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.

TITAN EUROPE - management needs to focus on the current operation and forget about further acquisitions for the time being

Titan Europe has announced that having reviewed the September and October trading figures, being apparently the key months in the second half of the year, they are concerned about the trading mix. Surely they had concerns at the time of the interims announced on 21st September when everything was apparently rosy and a stronger performance anticipated in the second half of the year.

The second half will show broadly similar performance to the first half which is highly disappointing given the markets in which Titan operates.

The undercarriages part of the business acquired through he Italtractor deal appears to be the cause of the problem – another merger that’s failed to live up to expectations, at least in the short term!

The group is of the view that it is ‘precautionary short term de-stocking rather than a sea change in demand for undercarriages’ - I hope so!

The agricultural order book is apparently also very strong, wonderful news you might be lead to assume, however, this has created ‘short term, but significant margin erosion due to pressure on operational efficiencies’.

As I have emphasised on several occasions before management needs to get a grip of the current operation and desist from further deals.

The stated list of problems includes: increased change over time (what on earth is that!), overtime working, high priced supplementary material purchase and the purchase of product from lower margin sources including the Group's operations in Turkey and France as well third party suppliers. What a disaster!

The group’s view of 2008 remains positive with a flat material price (that could rear its ugly head again!) and the full impact of 2007 pricing increases helping margins. Order books apparently remain strong but so they should do given the state of the underlying resources and agricultural markets!

Perhaps iwe were looking for too much from Titan in the short term and they simply need to manage expectations better!

Today’s announcement results in a 20% downgrade to current year forecasts only six weeks after encouraging comments at the interims on 21st Sept 2007 and further encouraging comments in the pre-close update on 27th July.

The group is one of only two global players in large off road wheels and is a leader in undercarriages. With the mining and agriculture sectors booming it’s really hard to fathom why they aren’t experiencing more stellar times.

At least one broker is reducing their forecast of profit before tax by c22% for the year to December 2007 from £30m to £24.5m – that’s a big chunk! This equates to EPS for the current year of 18p. Forecast profit before tax for 2008 drops from £39m to £34m equating to EPS of 25.5p.

On the revised forecasts, the Group is rated at 9.1x 2007 earnings, falling to 6.6x for 2008. These numbers look ridiculously low given the markets in which they operate, however, this group has consistently failed to deliver over the last few years so many will be having doubts!

One broker has cut their 12 month price target from 300p to 225p – as I write the shares stand at 155p!

WORTHINGTON NICHOLLS - What's the point of the Beart led management team?

Apparently a new management team of Simon Beart and William Good, both previously at Revenue Assurance Services, have the backing of 14.51% of WNG's shareholder base.

Why on earth these 2 financial engineers, who, as far I know have never actually had anything to do with an air conditioning business have the backing of 14.51% of the shareholders is totally beyond me.

WNG surely needs a proper team of experienced relevant industry operators to roll up their sleeves and sort things out.

Messrs Beart and Good simply appear to be looking for another job after off loading the bizarre creation that was RAS - successfully I should add!

LEADCOM: We had our concerns - stick to good old Vodafone for your emerging market telco exposure!

A quick recap from our Small Cap Review from 9th August 2007

Booming top line and worrying cash flow-I’ll stick with good old Vodafone for my emerging market telco exposure

Revenue growth is great and they are operating in booming growth markets (probably a bit too adventurous for some!) but the cash flow and horrendous debtor build up isn’t to my liking at all. I think I would prefer to get emerging market telco exposure through something like good old Vodafone. It might not look as exciting or seemingly have the same growth potential but surely through taking a position with a CFD or spread I could conceivably achieve the same return on capital without the liquidity and location riskBargain assessment – valuation looks cheap but the cash model means it isn’t one for me!

Today's news hardly came as a surprise…

Leadcom a leading international provider of innovative telecommunication solutions, informs that, with the exception of the Caribbean and Latin America (CALA) region and a significant rise (not a good start) in the Company's financial expenses, the group has
traded in line with the board's expectations.

Revenues for the nine months ended 30 September 2007 exceeded US$149 million.

Apart from the CALA region, the Company's growth in revenues has been translated to the expected operating profitability. But what about the cash flow?

In the year to date, the engagements with a major customer in the CALA region, a leading telecommunications equipment vendor have contributed extremely low profitability levels (compared to other engagements in the region and to the company's standard).
This business sector is now expected to be treated as discontinued, a nice massaging of the old numbers!

Despite the operational challenges in CALA, Leadcom's Group cash flow in Q3 2007 apparently continues to be on track - I just wonder what kind of track!

The Company expects significant rise in financial expenses in relation to its private issue of Bonds to the Israeli market, in December 2006. You also have some US dollar exchange worries added to the mix as well.

My view remains as previously, that I would prefer to get emerging market telco exposure through something like good old Vodafone, whose shares have, by coincidence, risen 20% over the same period!

Venture into the adult world!

Last week, I visited Sport Media Group (SPMG: AIM), formerly known as Interactive World, who have recently completed the purchase of the Sport Newspaper from David Sullivan, he of Birmingham City fame and other more ‘glamorous’ businesses. Sport Media are also involved in ‘adult’ texting, a high demand business, apparently!

The Sport Newspaper was famous (or infamous, depending on your point of view) for its outrageous news stories such as World War II Bomber found on the moon and for its ‘glamour’. Circulation had dropped from its 1990s highs and really deteriorated into a sales vehicle for many of Mr. Sullivan’s other business.

However, the new management intend to turn fortunes around and hope to get back to the humour and glamour that made it a popular read in the ‘greasy spoon’ café.

Everything from content to distribution to advertising is being overhauled.

The front cover is to be less offensive so retailers will not baulk at displaying in the newsagents. Content is now being overseen by James Brown founder of Viz and former editor of Loaded magazine. Much of the ‘adult’ advertising is now being pushed to the back of the paper to make space for the mainstream advertisers and new state of the art software will give the company pinpoint accuracy to where the paper is selling out, not selling etc.

The Sport is never going to out sell the Sun or the Mirror but it should be able to increase circulation and attract mainstream advertising as it is bought by the demographic that the major corporates crave, male 20-40 years old. Year end results are expected to hold no surprises when they are announced next week and the beauty is that the ability to deliver can easily be monitored by buying the newspaper….just wear a disguise in case someone sees you!!!!!

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