 by 20%.

Trading at 16x March 2008 earnings, they commented that GEONG’s almost 20% discount to the Technology sector is undeserved considering the potential market available to the company in China-the problem seems to be that we sceptical Brits don’t generally appear to entirely trust what’s going on in China! Anyway the good old broker is upgrading their recommendation from Outperform (18 May 2007) to BUY with a price target of 90p.

Revised broker estimates now indicate forecast sales of US$17.6m for the year end March 2008 with earnings per share of 7.3 cents resulting in a PER of c16.5x based on a 60p share price and sales of US$20.8m for 2009 with earnings of 10.0 cents a share resulting in a PER of 12x. By now you should know me well enough to realise that I’m not bothering about 2010-pure fiction!

It was an excellent announcement that surely justifies a material uplift in the share price even in the current market. I’m not being paid to say this but as a shareholder you might be inclined to dismiss this as sales waffle in an attempt to push the stock! However, in its defence this little group hasn’t disappointed and the staff and management have just forked out a load of hard earned money to buy shares in the placing.

They have (or had a few weeks ago) £3.4m of net cash to help realise their dreams and with the projected earnings growth of over 25% per annum over the next 3 years the valuation surely doesn’t look very demanding.

The house broker considers their forecasts beyond 2009 are prudent (come on chaps, you always do!) and cautious with margins (55% last year), forecast to decline to around 45% this year as GEONG increases sales and marketing spend to expand its geographical coverage in China. They are also assuming that, in 2007/2008, the group will increase selling and distribution costs almost three-fold (that sounds reasonable) to establish its presence nationally.

While PortalAge remains the key revenue earner for the time being (c80% of turnover) SmartBox and SmartExpress, aimed at medium and very small businesses respectively is where the future lies. GEONG is steadily making significant inroads into SMEs and very small businesses where competition is apparently almost non-existent.

I will be interested to see if they can keep on top of the increased working capital demands. The Loyalty Program model that they are now adopting for very small companies alters the cash flow profile somewhat-we know what the Chinese high growth merchants are like at credit control!

The China risk is ever present to rein back the share price and in the current market Geong will have to keep coming out with positive news to really satisfy the doubters! However, little Geong has delivered of late and surely merits a great deal more attention.

Morgan Stanley & Sports Direct - time for the research analysts to do some real research

I see that the analyst at Morgan Stanley responsible for covering Sport’s Direct has announced that as the firm has limited confidence in the revised forecasts they no longer believe they have sufficient basis for fundamental valuation work on the stock and await contact with management.

Isn’t this just the moment when the big (big=highly paid) analysts should really start to justify their even bigger salaries by getting out in the market and doing some real ‘kick the tyres’ research.

Surely it’s no good complaining about access to management and more about arriving at an opinion as a result of first hand experience of the market and Sport’s direct offering.

Forget about what management says and get and find out what customers think, what they are buying and where they are buying it!

Come on chaps, for once you might actually produce something that's actually worth reading!

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