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.

SMALLBONE - just when it all starts to look more promising, the Directors start selling again, unbelievable!

Just when Smallbone, the AIM quoted luxury kitchen manufacturer, was starting to attract a bit of a following, yet again the Directors decide to sell a load of shares!

Charles Smallbone, Chief Executive and Chairman, sold 60,000 shares at a price of 104p per share and Mark and Cynthia Wilkinson, also both Directors, each sold 388,615 shares at the same price.

The Wilkinson’s share sales were material relative to the their holdings and their actions hardly give confidence to prospective, not to mention existing, Smallbone shareholders. More importantly in the current rather fragile market their actions are highly questionable.

The brokers can come up with a lot of old waffle about improving liquidity and attracting a wider shareholder base but this is a micro cap that's reliant on private shareholder interest and to my mind, their actions don't look good.

Having got quite keen on this evolving story a few weeks ago I’m certainly going to avoid this one.

JETION(AIM:JHL) - Good results, huge demand for its products, seemingly dirt cheap valuation - so why isn't everyone buying?

Jetion Holdings the AIM quoted manufacturer of solar cells and modules announced its maiden interim results for the six months ended 30 June 2007. These all looked rather good and were essentially in line with the pre-IPO research although you wouldn’t believe it looking at the share price reaction.

The outlook looks rosy (they seem to be stacked out with orders for more than 18 months) the second cell line (25MW per annum capacity) is performing well and the Company has further increased capacity since the middle of the year for the conversion of cells into modules.

They are also in discussions with suppliers of equipment for the third and fourth cell lines and they remain on course to expand cell manufacturing capacity to 100MW per annum by the end of 2008, all as indicated at flotation.

Gross margins were lower than anticipated at 13.4% against 14.7% for 2006 and 15.4% for 2007 full year estimates . This was due to more sub-contract work for other cell makers in the first half while moving into H2, silicon prices have moved up 5%.

But hold on. It would have been a miracle if margins had been maintained given all the production related activity. Furthermore, action has already been taken to improve matters and volume and prepayment discounts have been obtained from major silicon suppliers and cell prices have been increased 2% in the market. So they easily make up in the second half

At the time of writing the share price stands at c122p.

The house broker has trimmed (trimmed is the word) its 2007 full year estimates to reflect various cost base changes. This moves the projected profit before tax to US$10.5m from US$11.0m previously on sales of US100m for the full year ended December 2007. But nobody is buying this for the current potential so should we really be interested in these short term aspects!

Estimates for 2008 remain as previously with sales of US$175.5m (why the 0.5m I don’t know!) and adjusted net income of US$18.1m.

At the current share price the shares are trading at c17.7x 2007 full year estimates and 10.3x estimates for 2008.

JA Solar (Nasdaq: JASO) Jetion’s US listed peer is currently trading at over 20x 2008 earnings estimates. JASO is somewhat larger business at a more advanced stage with revenues for the second quarter of 2007 of US$60.0 million and the group’s revenue range for 2007 increased to approximately US$310 million. Production estimates for J Solar for 2007 have been raised to approximately 110MW from prior estimates but by the end of 2008 Jetion will be close to these levels.

Despite its smaller size the discount appears to be ridiculously high.

But who cares about peer group comparison!

Jetion operates in a booming market that is only set to grow further. It certainly looks a step above most of the other highly speculative energy stocks on the UK market, is profitable and has a seemingly cheap valuation. Furthermore, it won’t be that long until the cash starts rolling in.

In addition to the large domestic market there is strong European wide growth anticipated.

Given the market dynamics, post recent falls surely this looks one of the cheapest stocks around (the writer acknowledges to being a holder).

The results were ‘broadly in line’ with the broker’s expectations and the Board believes that the full year results will also be ‘broadly in line with market expectations’. Unfortunately terms like ‘broadly in line’ are not really good enough in the current market.

Markets for solar products remain excellent and the management are showing that they are able to effectively deal with various cost pressures.

All the other noise from the solar market has been very positive, in Jetion's case it’s a pity the same can’t be said of the stock market.

The house broker has stuck with its target price of 200p.

ACERTEC - overstatement of stock, will we find out more tomorrow?

Overstatement of stock and the shares tank 12%
Is there worse to come or does this represent a great buying opportunity - we should find out more tomorrow

Acertec announced back on 5th sept that it had discovered a discrepancy in the accounting for stock at one of its BRC operations (that’s concrete products) in the UK. Based on the information that is currently available, the Company estimates that there is an overstatement of stock amounting to approximately £1.5 million, which has existed for more than a year. A further announcement will be made when additional information becomes available.

Turnover for the BRC division for the last financial year (including joint ventures) was £183.9 million-so £1.5m doesn’t sound that much of big deal. Total operating profit, excluding goodwill amortisation was £9.2 million.

Following the share price fall the shares were trading at just over 6.5x 2007 earnings estimates and 5.9x earnings estimates for 2008. The yield is now a well covered 7%. The group’s BRC division appears to be doing very nicely (at least that was before they discovered they were missing £1.5m of iron bar!) and the Stadco car body business is well entrenched with the ‘good bits’ of Ford.

On 19th July John Sword, the Chief Exec, thought the shares looked such good value that he purchased a further 150,000 shares at a price of 167.83p

So all in all, the shares seem to look quite cheap.
However, could this week’s stock problem be the precursor of more bad news to come?

The interims could prove interesting reading

MN Speciality Steels – hardly one for the private investor

I recently had a look at a private placement document for MN Speciality Steels (‘MNSS’).

MNSS is a UK company that is in turn a majority shareholder in a business based in Montenegro (yes, it was new one for me as well!) and listed on that countries Stock Exchange. The only thing I know about Montenegro is that it was formerly part of Yugoslavia-an area not renowned for its political stability!

However attractive the steel market in general, and the investment proposition in particular may appear, it is hard to for me see how this presents a suitable investment opportunity for the UK private investor to whom the private placement document appears to be directed.

This is a private capital raising through a private UK company therefore the shares will not be freely traded on a UK market.

A fund raising of US$34million to support a business based in Montenegro is very demanding in the current market. I’m not sure what happens if they only receive the minimum US$3m.
I don't think that's going to go very far in terms of the steel industry and it's only likely to pay the fees!

I'm always sceptical why the big boys aren't in there already if it looks such an enticing investment prospect.

A large element of the fund raising is in respect of debt repayment and another big chunk covers working capital requirements to support raw material purchases.

There is also a paragraph in respect of foreign investor protection, however, we know how this can change overnight.

They are proposing to raise funds at US$8 per share having previously raised US$27m in December 2006 at only US$1.66 per share. The document makes reference to a 'minimal uplift' since that time, however, that looks like a 300%+ return in 8 months and hardly minimal!

There is no indication in the document of the impact of fund raising fees and the net proceeds going to the company. There was no up to date Balance Sheet only a P&L account and I didn't see any information in respect of the current shareholders in MNSS

In my opinion this is an investment for institutional investors who have an in depth knowledge of the steel industry and the country in which it is based. More importantly it’s an investment for those institutional investors who can also dictate investment terms.

It doesn't seem very appropriate for your average (or even above average) UK investor.

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