Investor's Champion Blog

GEONG (AIM:GNG) – another unexpected announcement gives the share price a boost but doubts remain

2011-11-23T13:33:00.002Z

The China based provider of software solutions issued a somewhat confusing update on both trading and a proposed acquisition. Despite the evident growth prospects we have had our doubts about the long term viability of this business for sometime, with cash generation our biggest concern. Today’s update serves up more mixed messages.

Geong announced back in July that it had entered into an agreement to acquire Hong Kong based company Adbeyond for up to £9.6m, to be satisfied very specifically 50% in shares and 50% in cash. At the same time it also announced that it entered into a ‘non-binding term sheet’ with one of its major Chinese customers to raise a further US$8m by way of an issuance of a two-year 7.5% convertible secured loan stock. Despite all indications that its customers were reluctant payers in the normal course of business, the suggestion was that a large customer was happy to advance larger sums under a ‘formal’ convertible arrangement – unusual to say the least.

We now learn that after four months of negotiation and “in the light of the continuing instability in the financial markets” management concluded that it would not be in the best interests of “either party” to conclude the acquisition. The comment that Geong remains in discussion with the vendors of Adbeyond concerning the terms of the termination and that a further announcement will be made in respect of this suggests to us that there could be financial implications implying that both parties were not necessarily of the same mind.

The US$8 million convertible loan stock is therefore not now required.

They remain committed to seeking acquisitions in Greater China although it’s hard to see how these will be financed as management has also conceded.

On a more positive note they have reported that trading in the half year just completed (period to end September 2011?) has been better than in the same period last year. For the first half of 2010 turnover was £4.7m and pre-tax profit £0.7m but more worryingly there was also a £2m operating cash outflow, so if the last of these is better it will indeed be good news. They also reported that net investment in working capital is expected to reduce in the current financial year, reflecting the increasing proportion of shorter term contracts.

It’s the usual story with a strong order book although surely that’s irrelevant if your customers don’t pay you!

Full year results are expected to in line with expectations which currently suggest pre-tax profit of £3m and earnings per share of 6.3p. On this basis, with the shares trading at less than 4x estimates they do look dirt cheap, however long term growth (even survival) surely remains all about effective cash management.

PUBLISHING TECHNOLOGY (AIM:PTO) - Nice money if you can get it

2011-11-23T10:32:00.001Z

Publishing Technology, whose activities are hard to fathom (have a look at the web site if you don’t believe me!) has announced that it has accepted unsecured loans in aggregate of £500,000 from its Directors and from certain senior managers

This was apparently similar to last year to assist the Company meet its potential peak funding requirement during the last quarter of 2011.

The Directors’ loans are expected to be repaid on 31 January 2012 or sooner if cash flow allows and carry a coupon of very attarctive 12% per annum.

What a great arrangement for all concerned, as long as one has absolute confidence in the business and its cash flow, which I assume the Directors do indeed have.

It’s cheaper than any available alternative funding, which is fairly ironic when base rates are virtually zero, and the Directors’ spare cash earns interest at levels not seen for many a year.

The AIM Admission Document looks increasingly worthless to us!

2011-11-23T10:29:00.003Z

A key document in the AIM Admission process is the Admission Document (‘AD’) which remains a source of reference for investors for many years to come post flotation. Time and time again we discover how companies quickly forget what they originally committed to!

Hidden towards the back of the AD one can generally come across information on Directors’ service agreements and terms of office.

Having dug into the AD for Zenergy Power from Aug 2006 we learned that former Chief Exec Jens Muller had entered into a service agreement with a business called Trithor that was the precursor to ZEN and one of the providers of HTS Technologies. This agreement provided for an annual salary of €94,999.92 and participation in the Trithor bonus scheme (up to €25,000 per annum). We also learn that Dr Müller entered into an appointment letter ZEN dealing with his position as an executive director of ZEN. No further information appears to be provided in connection with this appointment, however, for us there is a clear implication that his remuneration would be on similar terms to that at Trithor. It’s hard to justify how €120,000 of Trithor remuneration could become €215,000 from ZEN during a period when shares tumbled over 90%, the business consumed millions and very little appears to have been achieved at the operating level.

Many will be surprised to learn that the Board costs for this loss making venture totalled €718,000 in 2010 and €532,000 in 2009. It’s hard to gauge why they thought the Board should have benefited from an uplift in remuneration from 2009 to 2010, perhaps it was based on cash spent!

A more detailed commentary on Zenergy Power can be downlaoded from http://www.investorschampion.com/research/company/zenergy-power

Pressure Technologies (AIM:PRES) – Wake up market and look at the cycle!

2011-11-23T10:27:00.000Z

The trading update was disappointing but one look at the market and recent updates from some of the key players (some of which are surely customers of PRES) suggests this business is in great shape for 2012 and beyond.

In the Group’s new Engineered Products Division management confirmed that Al-Met had record annual sales in 2011. When it bought Al-Met in Feb 2010 it announced that turnover for the 12 months ending 31 December 2009 was £4.2m, adjusted adjusted EBITDA £0.5m and gross assets of £2.0m. The initial cash consideration, represents a multiple of 3.5 times unaudited historical adjusted EBITDA. That sounds alright to us!

Management has confirmed that they expect the current record level of sales in Al-Met to be maintained into 2012 with further growth in this business expected in 2013. Industry forecasts and customer feedback indicate significant growth for wear parts into the subsea market from 2013 with double digit growth forecast for both 2013 and 2014.

Hydratron acquired on 18th Oct 2010 had sales of £4m in the UK in the year ended 30 April 2010.

With 1H11 sales in the Engineered Products Division of £5.1m the house broker is now forecasting full year sales in 2011 of £11.1m. That doesn’t look too bad either if one considers that 2010/2011 wasn’t an easy period for the industry – remember Macondo!

It’s worth noting that Cameron International, the industry leader in the provision of flow equipment products, systems and services to the oil and gas market yesterday reported total orders of US$2.0bn for the quarter and a backlog of US$5.8bn, the second highest quarter-end level in its history. PRES is bound to be dealing with CAM in some form

Management confirmed that the Group’s stated focus remains to double the size of the Engineered Products Division organically – the market looks highly supportive to us!

GTE (LSE:GTE) - placing demonstrates there is life on the secondary AIM market

2009-05-08T23:01:00.001+01:00

Gas Turbine Efficiency, the AIM quoted provider of proprietary cleantech systems for enhancing the performance of industrial and aviation turbines, announced the raising of £7m at 24 pence per share (current price 28p). In the current small cap climate this represents quite a vote of confidence in this small AIM industrial group, although it also results in quite a large dilution with the raising representing c28% of the enlarged share capital.

The net proceeds of the Placing will be applied to accelerating the Group’s growth in four principal areas:-

(a) Supporting physical European and Middle Eastern expansionThe Group is expanding its Swedish facility by three-fold to meet increased demand from Pratt & Whitney as well as handling new combustion and industrial product lines.

(b) Adaptation of the Group’s products for new turbine customers

(c) Accelerating selected development programmes for specific customersThe Group’s strategy had anticipated the development of certain combustion, power augmentation and controls products in 2010 and 2011. However, given the recent successes of advanced solutions in the US utility market, the Board believes that it would be in the best interests of the Group and Shareholders to bring forward these developments into 2009 and 2010.

(d) Funding potential small acquisitions and market entry mechanismsThe Company has identified several small teams and businesses whose activities would complement the Group’s business and the Board would like sufficient financial resources to potentially align with or acquire these teams if and when the opportunities arise.

With cash of US$5.4 million at 31st December 2008 I must admit to being somewhat surprised by the timing of the move. However, clearly if the money is there it’s a good idea to take it as who when markets might dry up again.

The shares are now well off their lows of c16p but still 50% off the float price.
The earnings benefit from the new funds will take a while to come through but this leaves GTE well placed to realize the dream - GE look out!.

Revised broker estimates are for earnings of 3 cents / share for the financial year ending December 2009 and for 6 cents / share for 2010 which leaves the shares trading at c15x 2009 estimates and c7x 2010.

M.P. EVANS (LON:MPE) – good numbers but how on earth do you value this one?

2009-05-01T17:22:00.000+01:00

M.P. Evans, the AIM quoted Indonesian palm oil and Australian beef cattle business (great mix!) announced seemingly outstanding results for the year ended 31st December 2008. However, this is a tough business to value in its changing state.

There was a record profit for the year US$53m (2007 US$46.6m), with earnings per share for both continuing and discontinued operations (note the unusual inclusion of both, that’s significant!) of US cents 96.26 (2007 US cents 82.32 cents). At the current share price of 306p and market capitalisation of US$160m, this all looks very rosy! However, the year on year comparison is hard assess given the changing nature of this business with Malaysian estates being sold (profits from discontinued operations amounted to US$24.5m), Indonesian estates being planted (gain on biological assets of US$11.1m) and Beef cattle investments being added. Add to this the influence on the results of palm oil and beef cattle prices and it really is a tough business to get to grips with!

The group has now received a total of some US$100m for the sale of its former Malaysian estates leaving assets with an estimated value of some US$50m still to be sold. The sale proceeds have been used to fund the Group’s expansion within the oil-palm sector of Indonesia and the beef-cattle sector of Australia.

Of the 36,000 hectares of new land that has been secured to date in Indonesia 8,500 hectares in total is now planted with a further 3,500 hectares anticipated to have been planted by the end of the year, thereby bringing the total to 12,000.

With all this changing activity it’s probably best to fall back on simple asset values, however, even that isn’t easy.

At the year end the net asset value was US$261m (approx £176m) compared with the current market cap of £160m. There is no need to worry about the impact of intangibles with Goodwill at a lowly US$1.1m and pension obligations also apparently immaterial.

Assets largely consist of Biological assets (cUS$79m), Property, plant & equipment (cUS$47m), Investments (cUS$101m) and net Cash (cUS$35m). That little lot adds up US$262m, in line with the net asset value. The cash is reassuring but that is being ploughed back into new plantations so don’t count on any exceptional shareholder distributions and there was a net operating cash outflow of US$21.7m.

The non-current biological assets also comprise plantation bearer-assets which come with some unusual accounting treatment. The Group values these plantation assets using a discounted cash flow (we all know how reliable DCF is!) over the expected 25-year economic life of the asset. It’s worth reading the notes if you want to know more about this!

In support of asset values the groups 34.37% holding in the Australian beef cattle business NAPCo appears to be worth substantially more than the balance sheet value. However, this business seems to alternate between profit and loss each year so the current value to the bsuiness again is hard to assess.

To add to its quirkiness the group even has joint Chief Execs!

The recovery in the group’s share price from a low of approx 165p at the end of November 2008 to the current price of 306p has followed that of palm-oil which has recovered from a low of US$435 at the beginning of 2009 to the current level of around US$725 per tonne.

MPE remains an interesting one to follow!

LUPUS CAPITAL (LON:LUP) – a relic from another age?

2009-05-01T10:03:00.002+01:00

The ‘highlights from Lupus Capital’s results for the year ending 31st December 2008 smoothed over the true picture. Given the group’s seemingly precarious position the postive nature of the highlights came as a big surprise!

- EBITDA* up to £42.870 million (2007: £36.559 million)
- Pre-tax profits* up to £27.685 million (2007: £25.021 million)
- EPS* up to 14.83p (2007: 14.82p)- Strong cash generation- Substantial cost reduction achieved
- Debt negotiations continuing

Note all the items preceded by ‘*’.

The note supporting this reveals that items preceded by ‘*’ were ‘before amortisation of acquired intangible assets, deferred tax on amortisation of intangible assets, exceptional items, unwinding of discount on provisions, amortisation of borrowing costs and the associated tax effect.’ That’s a fairly long list of items that management consider doesn’t warrant inclusion in the earnings per share.

The diluted earnings per share were actually only 4.92p compared with the highlighted 14.83p!
They are unable to pay a final dividend and it’s hard to see when they will be able to resume dividend payments.

Finance costs were a massive £11.7m against operating profit of £20.8m.

Operating cash flow was good (£30.8m against operating profit of £20.8m), however, it’s got to be to support the mountain of debt and the high finance costs which are no doubt set to climb when debt is renegotiated.

Perhaps of greatest concern for this business is the last of the above highlights, being the continuing debt negotiations. New banking facilities and an easing of covenants will probably come at a high price.

They also highlight the impact of a weakening pound against the US Dollar on the group’s US$224m borrowings. Apparently if the exchange rate on 31st December 2008 had been the same as at 31st December 2007 their equivalent net debt in Sterling would have resulted in a £9.46m reduction in group borrowings – so, given the materiality why didn’t they hedge their currency exposure? Net debt at the year end was £145m, compared with £99m at the end of 2007.

The outlook statement doesn’t instil much confidence either with the group’s businesses both in the US and Europe facing unprecedented market conditions which may continue to deteriorate for a while longer.

Intangibles of £369m will surely be subject to big impairment charges

One broker observed that the results were better than feared – the mind boggles what they were actually expecting!

Plastics Capital (LON:PLA) – not as bad as feared; debt marginally higher but cash flow solid

2009-05-01T09:59:00.001+01:00

The AIM quoted niche plastics products group issued a ‘mixed’ trading update for the year ending 31st March 2009.

Full year turnover is now anticipated to be not less than £28 million (that’s ahead of initial broker estimates) with underlying profit before tax for the year to 31 March 2009 to be ‘not less than’ £2 million, after a £1m charge for hedging costs in the year due to sterling depreciation against the dollar. The last sponsored research not from 7th April estimated pre-tax of £2.68m and eps of 10p – I assume they forgot to allow for those hedging costs!

Net bank debt is expected to be £19 million which appears to be £1m higher than at the interim stage. Since the last trading update, group margins have remained firm but volumes have been weak in all businesses. Even the Rotating Parts which had previously weathered storm has recently been impacted by the collapse in international trade for manufactured products. Ironically it’s the UK focused business involved in packaging film that has performed well and only suffered a relatively modest volume decline over the last 12 months, although this trend did worsen somewhat in the final quarter of the financial year.

Cost reduction measures continue to be implemented across the Group and management reported that operating cash flow has remained solid.

As expected management remains as up-beat as ever commenting that customer loyalty remains high and that are winning new business in all areas – clearly these new business wins are not sufficient to maske up for all the other losses!

The share price has suffered badly over the last few months (down 42% in 2009), clearly in anticipation of dreadful news, and actually got a small boost following the announcement, albeit on very small volume.

Of greatest concern to many will be the debt burden and it is disappointing to note that debt has increased, despite the ‘solid’ operating cash flow!

CHINA SHOTO (LON:CHNS) – amazing turnaround in ‘cash’ fortunes!

2009-04-28T17:56:00.001+01:00

The China based producer of industrial batteries and power supply systems, today announced its preliminary results for the year ended 31st December 2008 which came with a quite unexpected surprise.

The big increase in revenue of 70% to £183m was much as anticipated as was the increase in net profit of 79% to £10.07m. Diluted earnings per share were up 76% to 43.14p.

However, the big surprise for me from this China based business was the quite unexpected turnaround in cash generation. China based small caps have earned a reputation for poor cash management and credit control and China Shoto’s previous results implied that it too was going the same way as many of its China based peers. I acknowledge that a business whose turnover has risen over 800% over the past 4 years is bound to experience growing pains, however, there is no excuse for poor cash management in the current climate! The results from 2007 showed an operating profit of £8.5m yet an operating cash outflow of £2.1m.

Today’s 2008 results present a very different picture with operating profit of £14m converted into a net operating cash inflow of £40m – no I haven’t slipped a ‘0’ in there by mistake! This resulted in the group finishing the year with net cash of c£18m compared with the previous year end where there was net debt of c£12m.

Congratulations to management for clearly having made a concerted effort to improve credit control with debtor days having fallen from 57 to 69. Stock management also appears to have improved.

Unfortunately the cash turnaround is just so unexpected that I am having trouble believing it – that’s the cynic in me!

The final dividend for 2008 of 3.5p per share combined with the interim payout of 1.5p leaves the shares yielding just under 3% at the current share.

Bateman Litwin - settlement of Delta-T Litigation gets a massive 5 lines

2009-04-23T12:41:00.001+01:00

Bateman Litwin has announced that the litigation between it and the former owners of Delta-T Corporation ("Delta-T"), Bibb and Robert Swain, has been settled. The litigation related to the Swains’ sale to Bateman Litwin of the stock of Delta-T.

The announcement simply confirmed that the terms of the settlement are confidential and that the Bateman Litwin shares held by the Swains will be returned to the Company – that’s it!
Having paid a massive US$45m in cash and 11.8m in shares for Delta-T back in August 2007 and subsequently had to take an operating charge of US$8.5m and Goodwill impairment of U$8.3m all we get is a few lines and a return of 11.8m shares with a current value of £2.2m.

At the time of the deal back in August 2007 the Bateman Litwin share price was over 300p! It all sounds a bit too cushy to me.

Anyway let’s hope the new management can now draw a line in the sand and move on.

London Capital Group Holdings - AGM Statement has a mixed message

2009-04-22T17:12:00.001+01:00

The online spread betting company’s AGM statement opened with the encouraging news that key performance indicators for the first quarter were ahead of management expectations – clearly the key performance indicators in question were less important to investors than news of a fall in pre-tax profit which resulted in a 18% fall in share price!

Gross revenue for the Group is also ahead of last year but group profit before tax is down on last year as a result of an increase in costs (accelerated investment in new trading software and increased white label expenses) and less less volatile conditions in their main markets - we like lower volatility! The lower level of interest income also doesn’t help a business like LCG that is awash with client’s cash on deposit!

Average daily trade volumes have risen to 28,000 in the first quarter of 2009 (1st quarter 2008: 17,700), new client acquisition is well ahead of last year and has accelerated to over 2000 per month in the first quarter of 2009 (1st quarter 2008: 1000) and spread betting client funds on deposit have risen in the first quarter by 26% to £30.5m – unfortunately with interest rates well down they haven’t gained much from these.

Unlike it’s larger peer IG Group, LCG’s risk averse model also ensures that bad debts remain negligible.

Assuming the cost increase was a one off and introduction of new trading software is a positive move, it appears that the group should reap the rewards of the higher client numbers and new white label arrangements over the coming months!

Hunting - thoughts on the first significant acquisition

2009-04-22T12:04:00.000+01:00

Hunting has announced the acquisition of National Coupling Company Inc. ("NCC"), a leading developer and manufacturer of subsea hydraulic equipment, for an initial cash consideration of US$55m on completion and an additional US$5m to be paid after one year provided that certain financial performance targets are achieved.

NCC’s 2008 normalised profits before tax were US$4.6m with an EBITDA of US$6.5m. These are after adjusting for non-recurring items of US$3.1m. The net assets and gross assets of NCC at 31 December 2008 were US$15.6m and US$20.8m respectively. So seemingly not that cheap on a PER basis (just under 16x historic post tax earnings!) relative to current quoted valuations – cash rich, high margin Rotork trades at just under 14x 2008 numbers. NCC must have some good technology!

It is expected the acquisition will be earnings enhancing in 2009 – we estimate approx 1.6p of additional earnings per share in 2009, based on 8 month contribution from NCC.

Hunting had net cash of £372m at year end; allowing for the cash outflow following acquisition of NCC of US$55m (c£38m) and further Gibson sale proceeds received of £17.5m and allowing for a neutral cash position for the quarter results in net cash currently of approx £351m or c£2.68 per share. Stripping this out leaves the shares trading at approx 5.8x consensus estimates before the NCC acquisition or 5.4x assuming an enhancement of 1.6p to current year earnings.

There is a more comprehensive update note at http://www.investorschampion.com

ZENERGY - a positive announcement but how about some idea of potential monetary value?

2009-04-20T19:04:00.000+01:00

The AIM quoted superconductor energy company announced today that it has been contracted by ‘Con Edison’ to build and test a “Smart Grid” device for improving the stability and reliability of New York City’s electrical system. Pity they didn’t tell us more about it’s revenue generating potential or how much it will cost!

The so called Fault Current Limiter (`FCL’), instantly detects and absorbs spikes in power which may damage electrical equipment or cause partial or total power failures on an electrical network. Con Edison is a subsidiary of NYSE quoted Consolidated Edison, Inc. [NYSE: ED] so it’s a big vote of confidence from a big utility!

Zenergy expects to deliver the prototype by the end of August but frustratingly no details whatsoever were given with regard to revenue earning potential from this contract.

Con Edison has commented that Fault current limiters will be an essential element of the smart grid to maintain reliability and improve its resilience and flexibility, however, I assume there are other groups and not just Zenergy also involved in this field?

Power disruptions from faults and related issues are estimated by the U.S. Department of Energy (DOE) to cost the U.S. economy more that $100 billion per year – another big number, but what does this all mean in terms of revenue possibilities for Zenergy.

The recent announcement follows a previous announcement that Southern California Edison had installed Zenergy’s FCL in the grid in California, unfortunately there was no indication of revenue earning potential on this either.

I appreciate that this is all very early stage but I’m sure existing and prospective investors would like to gain a better understanding of the ultimate revenue generating potential from these contracts and in the absence of revenue how precisely they are being funded. There was an announcement in February stating how the U.S Department of Energy (`DOE’) is to provide additional funding from the initial US$800,000 to US$1,800,000 for Zenergy to extend its existing research and development agreement with Sandia National Laboratories. However, it’s not clear if this relates to today’s news.

Maybe I’m wrong but doesn’t ‘Zen’ refer to enlightenment?

Vertu Motors – there is life in motor retail

2009-04-17T10:41:00.000+01:00

Shares in AIM quoted Vertu Motors have staged somewhat of a recovery over the last weeks rising over 200% off their lows of 10p. Although this is nowhere near the meteoric rise in share price experienced by the likes of larger peers Pendragon and Inchcape it’s nonetheless encouraging given all the misery surrounding motor retail.

Vertu hasn’t really done much wrong since arriving on the market at the end of 2006 other than choosing a poor time to grow a motor retail group from scratch. However, at least financial markets were accommodating at the time enabling them to raise well in excess of the required funds; it’s just a pity they didn’t hold back a bit longer before going on the acquisition spree!
The group’s trading update on 5th March was actually quite promising, relatively that is! Same-store used car sales rose 12% on the year between September 2008 and January 2009 and the company announced that they would meet market expectations of pre-tax profit c£3m.

Unlike their larger heavily indebted peers Vertu has a relatively modest debt burden which should have fallen further over the second half of their financial year. At the interim stage net assets were £59m or around 64 pence per share. Admittedly this includes a good dollop of Goodwill of £18.6m, however, even after stripping out the Goodwill and taking a hatchet to the property and inventory values you are left with a group seemingly trading at a discount to written down tangible net asset value.

As the shares have tumbled over the last few months the Chief Exec has also been happy to add to his holding most recently acquiring a further 94,000 at 10.5p in December 2008 - he’s done well with that trade at least!

Northbridge Industrial Services – cracking news of contract win

2009-04-16T12:58:00.000+01:00

The AIM quoted industrial services and rental company announced that its wholly owned Middle East subsidiary has been awarded a rental contract to supply generators, transformers and associated equipment together with a maintenance agreement to the Jabali Zinc Project in Yemen. The good news never stops with this one!

The contract which is due to start in September 2009 has a minimum service period of 12 months and a minimum value of US $2.9 m. The customer and main contractor is the Jabal Salab Company (Yemen) Ltd whose majority shareholder is AIM quoted Zincox Resources Plc, a business Investor’s Champion issued a commentary on back in July 2008. Zincox was also the beneficiary of good news today having signed feed agreements for the supply of zinc bearing waste dust with the nine largest electric arc furnace operators in.

Having only setup in their new premises in the region in June 2008 this appears a highly encouraging contract win for Northbridge, a business with full year revenues of £15.7m in 2008. The group continues to perform admirably and if the good news continues they should surely start to benefit from increased interest.

Consensus estimates for 2009 are for earnings per share of 22.5p and dividend per share of 4.25p. At the current share price of 148p this leaves the shares trading at 6.5x current year estimates and yielding just under 3%. Following on from today’s announcement estimates are surely likely to be upgraded.

Dart Group - a positive trading update, but corporate governance issues remain!

2009-04-15T17:57:00.000+01:00

The pre-close trading update from Dart Group, the somewhat bizarrely structured low cost airline (Jet2.com) and distribution group (Fowler Welch-Coolchain) resulted in a steep rise in the share price. I have always considered this an interesting little company but one which leaves any analyst scratching their head.

Since the announcement of its interim results in December, the Group has continued to trade ahead of market (2 brokers cover!) expectations over the second half of the financial year with cash flow remaining strong and positive cash balances at year end – expectations are for £7m to £10m cash at year end. Full year results are now expected to be ahead of current market expectations (previously 10.2p per share), as a result of both the strong trading performance and one-off treasury gains, driven by the strength of the US dollar.

The driver of this has been Jet2.com which has apparently benefited from a cautious approach to its winter schedule, supplemented by a strong charter programme. Fowler Welch-Coolchain, performed in line. Jet.com also appears to have benefited from the collapse of airline XL, which led to some additional one-off flying.

All very positive and the shares do look cheap trading as they are at sub 5x current year estimates and sub 1x EV/EBITDA for the current year. However, the real issue with Dart is the dominating influence of the group’s Chief Executive, who also happens to be Executive Chairman, 40% shareholder and unfortunately somewaht reluctant shareholder communicator- why bother if you own 40%!

Given the hullabaloo surrounding corporate governance at the moment isn’t it time for Dart to appoint an independent Chairman and indeed other independent Directors. The board of this substantial business with revenues of over £400m currently consists of 2 Execs and 2 Non Execs!

I also remain unconvinced of the logic behind the 2 unconnected businesses sitting in a small AIM quoted group. Sector classification is bizarrely Industrial Transportation yet approximately 70% of revenue is from Aviation with the closest quoted peer probably Easyjet!

Each operating businesses would clearly be attractive to different acquirers yet any deal is almost solely dependent on one individual – it’s an interesting one!

Advanced Medical Solutions gets hit with some big abortive costs

2009-04-09T16:29:00.001+01:00

The risks of acquisitions for small caps! Poor old Advanced Medical Solutions (AIM:AMS) has announced that an acquisition opportunity that had reached an advanced stage of discussions has now terminated.

Unfortunately the costs relating to this aborted transaction are expected to be between £700,000 and £800,000 – wow, it would be nice to know how they reached this level!
The ‘exceptional cost’ my not be so exceptional if they experience another one of these!

It illustrates the risks attached to small caps seeking to grow by acquisition. Thankfully AMS had net funds of over £7. 3m at the year end so they can stomach this kind of blow, others can’t!

Norman Hay shows the way - confirmed yield of over 6% should be of interest

2009-04-09T14:06:00.000+01:00

AIM quoted Norman Hay (AIM:HNN) came out with a reassuring set of results for the year ending 31st December 2008 with pre-tax profits up to £2.4m (2007: £2.3m). However, of greater relevance was final dividend of 2p making the total for the full year 4p.

I acknowledge that the dividend is down on the 4.4p from 2007 but with a share price of 62.50p (up 5% on the day) it still represents a confirmed yield of over 6%, comfortably covered.
The results were boosted by foreign exchange gains and the sale of a freehold site.

The Balance Sheet looks in reasonably good shape with net assets of £11.8m and net gearing of only approx 13% (2207:12%). Stripping out intangibles of £2.9m leaves net tangible assets of approx £8.9m and broadly the same as the current market cap of £9.2m.

Cash generation could have been better with higher inventory a notable drain on working capital. The current ratio was 1.95 (2007:1.8x) and quick ratio 1.45x (2207:1.46x)
Business can’t be easy at the moment and the results statement confirms that economic weakness in the group’s main markets has significantly affected trading in the first quarter of this year. However, they expect trading to improve in the second quarter as some of their customers will need to re-stock.

The Non Exec (or at least his wife!) clearly thought the shares represented reasonable value acquiring a further 5,000 at 63p to add to the 264,000 he had already.

Jetion - an awful announcement this morning!

2009-04-09T10:43:00.000+01:00

They might produce high performance solar cells but communication is distinctly low performance – a further illustration of the risks associated with investing in the shares of China based small caps!

Having announced in January that they would meet market expectations Jetion has now issued a trading update stating that profit before tax is now expected to be reduced by approximately US$5 million and that profit before tax will be below market expectations - but not below US$20 million!

Despite the seemingly lowly valuation (c3x December 2008 numbers, haven’t a clue now for 2009!) management’s credibility is surely destroyed with today’s statement.
Management confirmed that the audited results for 2008 will show sales and gross profit in line with market expectations but as the audit has not actually been completed could further surprises await!

A sudden change of accounting policy relating to additional provisions against inventory and prepayments to suppliers has been the cause, but surely this was known!

Additional provisions against inventory and prepayments to suppliers at the year end total approximately US$3 million. Of this figure, US$1.8 million relates to prepayments to suppliers for silicon raw materials that, whilst paid for by the Company, have not yet been received post the year end. Does this mean that the suppliers in question have gone out of business?
How many more accounting adjustments can we anticipate?

Even the house broker agrees that management should not have made the January statement without knowing what the audited results would look like.

Taylor Wimpey - with a revised financing package in place how can you go wrong with this one?!

2009-04-08T12:20:00.000+01:00

Taylor Wimpey’s debt refinancing has come at a huge additional cost (c£60m) with loads of incentives to seek further equity to pay down debt sooner rather than later – I assume there are some equity holders out there that consider house building, at least in the form of Taylor Wimpey, has a future! Hopefully the latest round of exceptional write offs will have covered things and we are left with a more realistic picture of the current state of the business.

The shares have staged a decent recovery over the past few months rising off lows of 4.4p at the end of November to the current heady level of 43.50p facilitating the possibility of an attractively discounted Rights Issue. One thing is for sure, with these punitive finance costs they won’t be able to stomach that debt package for too long!

Yesterday’s announcement stated the group recorded an unaudited loss from continuing operations before tax and exceptional items of £74.7m and exceptional costs of a whopping £1,895m (one can assume/hope that was sufficiently prudent!), primarily relating to goodwill and other intangible asset impairment and land and work in progress write-downs.

More encouragingly and before the impact of previously committed land spend, the Group created £842m of positive operating cash flow in 2008. Unaudited tangible net assets per share at 31st December 2008 were 158p (c£1.7billion?), with the Group having 106,216 plots in its owned and controlled land bank – doesn’t that equate to a value of only approx £16,000 per plot?

Recent trading has been at the upper end of management’s expectations with net debt at approximately £1.57 billion on Friday 3rd April – so debt nicely in line with net assets!
After today’s little boost the shares are trading at an approximate 73% discount to net asset value and are sure to continue to attract a lot of interest from traders!

PLASTICS CAPITAL benefits from some ‘post Fred’ RBS generosity!

2009-04-03T17:20:00.000+01:00

The specialist plastics products group provided an update on an agreement reached with its bankers, Royal Bank of Scotland ("RBS"), in relation to the banking facilities that RBS currently provides to the Company.

Minor amendments to these facilities have been agreed in order to provide the Company with greater covenant and cash headroom over the next 12 months, as bank debt is repaid. Management commented that the costs associated with amending these facilities were not significant.

It must be an opportune moment to renegotiate with RBS. Having given Fred a wacking great pension in recognition for his contribution towards the biggest loss in UK corporate history it’s probably hard for them to justify charging a small UK engineering group an excessive renewal fee - wishful thinking perhaps?

Shares in Plastics have staged quite a recovery off their lows of 29.5p but remain some way off the float price.

SMALLBONE – another black mark for AIM

2009-03-03T17:43:00.001Z

Today’s announcement from Smallbone that the financial package announced less than a month ago would now not be sufficient certainly came as a surprise to me. After all, the eponymous Executive Chairman and Chief Executive (there's a lesson here!) only announced on 6th February that the committed financing package would provide ‘the flexibility to ensure that the Group can maintain its pre-eminent market position through these tough conditions’ and that he remained ‘confident in the Group's future performance in the longer term." You may well ask how long is long term, in the case of Smallbone it’s certainly less than a month!

Today’s announcement stated that due to a difficulty in forecasting future working capital commitments their life as an independent business is drawing to a close and they now need to be part of a larger group, with greater balance sheet strength – and new management?.

I am staggered at the turn of events.

It’s a mystery how they could have proceeded with the acquisition of Christopher Peacock Cabinetry in September 2008 (initial consideration US$8m cash and US$4.5m in equity at £1.11 per share - always unlucky!) when the slowdown was already upon us and cash probably tight?

How can they have underestimated their cash requirements to such an extent that a financing package arranged only 1month ago was now deemed inadequate?

Yet another black mark for AIM and a lesson for sellers never to accept shares at £1.11!

RWS gets a material tax boost and the shares…… fall

2009-02-20T18:21:00.001Z

RWS the AIM quoted provider of intellectual property support services came out with highly pleasing news that HMRC has agreed the Group's 2004 tax return. The outcome of this is the release of a £4.4 million tax provision and an increase in both pre and post tax profits of £4.4 million in the six months ending 31 March 2009.

With five years of uncertainty being resolved and shareholder funds materially enhanced one might have expected to see a positive reaction from the share price – wishful thinking, the shares actually dropped approximately 2%!

Never mind, the, shares have had a good run of late and clearly the £4.4m boost to 2009 profits is of little relevance, despite the fact this is equivalent to approx 30% of estimated 2009 pre-tax profit. (Consensus 2009 estimates £14.3m).

I acknowledge that this represents a non-cash gain but it is still a 12% boost to net assets and removes a potential restriction on the group's cash balances.

Indian Film Co - have the lunatics taken over the asylum?

2009-02-20T12:33:00.001Z

While one can sympathise with the falling share price in the current market, corporate governance issues now appear to be of greater concern at Indian Film Company.

A limited number of shareholders appear to have been given access to additional information. Given the financial scandals of the past few months wouldn’t it be nice for all shareholders to be privy to the same information!

Former dissident shareholders who were previously highly critical of senior board member Raghav Bahl, have suddenly altered their opinion and now acknowledge that ‘Raghav Bahl's contribution and the brand awareness of the Network 18 Group of companies that he controls, have made and continue to make important contributions to the Company and its business.' They had previously asked for his removal!

Former dissident shareholders have conveniently gained appointment to the board. One of them (Deepak Kumar Gupta) appears to hold a direct and beneficial interest in only 1.07% of the company’s shares yet is now overseeing the strategic review!

Both are from corporate finance/investment management backgrounds with no evident experience of the Indian film industry. We all know how well the financial engineers have performed over the past few months - is it now a case of the lunatics having taken over the asylum!

I find this extract from the recent RNS amusing:

‘Atul Setia, aged 42, is a partner at Altima Partners LLP ("Altima"), an investment manager. Over the last three years at Altima, Mr Setia has been focused on building relationships and specialised in India. ‘Building relationships’ – now that’s an achievement!

The statement of 30th January 2009 concludes that ‘The Board and IFCRG believe that the appointment of the two new non-executive directors together with the forthcoming strategic review shall help ensure the Company's successful prospects for the future.’

At the operating level the company appears to have been performing satisfactorily the share price has simply been caught up in the general stock market misery.

Net asset value at 30th September 2008 was £54.68 million or 99.42p per Ordinary Share. However, in this instance it’s probably unwise to rely too heavily on the support of net asset value. Net asset value of £54.8m is predominantly made up of £15.8m of ‘Exploitation rights’ and £25.4m of ‘Investments in films under production’. With regard to these the notes to the financial statements reveal the following:

The Company amortises film costs using the individual-film-forecast method. Under the individual-film-forecast method, such costs are amortised for each film in the ratio that current period revenue for such films bears to of remaining unrecognised management’s estimate ultimate revenue as at the beginning of the current fiscal year. Management regularly reviews and revises, where necessary, its total estimates on a film-by-film basis, which may result in a change in the rate of amortisation and/or a write down of the intangible asset to fair value. The amortisation charge is included under cost of sales in the Consolidated Income Statement.

The assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If any such indication of impairment exists, the Group makes an estimate of its recoverable amount.

i.e. net asset value is essentially determined by management estimates!
Net asset value calculations aside, it’s surely the time for full and frank communication to all shareholders!

Velsoi:lots of positive news but little response from the share price – I think I know why

2009-02-16T17:32:00.001Z

Hot on the heels of last week’s positive trading statement AIM listed Velosi has come out with another positive announcement. Despite all the encouraging noise unfortunately the share price remains rooted to its lows.

The group’s associate company, Velosi Oman which is 50% owned by Velosi, has been re-awarded a quality assurance, quality control and third party inspection services contract with Petroleum Development Oman ("PDO"). The new contract is worth an estimated US$30m and commences in June 2009, covering a period of four years. Velosi will provide quality assurance and quality control services throughout Oman, and third party inspection services on a global basis.

PDO is the major oil and gas exploration and production company in Oman, accounting for more than 80% of the country’s crude oil production and nearly all of its natural gas supply. PDO is owned by the Government of Oman (which has a 60% interest), the Shell Group (34%), Total (4%) and Partex (2%).

With all this positive news it’s surprising the share price hasn’t nudged up.

It’s easy to lay the blame at investor’s current dislike of micro caps (Velosi’s market cap is only £17m) combined with the group’s exposure to oil and gas markets which are proving less than appealing to many at the moment!

You can’t even blame a lack on broker support with both the house broker and another independent issuing coverage over the last few days.

In the case of Velosi its lack of investor appeal may also be down to the rather confusing nature of its activities, or at least the description of those activities. The group’s regulatory announcements are generally preceded by a brief description of its activities as the provision of ‘asset integrity and HSE services to a number of major national and multinational oil and gas companies’

I personally consider it difficult to ascertain exactly what is meant by ‘asset integrity management’ and I’m sure I am not alone in this respect. With a key investment mantra being to invest in what you understand it’s hardly helpful to Velosi’s investment appeal, especially during these demanding times.

Tanfield - news of Ford JV and shares mysteriously surge!

2009-02-12T23:24:00.001Z

News of the Ford JV, where there is little expectancy of short term profit, mysteriously resulted in a surging share price for Tanfield - but at least there are fewer liquidity problems with this AIM stock!

The recent trading update confirmed what most of us already knew, that trading conditions in the second half for Tanfield were difficult.

The year-end cash figure is £11.1m, down on the previous figure of c£13.3m on 31st October 2008. With £8m being collected in the weeks following the year end, cash balances at the end of January 2009 were £13.1m. There was also encouragement from the announcement of a JV with Ford, but more of that below!

Trading conditions in all markets remain challenging, with little visibility and reduced order intake. Given the restricted horizon of the order book, visibility for 2009, in line with peers, is limited according to management.

The better news is of the Smiths Electric Vehicles JV in the US with Ford, in which it will have a 49% stake – thankfully it won’t have to shell out any cash! Tanfield will work with Ford to introduce a battery-electric light van based on the European-designed Ford Transit Connect which goes on sale in North America this year.

It appears that Tanfield will be sole supplier to Ford for the Transit Connect rather than the motor group’s electric offering as a whole (it’s worth visiting the following link http://autoshows.ford.com/278/2009/02/11/ford-announces-transit-connect/ ).

The press release includes the statement:
‘As for Ford’s electrification strategy, this is merely the first step: by 2011, Ford will bring a battery-electric small car to North America, followed by next-generation hybrid and plug-in hybrid vehicles in 2012.’
Tanfield’s Smith Electric Vehicle division has been subcontracted to take care of the electric vehicle conversion production line i.e. it’s providing short run assembly for the initial test vehicles. I assume key components, such as the 50 Kw electric motor, will be brought in. The 40 Kw/hr iron-phosphate lithium-ion battery pack is apparently being supplied by Valence Technology.

The shares rocketed on the news which was somewhat mystifying given the long term nature of the Ford deal and the small number of vehicles involved - Tanfield will manufacture a limited number of electric Ford Transit Connect vehicles in North America during 2010.

Tanfield needs all the encouragement it can get in the current market and management confirmed that they remain debt-free, without banking covenants or interest costs and do not anticipate this changing in the short to mid-term.

Furthermore, at least Tanfield doesn’t have to suffer with the same poor liquidity as the majority of AIM companies. For a company of its small size (£36m market cap) the trading volumes are truly wondrous – for AIM at least - which naturally creates a different problem!

We have been hard on this one in the past, but that was simply down to the ridiculous rating assigned to the company by a few too many wacky shareholders/traders/speculators etc.

Oh dear, Healthcare Locums receives a dreaded gong!

2009-01-30T10:16:00.000Z

I see that Healthcare Locums has received a dreaded gong with former Chief Executive (now ‘promoted’ to Executive Vice Chairman) Kate Bleasdale winning the Entrepreneur of the Year prize at the recent Quoted Company Awards dinner.

I seem to remember that past awards winners from amongst AIM included Inter Link Foods and Torex Retail. These two companies clearly found the pressure of an AIM award too great a burden and were ultimately huge disappointments to shareholders. It’s also always slightly worrying to see the term ‘colourful’ used in the context of a group Chief Executive, or Executive Vice Chairman as she is now titled. An entrepreneurial market like AIM is bound to have an abundance of colourful characters. By contrast, the main market with larger more successful companies appears to possess fewer of them.

Let’s hope high flying Healthcare Locums doesn’t go the same way as those other former AIM stars and the Exec Vice Chairman becomes a little less colourful!

Redhall Group - Chieftain acquisition suddenly looks ill timed

2009-01-26T17:29:00.001Z

Following the cancellation of a material £9m contract, the timing of Redhall Group’s acquisition of Chieftain, the former AIM quoted engineering group, now looks questionable.

The contract awarded to Chieftain by Sea Dragon Offshore Ltd covered the fit out of a semi-sumersible oil rig and was planned for the second half of the financial year ending 30th September 2009. The loss costs Redhall £1m of operating profit.

Given the materiality of the contract and it significance in the current financial year it does beg the question how much due diligence was undertaken by Redhall prior to concluding the acquisition. The company is seeking legal advice with regard to possible compensation but this will unfortunately result in yet more fees and is surely unlikely to fully compensate.

Let’s hope there are no more skeletons in Chieftain’s contract cupboard!

INDIAN FILM COMPANY - Disgruntled shareholders haven’t actually elaborated on what they intend to do!

2009-01-19T12:07:00.001Z

I find it somewhat strange that the material shareholder (Altima Indian Master Fund) proposing the removal and replacement of 2 of the current Directors of the AIM quoted Indian Film Company hasn’t actually provided a full ‘formal’ explanation of reasons for suggesting this ‘drastic’ course of action. Altima has formed the IFC Requisition Group (‘IFCRG’) to engineer this, currently claiming the support of 32% of the shareholders.

The current board on the other hand has posted a circular to shareholders providing a full explanation as to why they don’t consider the rebel’s proposals to be in the best interests of the company and shareholders.

Altima has complained that the returns received by IFC have not materialised into returns for shareholders – welcome to the stock market of 2008/09 boys!

IFCRG plans a "review of the business, including an assessment of past performance and future strategy" if its resolutions are passed. Well that really tells us a lot!

The group only floated on 18th June 2007 with funds raised deployed over a period of 18 months. I would suggest there has been little time to properly assess trading performance. Furthermore, I can’t see what justification there is for the suggested appointments as the individuals concerned don’t appear to have any specialist knowledge of the industry.

I would agree that the board should come out with a detailed response to those financial queries but rather than simply make criticism of a general nature IFCRG’s position would be more credible if they put forward a detailed well supported proposal. The proposed removal of key board members would appear to justify this, at least!

Lots of activity at William Ransom

2009-01-15T17:54:00.002Z

I see that the Directors of Willaim Ransom are keen buyers of the group's shares with the Chief Exec purchasing a further 1,400,000 shares at 6.50 pence each taking his total holding up to 4.3m shares.

Other board members also bought.

After successfully seeing off the rebel shareholders and former board members let's hope they can now focus on putting the company straight.

Sale of Radian B for £3.4m was clearly important/essential for the future. I'm somewhat surprised the gross contribution (£0.75m) wasn't even greater.

Small cap brokers complaining about too many companies on AIM

2009-01-15T10:27:00.002Z

I note the recent article in the Daily Telegraph with the headline that 'Investors call for reform of AIM.

There were several comments from small cap brokers stating that too much money went into too many companies too fast;and who was responsible for this -the small cap brokers, who were happy to accept huge fees for raising paltry sums.

Surely it's the brokers that need reforming and not the market!
A cap on fees relative top sums raised would help

WEIR - broker's views conflicting but this is a high quality business

2009-01-14T22:40:00.003Z

Positive final quarter, benefits from the effects of a positive foreign currency translation notably from the strengthening of the US dollar against sterling.

Net debt at 31 December 2008 expected to be lower than the half year figure of £261.7m with operating cash flow generation and the proceeds from the sale of the Materials & Foundries businesses being partially offset by an adverse foreign currency translation effect.

A total of £625m of committed revolving credit facilities, expiring in 2011 in place.

Full year outlook for profit from continuing operations before tax, intangibles amortisation and exceptional items to increase to around £174m (from £170m)

Lots of conflicting opinion from analysts:

Dresdner Kleinwort cuts Weir Group (WEIR.LN) target price to 550p from 1100p.
Arbuthnot Securities upgrades Weir Group (WEIR.LN) to buy from neutral,
Weir is a survivor and a winner – Evolution
etc

Broker Daniel Stewart (‘DS’) is clearly keeping a close eye on things commenting that the number of active oil drilling rigs in the USA fell sharply (98 to 1,623 – that’s c6%) in the most recent survey by Baker Hughes, the US oil services company. Apparently the biggest week-on-week decline since the oil industry crisis in the mid 1980s bringing the fall to a total of 408 rigs (a 20% cut) since the peak of the market in early September 2008.
DS went on to say that the reduced activity will have an impact on SPM, the US-based manufacturer of high-pressure well service pumps and related flow control equipment which Weir acquired in June 2007 for £328m. It is the largest element of the group's Oil & Gas division, which they expect to produce just over one-third of the group's profits for 2008.

It’s obviously tough in the short term but WEIR is a high quality business.

At current price shares are trading at under 7x 2009 full year estimates, gearing c30%, yielding c5% covered over 2x.

Titan Europe - it's all kicking off again

2009-01-14T22:18:00.002Z

First it was the Directors, then engineering group Mefro Wheels now it's Titan Inc that has started topping up its holding in associate Titan Europe.

Surely someone is going to make some money on this one

Bond International - management must be tempted!

2009-01-13T14:47:00.004Z

The Specialist provider of software for the international recruitment and human resources industries cam out with a trading update year ending 31st Dec 2008

Deterioration in trading probably much as expected but deferral of key contracts disappointing.
Still expects to report revenues in excess of £31m for the year ending 31st Dec 2008 and an operating profit of not less than £5.4m. Consensus forecast was for pre-tax of £6.70m and revenue of £31.90m and eps of 14.90p. Operating profit guidance is pre amortization of intangibles. For the year ending 31st Dec 2007 operating profit was stated before net finance costs of £140k. Zero debt so finance costs in the current year are assumed to be irrelevant. Effective tax rate for 2007 was c29%.

Looks like eps is now going to be c8p.The board intends to pay an unchanged dividend of 1.6p which is very welcome. Outlook statement reasonably positive (in the circumstances); high level of recurring income across all divisions, has good order books and sales prospects and continues to take orders at an encouraging rate. Steps taken to reduce operating costs and remains leader in sector.

Nice little business, recurring revenue c50% of total (interim stage) and excellent cash generation (c100% + op profit). Operating margin has been steadily declining due to changed sales model (when will the benefits come through?)

Net asset value at interim stage was £34m, includes Goodwill of £14.3m

Given cash generation one can assume that management will be considering other options away from the market? Others out there must feel the same as shares were up 20% after this profit warning!

Share plc; one week on AIM and the valuation looks even more wacky

2008-05-26T19:48:00.001+01:00

Share plc got off to a flying start on AIM with its shares up 18%.

The suggested valuation pre-float looked somewhat wacky (to say the least!) but the current price, relative to peers and with due regard to the current investment climate, surely now looks even more bizarre.

At the current share price of 32.50p the shares are now trading at approximately 30x December 2008 estimated earnings, approximately 27x December 2009 estimates and yield a lowly 0.60%. At the current market capitalization of £52m the value equates to 4.25x top line projected revenue.

The valuation suggests high growth potential yet revenue only grew 10% from 2006 to 2007 (a boom period for share trading) and is only forecast to grow 4% from 2007 to 2008 and 13% from 2008 to 2009.

Main market listed Brewin Dolphin, market cap £248m had turnover for the year ending 30th September 2007 of £198m, indeed boosted by corporate finance revenue, and the shares are currently trading at c8.8x September 2008 estimates and yield 6%. Main market listed Charles Stanley, market cap £100m, had turnover for the year ending March 2007 of £98m, again boosted by corporate finance activity and the shares are trading at 7.6x March 2008 estimates. Even allowing for a big fall in corporate finance revenue and a huge drop in investor confidence Brewin (and to a lesser extent Charles Stanley) still boasts a huge book of discretionary clients and a decent stream of recurring revenue. As at 31st December 2007 Brewin had £11.1 billion discretionary funds out of a total of £21.6 billion and generated investment management fee income for the quarter ended 31st December 2007 of £47.1m out of total income of £52 million.

In the current climate it’s a mystery to me how the entire sector of investment management/stock broker businesses can be so lowly rated relative to a single small AIM quoted stock broker with very similar business dynamics that has such measly growth potential – the inefficiency of the market!

WILLIAM RANSOM - The Champion gets it spot on

2007-12-12T17:28:00.001Z

Following on from last week’s news of a product recall (Investor’s Champion, 7th Dec 2007, ‘It’s a bad announcement but perhaps not as bad as all that and a business that’s been around for over 100 years with some decent products and great cash generation definitely justifies some attention!’) William Ransom, the UK’s oldest pharmaceutical company, well and truly silenced the critics this week.

The Medicine and Healthcare products Regulatory Agency (‘MHRA’) has now concluded that a voluntary recall of all products containing purified water from the Company's pharmaceutical contract manufacturing facility at Witham, Essex is no longer required. As a result, the Company's brands Radian, Valderma and Pavacol are not subject to recall.

The group has also learned that the MHRA is close to concluding its review of all of the other products manufactured using purified water at the facility and it is expected that a significant majority of these products will not be subject to recall.

The MHRA will also commit to an early re-inspection of the facility with a view to re-instating the Manufacturer's Licence well within the three month deadline originally imposed.

Following this news The Champion feels it is highly appropriate to repeat the closing statement made in Friday’s commentary:

‘Who knows, come next week the good old MHRA may have been swayed by scientific evidence that no threat is posed to the public by the company’s failures and therefore they shouldn’t be punished as severely as is currently the case. Watch those shares move if this happens.

Furthermore, there is a strong likelihood that the insurance policy might pick up the tab for some of the problems.

Definitely worth looking at!’

Picture the scene of The Champion revelling in this short term success!

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

2007-11-06T21:55:00.000Z

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?

2007-11-01T22:30:00.001Z

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!

2007-11-01T22:19:00.000Z

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

LEADCOM INTREGRATED SOLUTIONS (AIM:LEAD)Mkt cap c£75m
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!

2007-11-01T18:22:00.000Z

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!!!!!

BROKER NETWORK (AIM:BNH)– a classic case of where boring is best and where it’s best to ignore short term price dips that arise for no apparent reason

2007-10-12T17:33:00.000+01:00

Broker Network, the general insurance brokers and insurance network provider and a company I visited in Harrogate back on Wednesday 2nd March 2005 (share price 114p, market cap c£16m) has received a takeover approach this week .

Following my initial review the shares fell as low as 85p in October 2005 causing me to question the wisdom of that early enthusiasm. However, the fundamental story remained very strong, the valuation looked fair (it hasn’t looked quite so attractive of late!) and management delivered the goods time after time.

It seems to present an excellent example of how it is best to ignore short term share price falls that have arisen for no apparent fundamental reason, other than short term traders running for cover, and concentrate on the key fundamentals. Management, notably Chief Exec Grant Ellis, have done a great job building the network and mopping up some quality general insurance brokers along the way. It’s also a business in the sort of sector (insurance broking isn’t something to get the pulse racing!) that most high growth investors would avoid like the plague – 400% in two and a half years doesn’t sound too bad!

Following the news the shares have risen a further 8% to 512p with some now talking it up as high as 575p. I was beginning to get concerned that the price was starting to look a bit rich but clearly others are thinking differently.

Broker Network has been a popular stock with many of the IHT planning portfolios so keep on eye out for some very happy mature citizens this weekend!

Darling Man’s proposed tax changes and thoughts for AIM – in short, I see the classic Labour back track on the horizon

2007-10-12T11:41:00.000+01:00

The Investor’s Champion’s view on the Darling’ Man’s proposed tax changes and the impact on AIM – in short, we see the classic Labour back track on the horizon!

It’s hardly worth mentioning the so called increase in the IHT threshold – most estates of value will already be benefiting from £600,000 through basic Will planning so that was a classic Labour fudge!

What is of more interest currently is the proposed abolition of accelerated taper relief on capital gains tax and the thought that management of AIM companies with holding a material number of shares might be tempted to sell some of their shares before April 5th. Once the proposed rules change they will be paying tax of 18% as opposed to 10%.

I can’t see this happening, at least not in any size, and outline my thoughts below. Furthermore, I actually think the Darling man could tone down the proposals, however, even if this doesn’t happen let’s have a logical look at things.

Mr Blogs (sorry to all you Blogs’ out there, but I had to choose someone!) the high flying Chief Exec of AIM Company with a material stake in the business could be attracted to sell a good chunk of his shares to make an 8% tax saving (18% vs 10% currently).

- Looking for the home run

If Mr Blogs is a material shareholder in the AIM company and has been working like a dog (strange phrase as my dog has no intention of ever working!) to grow the business he will be focused on the end game, the big exit, ‘Blogs acquired by Google’, or something on those lines! Why sell when there might be big riches in the future! If he does decide to sell the potential in the business suddenly doesn’t look that attractive, so other shareholders will be inclined to get out as well (they’d be mad not to) with the result that the share price drops like a stone. In trying to save a paltry 8% tax Mr Blogs will see his wealth actually decline a great deal more.

- Lack of liquidity comes to the rescue for once

It’s virtually impossible for material shareholders of small AIM companies to sell their stakes in the market without other shareholders becoming very upset. Mr Blogs will be forced to have a chat with the company’s broker who will go out looking for some nice friendly institutions willing to buy his material stake. Nice and friendly aren’t actually two words that come to mind in this instance, as the institutions will know full well what’s going on and once again that 8% tax saving will disappear as soon as you can say ‘Not tonight, Darling’.

- Large institutions are restricted in their AIM exposure

Many of the large institutions are governed by the house rules which often prevent them holding too large a percentage in AIM quoted companies, so don’t think they’ll come to rescue and be able to load up.

The private equity boys might be the best game in town though they will strike a very hard bargain that probably won’t be of much interest to Mr Blogs.

- A contrarian consideration

The best course of action could be for Mr Blogs to hold tight and, if he thinks the business is looking good, actually go on the offensive and acquire a few more shares. As business gets better and better and the cash starts building up, Mr Blogs might push for the dividend to be materially increased, drip feeding small chunks back to him. Finally with all that lovely cash, increasing market share etc, Google and the private equity boys see something of real value and come in with the big one – picture vision of Mr Blogs in striped trunks sitting on his yacht!

- Big losers

In short, I believe that if senior management of AIM companies initiate material sales of shares held in their companies the share price of the company will fall off a cliff (another euphemism for you to enjoy), and they will be the biggest losers. Furthermore, it will also be a good indication that the shares aren’t of much interest anyway.

As is always the case, good companies will rise and the poor will be found out sooner rather than later. Investing in AIM should be all about investing for growth and tax benefits are simply there as an added bonus.

- Overseas companies and management suddenly look more attractive.

It’s also worth remembering that the proposed tax changes only impact UK tax payers. As an added hedge, AIM investors may therefore be more inclined to look at overseas AIM companies or those companies where senior management aren’t UK tax payers. I can’t see Mr Wong (apologies as well to any Wongs out there!) in China getting upset about tax changes in the UK.

- So here’s the trade

SELL SHORT

Poorly performing, cash absorbing AIM companies, whose shares look grossly over valued (and over hyped) and where management have been selling down their holdings.

BUY LONG

Profitable, cash generative, high growth AIM companies where management have been buying shares or where management holding a material number of shares aren’t UK tax payers – there aren’t that many of the latter!

…..but that’s what investors should be doing anyway!

DEBTMATTERS - is it the beginning of the end or simply the end of the beginning?

2007-10-01T23:57:00.000+01:00

Debtmatters’ trading statement painted a fairly gloomy picture on the group’s IVA business while the market appeared to paint a gloomy picture on the future of the business as a whole.

IVA case acquisition costs have risen sharply in the face of rising competition and IVA conversion rates have worsened due to hardening creditor attitudes which have impacted on margins – in short, the banks didn’t like the IVA boys making too much money so they have started to apply a little extra pressure!

During September (that was only last week!) Debtmatters started to see certain creditors seeking to modify IVA proposals such that on Debtmatters' cases, average nominee and supervisory fees would be reduced. The impact of these additional changes on the IVA business means that should these fee modifications become the norm then Debtmatters would not be able to deliver IVAs profitably i.e. Debtmatters’ IVA business doesn’t appear to have a future.

The group has therefore decided to suspend all direct advertising on TV, radio and through the press and the IVA division will be scaled back, with staff being redeployed into other areas of the business as appropriate. At least they have acted quickly!

However, is it really as bad as the 72% fall in share price and resulting market cap of sub £5m now suggests. Here are some thoughts.

In theory they could simply shut the door on new IVA business, leave the market to others (and my word there is certainly a market out there!) and simply collect fees from those existing IVAs they are currently administering.

As at 31st March 2007 Trade and other receivables were £15.3m. Ignoring business between then and now and even allowing for a whopping 25% default rate which would effectively write off c£3.75m from the debtor book it still leaves c£11.5m to come in over the next few years.

Having raised c£3m in July 2007 debt levels should be at more manageable levels; assuming they haven’t sunk too much into the Debt management business.

For the 9 month period since acquisition to 31st March 2007 the Loanmakers business added £11.8m to group turnover and £2.1m to group profit before tax. The house broker estimates that the Loanmakers business will bring in EBITDA of c£3.5m for the full year.

The Loanmakers business was acquired for an initial consideration of £10m cash, back in June 2006 plus up to £9m of earn out.

Ges Ratcliffe the Chief Exec subscribed for 686,030 shares at 113p (with the shares at now at 18p, that’s a bit of a short term hit! Alright, he’s not exactly short of a bob or two having already made a bit of money when he placed 6 million shares at 330 p / share back in June 2006

The debt management business has some promise but is in its infancy and they’ve only got one client as far as I know. So not a lot for the short term here.

Finance costs for the full year ended 31st March 2007 were £450,000 and amortisation costs were c£250,000.

You’ve got that troublesome short seller whose also been playing around. No doubt he’ll be back in there buying at some stage and conveniently forget to tell anybody.

It still looks like there’s a lot to play for.

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

2007-09-27T22:53:00.000+01:00

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?

2007-09-25T22:25:00.000+01:00

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?

2007-09-19T22:32:00.001+01:00

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

2007-09-04T14:19:00.000+01:00

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.

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

2007-08-30T19:01:00.000+01:00

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

2007-08-22T21:41:00.000+01:00

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

2007-08-16T19:20:00.000+01:00

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

2007-08-14T18:24:00.000+01:00

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

2007-08-08T23:02:00.000+01:00

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)

2007-08-08T22:58:00.000+01:00

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!

2007-08-07T22:55:00.001+01:00

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

2007-08-07T22:41:00.000+01:00

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

2007-08-07T21:48:00.000+01:00

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!

City of London PR - Public Relations Company or Investment Company?

2007-07-24T23:18:00.000+01:00

Someone recently asked me to take a quick look at City of London PR (not to confused with the other City of London Investment Group-which is an emerging market investment manager). The name suggests that this is a Public Relations business but names can be deceiving.

I quickly discovered that City of London PR is in fact an investment company rather than an operating one with the Public Relations subsidiary a relatively immaterial element of the current business.

Browsing through the results for the year ended 31st March 2007 reveals that the PR subsidiary made a pre-tax profit of £106,132 on sales of £326,193 and is only anticipating ‘some’ improvement in the year ahead.

It appears that management would like to turn City of London PR into a specialist fund management business, having already been in discussions with a team of fund managers.

Realised profits for the year on disposal of a portfolio of investments were £673,000.

At the year end the group balance sheet shows financial assets of £5.1m, cash of £2.5m and a net asset value of £7.5m (net current liabilities were £100,000). The investments comprise a number of higher yielding securities but more importantly a large number of small mining stocks some of which appear to be unquoted.

With the share price currently standing at 80p (it was 96p went I started writing this) the current market capitalisation of £7.658m is a small premium to the net asset value at 31st March. As the group is currently structured as an investment company I would have assumed that the share price should in theory be moving in line with that of the investment portfolio. If anything, given the mix of the investments indicated in the annual report (smaller less liquid shares with a few higher yielding issues) I would have expected the shares to be trading at a discount (rather than premium) to the net asset value.

A quick (very) review of the largest investment holdings listed at 31st March 2007 reveals that the share prices of many of these have fallen post March 2007. For example the largest holding at 31st March 2007 was in shares of Prime People (value £528,000) and the share price of this appears to have fallen c6% since the year end. Other large holdings included shares in Tertiary Minerals which have fallen 17%, HBOS Irr Prefs which have fallen c6% and BAESystems Con Prefs which are down 21%. Shares in Tullow Oil, a £255,000 position at 31st March, are up 43% which helps. However, it’s obviously impossible to tell which holdings they have sold so this little review may not mean very much.

If £2.5m remained in cash this will clearly be further drag on investment performance in the short term.

They are due to receive a final royalty payment of from Iron Mountain in respect of the purchase of one of their investments which will help, however, I assume this will only be c$500,000, in line with previous payments.

The group’s operating costs for managing the currently portfolio of £7.5m in size are obviously very high. In simple terms they could sub-contract the management of the investment portfolio to another specialist fund management firm and it would only cost them (at worst) £150,000 per annum (c2% of assets under management).

They clearly need to do something about things hence the search for an investment management business, although I am a little mystified why they aren’t trying to grow the public relations bit as they have experience in this area and it's not a bad old sector to be in at the moment. I think they’ll have a tough job establishing a hedge fund management business as any decent hedge fund managers surely won't be interested in this type of structure.

Mobile Doctors – could this be the start of an IVA like trend (Remember the IVA providers were big winners in the early days)

2007-07-24T22:52:00.000+01:00

I see that Mobile Doctors, a provider of medical reports to support personal injury insurance claims, intends to float on AIM via a reverse into an unlisted cash shell Petsome; no money is being raised on flotation.

Apparently this is yet another industry that is ripe for consolidation (find me one that isn’t) and Mobile Doctors intends to be the consolidator.

Mobile doctors suffered from exposure to the demise of certain “no win, no fee” claims managers between 2002-2004, however, 'industry dynamics' (I love that term) are apparently now stable.

Until recently, the liability for the payment of medico-legal reports was disputed by the insurance industry. However, a 2006 judgement in a case supported by Mobile Doctors (Woollard v Fowler) was favourable for the company and for the medico-legal reporting industry. This judgement determined that the liability for bearing the cost of medical reports required for personal injury claims rests with the insurance companies (poor old insurance companies forking out again!). This judgement underwrites the future of the medico-legal reporting industry but could there be challenges in the future?

Further discussions between the major players in the insurance and medico-legal reporting industries respectively were concluded in May 2007 with an agreed fee structure-agreed fee structures, ring a bell!

There isn’t anything like Mobile Doctors on the market at the moment so peer group comparison is tough. The broker points to a a valuation range of £8.1-12.2m with a mid point valuation of around £10.2m for 10.0x 2008 estimates. Sounds quite a high opening gambit to me but this sector is a mystery to me so what do I know.

Given the early excitement generated by the IVA providers this might be one to watch. I also sense a few fund raisings in the offing if Mobile Doctors gets stuck into the consolidation bit.

Good luck to Mobile Doctors.

Jetion- Investor's Champion note

2007-07-24T22:00:00.000+01:00

We have written one of our usual Investor's Champion notes on the Jetion issue. If anyone would like to receive this please let me know by posting a comment with your email address.

Carter and Carter - I thought there might be a short term trade in there

2007-07-17T16:52:00.001+01:00

Having only mentioned on Friday that shares in Carter & Carter could look a bit of a steal (group’s market capitalisation had slumped to £21m at the time) I see that some adventurous souls (I'm not one of them I hasten to add) have indeed jumped in pushing the shares up nearly 50% over the lsast couple of days.

I can't wait for the next batch of news on this one-it's anyone's game at the moment!

Plant Offshore Group - an amazing start to life on AIM, which is a bit of a mystery to me!

2007-07-13T23:28:00.000+01:00

The meteoric rise in the share price of Plant Offshore Group (POGL) this week is a bit of a mystery to me. You could say it’s sour grapes as I had an opportunity to participate in the IPO but didn’t take it up-it was a valuation thing!

The group floated at 12p at the beginning the week and at the close today they were trading at c19p-quite a return! Volumes weren’t great but it’s the perception.

POGL originally wanted to raise £2.6m at a prospective Price Earnings ratio of approximately 12 times (2007 estimates), giving them an initial post-IPO market capitalisation of about £21.5m. It now stands at £32m so assuming the estimates remain as they were it stands on nearly 18x 2007 estimates and c15x 2008 estimates.

Perhaps I am missing something and further contracts have been nailed in the interim, however, they still have to deliver on these. The contract award is surely only a small part of the jigsaw, just ask Global Marine!

Despite this (and my sour grapes!) I’m still not sure why a Malaysian company, with Malay clients needs to come to AIM to raise a paltry £2.6m. But we do seem to see this time and time again.

The numbers look compelling but the suggested valuation just doesn’t stack up for me as it is based on a huge step change in the business from 2005 to 2006. There are obviously some massive operational risks with regard to this and one should allow for the potential of a hiccup or two, especially with a small group who has never undertaken work of this magnitude.

The balance sheet at 31st December 2006 indicated shareholders funds of £2.77m, net current assets of £2.38m (including cash of £1.78m) and Long Term Liabilities of £580,000-well we aren’t investing for balance sheet strength but it could be worse.

Net cash generated from operations in 2006 was £1.59m (vs Operating profit of c£0.8m) which appears a little too good to be true.

The peer group comparison for this £21m company (at least it was back then) was made against (amongst others) Abbot Group (Mkt cap c£670m), Expro International (Mkt cap c£1bn), Petrofac £1.6bn), John Wood Group (£1.6bn) and arrives at an average 2008 PER of 15.8x.

A more appropriate comparison would surely have been with AIM quoted (and UK based) Sovereign Oilfield Group (AIM:SOGP) Mkt cap c£25m and trading c13x 2008 estimates and UK based Chieftain Group (AIM:CFT) Mkt cap c£17m c13x 2008 estimates.

It’s an exciting opportunity to get in at the start in a business that would appear to have a potentially thrilling future across 2 booming sectors. It has proved that it can deliver on minor projects and has successfully won big contracts on foreign soil in Quatar and Indonesia which is good going.

BUT

It’s a Malaysian business that’s a total unknown in the UK-RISK = Discount
Management are not known in the UK – RISK = Discount
There is a projected huge uplift in turnover in 2007-RISK = Discount
The major contract for 2007 is the largest of its kind for the group-RISK = Discount.
One major contract and one client dominates in 2007-RISK = Discount.
There is foreign exchange risk for the UK investor-RISK = Discount.
Peer group valuation comparison isn’t comparable-RISK = Discount
Illiquid-RISK = Discount

Taking a prudent view on 2007 estimates one can cut back the profit c£1m. Given the huge step change I think one also has to look at what they have achieved to date.

Conjecture
So I was wrong-BIG time.

Good luck to Plant Offshore!

GEONG INTERNATIONAL - A nice announcement to finish the week

2007-07-13T23:00:00.000+01:00

One of my recent favourites, Geong International, the Beijing based provider of enterprise content management software, announced that it has signed a contract with Shanghai General Motors worth US$880,000.

The contract, which was won in partnership with Oracle China (nice partner!), is to deliver the fourth phase of SGM’s Dealer Management System (DMS) which is based upon GEONG PortalAgeTM infrastructure that GEONG originally designed and installed in 2005.

At first glance this sounds quite good to me. Geong’s full year turnover to March 2007 was US$8,112m and the broker’s estimate for 2008 was US$11.4m. So, unless I am mistaken US$880,000 appears to represent quite positive news!

I hope they can keep things going

Carter and Carter - many clearly think there are some major financing problems on the horizon

2007-07-13T22:54:00.000+01:00

Carter and Carter hit the headlines again today after issuing a profit warning
Since the tragic death of the group’s founder Phillip Carter and his son in May the affairs of the company have gone from bad to worse.

Today it announced that it had been unsuccessful in its tenders for Phase 1 of Pathways To Work with the result that the group's adjusted profit before tax for the year ending 31 July 2007 will be in the order of £10.5m. The shares slumped c80%!

With the group’s market capitalisation standing at £21m at the close of play today you could be forgiven for thinking that the shares now look a bit of a steal. However, it’s the debt that’s worrying! At 31 January 2007 the Group's net debt was £85.9m and it has made several more cash acquisitions since then. I’m not sure today’s 80% share price fall is actually accurate (trying picking up a good chunk at this level!), however, a dramatic fall of even half this level surely still implies that many out there think something more sinister is afoot.

The group is also in the process of renegotiating its bank facilities to reflect the revised expectations and the outcome of this will be key.

The exceptionally strong tendering pipeline referred to in the interim results doesn’t look quite so strong now!

Anyway, surely it’s all immaterial relative to the sad event in May

Jetion - it could have got off to a better start but at least I know what it means!

2007-07-11T23:51:00.000+01:00

My shares in Jetion could have got off to better start but thanks to one of our clients at last I know what it means!

Apparently the name "Jetion" comes from the company's Chinese name "Jun Xin" (浚鑫 in Chinese) where "Xin" in Chinese is pronounced roughly as "-tion" or "-sion" in English, as in "action" or "vision".

I'm none the wiser as to the share price lethargy but thankfully know a little more about the name-so, overall I consider that I'm in profit, which can't be bad!

Bramdean Alternatives-I said it was a big ask!

2007-07-10T22:55:00.000+01:00

I see that the Bramdean Alternatives float managed to get away, however, rather than raising the desired £250m only £131m was raised.

So I was correct when I said that £250m was a big ask in the current market, however, although £131m is substantially less than originally sought given all the IPO activity at the moment I actually think it's quite an achievement.

GLOBAL MARINE ENERGY – another nightmare for shareholders

2007-07-10T00:05:00.000+01:00

Global Marine Energy the specialist crane manufacturers, notably for oil installations have announced that ‘in preparation for the audit of the results for the year ended 31 March 2007, it has emerged that it is likely that the results will be materially worse than the Board's expectations’. Management are apparently now asking ‘the group’s advisors to urgently review the results and the group's resultant future funding requirements’.

I’m not exactly sure what more the advisers can do over and above management. Weren’t the latter group supposed to be running things and have an in depth knowledge of the group's funding requirements?

I think it means that the poor old advisers (ok, not that poor!) will have to try and rustle up a few more funds to keep this business going.

Furthermore, it appears that we are now to conclude that up to now the management actually had no idea what the real numbers were?

The shares fell c36% today which actually sounds quite mild given the disappointments of the past. I suspect that many think GME’s claimed order book will encourage a white knight approach.

Fast on the heels of the Torex debacle this looks like another AIM nightmare.
Thankfully I avoided this one. For me, it was another case of being put off by another one of those flashy tie wearers-there’s a theme starting to develop here! Much like an early accountancy school lesson of avoiding those companies run by Chairmen driving Rollers and with fountains in the entrance I think one can also add Chairman wearing flashy ties to the list!

ACM SHIPPING GROUP - great numbers and please forget about the currency issues-this is a shipping broker!

2007-07-04T22:08:00.000+01:00

Forget about currency translation issues, the group came out with great numbers. Furthermore, who on earth invests in a ship brokerage business if they are worried about US$ currency issues!

ACM Shipping Group recently reported full year results for the period to 31/3/07. At the earnings per share level they were 10% below the house broker’s expectations, however, the difference is fully explained by the weaker US$. The currency impact is purely translational and nothing to do with the strength in the underlying business with a strong performance from all divisions.

Some have spoken about the group’s need to hedge its currency exposure but will this alter its rating or perception in the City-I think not! After all, surely you shouldn’t contemplate investing in a ship broking business whose whole business is US$ based if you are in the slightest worried about US$ exposure.

The currency issue is transitory. ACM earns revenues in US$ but its costs are in GBP. There is clearly a downside to earnings as US$ weakens but the opposite occurs when it strengthens. The impact is purely translational not transactional so there is no loss of competitiveness.

US currency issues aside ACM hasn’t really put a foot wrong since coming to AIM. Furthermore, it’s a joy to behold the ACM presentation team at work. In one corner you have die hard, passionate, shipping broker CEO John Plumbe, in the other smooth City operator Chairman Peter Sechiari, ably supported in the wings by new boy FD John Hartley who probably welcomes the change after nursing Mayborn through its sale.

John’s, tell as it is, free speaking approach at analyst meetings is certainly a breath of fresh air in the stuffy old City!

WORTHINGTON NICHOLLS-as expected, the old contract slippage problem creeps in!

2007-07-03T22:37:00.000+01:00

So all the acquisitions can’t hide the fact that the promised contracts haven’t come through as expected!

First half pre-tax losses were £0.3m, as a result of contract slippage into the second half-could it be a sign of contract disappearance!

The house broker argues that the group stands on a compelling valuation despite being at a substantial premium to sector peers with a 2008 PER of 16.4x vs 14.2x. There might be great growth potential but they need to deliver and not merely though acquisitions. What about those peers that have delivered!

Jetion-I hope the sun shines on this cracking solar play

2007-07-03T22:32:00.000+01:00

Well, I’ve made a big commitment to the Jetion IPO.

Jetion (I don’t know what it means) is a China based manufacturer of solar cells & modules and is one of the few green plays to have captured my attention (not necessarily a good thing!).

I’ve really had enough of all these fuel cell offerings so it’s a pleasant to come across something that is making money!

The business is already profitable in its second year of operation which is a great achievement and a good sign of things to come.

The business case is largely an industry argument and it’s an industry which has strong demand characteristics. Jetion’s competitive position is based on superior cell efficiency at 16.5% versus industry standard of 15-16%. It’s a small competitive position but at least it has one!

The industry is dominated by Chinese producers as cost control is so vital in an expensive product (US$7000/KW) so don’t bother looking elsewhere for your core solar exposure.

Industry growth is driven by demand for renewable energy source and government subsidies. The main markets are currently Germany, Japan and California – all of which have a renewable resource policy and heavy subsidies. The current environment looks unlikely to change although one would assume that eventually there will be rapid price deflation. However, this industry is still at an embryonic stage so it’s not something to worry about in the short term. Unlike other trendy renewable sectors (fuel cells come to mind again!) this industry is also profitable and producing actual product.

Our research suggests there are approximately 24 other Chinese solar cell suppliers. There are about 8 listed in Europe or NASDAQ and the closest competitors are Suntech Power (NYSE) and JA Solar (NASDAQ). The sector has generally performed well.

There is obviously an extreme gross margin sensitivity to input prices, however, the doubling of silicon prices in the last 2 years has been entirely passed on to customers as demand is so strong. Silicon prices are expected to come down as new refining capacity is coming on stream.

Market demand is obviously spurred by government subsidies and the removal of these would make the economics questionable, however, in the short term there is no sign this may happen although there may be a crunch in 3-4 years as governments expect unit costs to fall and start reducing subsidies.

The valuation of other quoted solar cell manufacturers implies a PE ratio of 20x in 2008 (or 14-15x for the smaller players) whereas Jetion is being priced on 12.2x 2008 estimates. The valuation therefore looks attractive although a small company, AIM, new boy, discount is clearly applicable.

Management really looks up for it. Dipesh Shah built BP Solar into one of the world biggest players and Roger Gai (CEO) was on the board of Suntech.

Jetion has secured its equipment & silicon supply to enable the expansion to 100MW and beyond.

It would be nice to know a bit more about the founder and I’m still not sure why a business of this size needs to come to AIM, but otherwise it looks a great story lets hope it can deliver on all that promise.

Not that it matters to the share price (at least I hope not) but I would like to know what Jetion means!

Braveheart-patience rather than bravery is probably needed by investors!

2007-07-03T22:25:00.000+01:00

I met the management of Braveheart Investment Group recently the technology commercialisation and investment management group which has a decent track record built up since 1997 of delivering attractive returns to investors by making investments in companies which commercialise intellectual property. Braveheart has established relationshiops with several universities and is well placed to benefit from the boffin’s endeavours.

The model looks interesting although with the shares now trading at 154p, having floated in March at 160p, investors seem less interested. I can sympathise with them as it’s hard to get excited about a business that has a host of investments, one (or two) of which might, just might, prove to be a huge successes!

It looks like one of those investments to lock away in a drawer (electronically speaking) and forget about for a few years. So probably one for the patient and not the brave!

Murgitroyd - could history be repeating itself?

2007-07-02T21:30:00.000+01:00

I recently attended a meeting with Murgitroyd, the AIM quoted patent attorney. From a fundamental point of view, this company appears to tick all of the right boxes. Profit before tax is growing year-on-year and has doubled over the past two years through a mix of organic growth (that's refreshing) and acquisitions.

There continues to be strong demand for the group's services with European Patent Office filings up 7% in 2006 and trade mark filings up 20%.

Murgitroyd's share price chart (not something I generally worry too much about!)makes interesting reading. In each of the past 4 years, the stock has rallied sharply in the days and weeks leading up to their results announcement (generally in early September) following a previous period of weakness.

Could history be repeating itself and more importantly does it really matter?

Short term chart issues notwithstanding, AIM's only patent attorney looks quite an interesting investment proposition.

Bramdean Alternatives - £250m sounds like a big ask!

2007-06-25T23:09:00.000+01:00

I see that Bramdean Alternatives, a fund of funds vehicle established by Bramdean Asset Management is being promoted through ALL IPO.

Bramdean Asset Management was founded by Nicola Horlick who first hit the headlines in 1997 when she flew to Frankfurt (accompanied by numerous members of the press) and pleaded with the senior management of Deutsche Bank to keep her job (or something on those lines). I’m sorry to say that I remember this incident much more than anything relating to her investment prowess at SG Asset Management, a firm she subsequently ran, no doubt very skillfully. I also see that she hit the headlines again in 2005 when refusing to hand over her £50,000 diamond ring to an armed attacker.

You have to admire Ms Horlick’s determination and indeed her survival instincts, however, investors will surely be giving her their money to look after on the basis of her investment management prowess and not much else.

Bramdean Alternative’s principal activity is to invest in a diversified portfolio of private equity funds, hedge funds and specialty funds for the purpose of achieving long term capital appreciation. It’s looking to raise up to £250 million, which sounds quite a lot to me in the current market.

I’m not convinced how they intend to gain access to the best hedge and private equity funds, the majority of which are, I believe, closed to new investors. As a relative start up (Bramdean was only founded in 2005) I assume its existing hedge and private equity fund exposure is relatively limited and therefore they won't carry much weight with the better funds.

Finally (and the objectivity of this opinion is clearly questionable, coming as it does from someone offering access to new issues through their own firm!) I remain sceptical about the likely success of any new issue promoted through ALL IPO.

The best IPOs generally get well supported by their sponsoring broker who has the incentive of earning attractive fees. In my opinion those brokers willing to share their fees are clearly anticipating difficulty raising funds- otherwise why on earth would they agree to split such potentially lucrative fees!

Bramdean has seemingly chosen to market directly to the private investor using ALL IPO as one route. A fund raising of this size surely warrants the services of fully incentivised broker to support it. I see that Cenkos is the sponsoring broker but I’m not aware if they are actively promoting the issue.

The last significant main market issue promoted through ALL IPO was Vector Hospitality which failed to make it to the finish line. I’m not convinced that Bramdean will do any better!

TOREX - previous Directors were a disgrace!

2007-06-22T09:54:00.000+01:00

So Torex has finally gone into administration with the business sold to private equity for £204m. With senior debt and transaction costs amounting to £212m, as suspected, the sale will leave nothing for creditors or shareholders. I agree with one broker’s view that this is an absolute disgrace considering the timescales and announcements made by the company as recently as January.

The new chairman’s statement that the company had “breathtaking corporate governance and financial issues at PLC level, the scale and extent of which neither I nor my board colleagues have seen in corporate life” was an absolute classic.

The results for FY06 were also finally released showing revenues of £246m and operating profit of £4.2m. This compares with the original consensus forecasts of £48m-unbelievable!

In addition to this quite diabolical operating performance, exceptional costs during the year amounted to £196m (inc. £158m goodwill impairment and £14m ‘restructuring’ costs) resulting in a headline loss before tax of £192m!

The question now is what course of action can or will be pursued against former directors responsible for this disaster

It looks an 'Essentially' costly deal!

2007-06-20T23:32:00.001+01:00

Essentially Group, the AIM listed sports marketing and media group, announced the acquisition of two leading agencies this week, Frontiers and Athletes 1. I see that it even received some nice coverage in the FT-well done the PR boys!

Frontiers is a sports marketing business specialising in cricket and Athletes 1 is one of the leading cricket athlete management agencies in the world-I never really thought of cricketers (self included) as Athletes!

Frontiers generates income from Cricket Sponsorship, Other Sport Sponsorship, Corporate consulting and Event management. Cricket sponsorship sales predominantly relate to contracts to sell in ground advertising/sponsorship for the perimeter boards of all English Test Match Grounds-a very nice little number.

For the year to 30 June 2006, Frontiers had audited turnover of £4.0 million and audited profits before tax of £0.4 million (£352,000 to be precise). Net assets as at 30 June 2006 were £0.4 million.

Athletes 1 operates an international sports management business with a strong focus on athlete representation, sponsorship and rights management within professional cricket. Clients include Anil Kumble, Ricky Ponting, Liam Plunkett, Jon Lewis, Mark Butcher and Graham Thorpe.

For the year to 31 August 2006, Athletes 1 had unaudited turnover of £1.2
million and unaudited profits before tax of £0.2 million. Net assets as at 31 August 2006 were £0.02 million. So it sounds to me like a really a small player.

I had an opportunity to participate in the placing supporting this deal (it was EIS qualifying so there was even some added incentive there) but shied away as I had the impression that the acquisitions, notably the Frontiers deal, were proving too costly.

As reported the initial consideration was £8.2million, with deferred consideration of up to £4.1million, depending on earn-out targets. Although some of the deferred in respect of the Athletes 1 deal doesn’t actually appear to be very deferred to me!

I understand that the acquisitions are expected to be earnings enhancing for the year ended 31st December 2007 and the Frontiers business in particular has great visibility, but it looks to me as if Essentially has paid through the nose for it.

Frontiers represents the largest chunk of the initial consideration of £7.9 million. Of this, £6.5m is in cash of which £5.2m is going to Pacific Investments, Sir John Beckwith’s private equity investment group. When has a private equity group ever sold out on the cheap! All the deferred consideration would be payable to management and not Pacific.

Despite the visibility, £6.5m initial sounds a lot for a business that has generated pre-tax profit of only £266,000, £164,000 and £224,000 in each of the years ended June 2004, June 2005 and June 2006 respectively. In support of the high price paid, the nature of the contracts with the Test grounds means that the group receives a lot of cash up front so operating cash flow is excellent andclearly a key attraction.

For the year ending December 2008 profit after tax for the Frontiers unit is estimated to leap to something in the region of £600,000 which goes somewhere to supporting the price. However, given the performance over the past 3 years I’m not sure how profits are going to leap so dramatically.

I think Essentially were desperate to do this deal to really beef up there business. It’s tough out there on the market for the tiddlers (even private investors prefer something a little bigger) and few seem to really worry about good old fashioned organic growth preferring to go for a business changing acquisition or two (or 10 or so in the case of SMC!).

The expenses of this tiny deal were incredibly £900,000 or just over 16% of the raising-wow that sounds a lot!

Although I did very nicely over the last 18 months through my holding in Formation Group, the other AIM listed sports agency, I’m never that keen on these small sports agency businesses where personal relationships between the client and the individual consultant are surely absolutely key. It’s not simply a matter of your business walking out of the door every night but rather your business operating on almost a virtual basis! Frontiers model appears to be different although the other businesses in the group appear to meet my virtual model.

Anyway, good luck to Essentially. I’m not too keen on the name (why do so many sports agencies have such stupid names, the biggest of the lot IMG has a nice simple name) but I hope all the acquisitions knit together as planned.

SUPERGLASS-main market new issue. The super returns for the private equity boys and high levels of debt they have left are surely unacceptable!

2007-06-19T23:01:00.000+01:00

I had an interesting meeting today with the management of Superglass, ‘the UK’s number 2 manufacturer of glass wool insulation products’, as their strapline goes!

Superglass is a profitable cash generative business which is seeking to list on the main market at a market capitalisation of £100m. For the year ending August 2006, turnover was £41.7m, profit before tax was £6.5m, earnings before interest tax and amortisation was £10.1m and operating cash flow was £13.8m. Estimates for the year ending August 2007 (they should be reasonably accurate as August isn’t far away) point to top line turnover of £46.1m and profit before tax of £8.1m.

The business appears to have excellent growth potential supported by Government efforts to improve energy efficiency. The group has a strong market position, makes operating margins in excess of 20%, is highly cash generative (yield will be c3.0%), has a flexible manufacturing facility and excellent organic growth opportunities with high barriers to entry.

Everything therefore looks rosy then for prospective shareholders, or does it!
Well the business does indeed present a compelling investment proposition, however, wait for this.

Superglass was the subject of management buyout from Encon Group in 2005 at an Enterprise Value of only £40m. The MBO was backed by NBGI Private Equity Fund and Investec. For Enterprise Value read 'Cost' as net debt prior to the buyout was only £2.3m and the business had underlying cash flow of £8.1m in 2005, so one can assume that there was virtually no debt at the time of the buyout.

A glance at the cash flow statement for 2005 reveals that MBO funding was £39.2m and additional funds raised through shares issued were only £400,000.

In a nutshell, it looks like management and supporting private equity shareholders effectively acquired this business for virtually nothing in 2005. Some 2 years later the private equity supporters are now selling out for a total of £70m-that’s not a bad return in 2 short years, especially as they didn’t actually have to put in any equity.

The bad news is that poor old Superglass is currently saddled with c£32m of debt and obviously little in the way of net assets.

I like the following line from the broker’s note:

‘Our proposed indicative Enterprise capitalisation of £130m is significantly higher than the £40m Enterprise valuation paid by the current MBO backers’.

You are telling me it’s higher, some £100m higher and unlike those prospective shareholders intending to support float they didn’t even put up their own money!

The key reason for this amazing deal back in 2005 appears to be down to former parent Encon’s forced sale. In the first place the Competition Commission blocked the sale of Superglass to Knauf and then Encon needeed to swiftly dispose of its manufacturing operations to facilitate its sale to Wolseley.

The business has clearly performed exceptionally well since the MBO and the outlook looks very positive. Valuations of all insulation stocks have apparently also increased materially over the past 2 years. However, I find it really hard to believe that new investors are prepared to support the float given the high level of debt the business now carries and the value that has effectively been stripped out of the business over the last 2 years. It’s easy to say that interest costs are easily supported but cash that should be there to support growth and expansion is simply there to pay down debt that wasn’t actually there 2 years ago.

Given the highly supportive market environment this business should surely be actively looking for ways to expand outside its current market. The excellent cash flow would ordinarily be there to service debt built up to support acquisitions. For the most part acquisitions will now need to be funded by future equity raisings.

I’m not sure of the solution here. The private equity boys (and management) are hardly likely to pay down the debt before they sell. Wouldn't it be lovely if they did!

Key institutions could decline the opportunity to invest which could force the company to pull the flotation. They could also dramatically cut the current valuation (and their own cut) and raise new money at the same time for the business to pay down debt. This will also give new shareholders encouragement for the future and provide some headroom to support expansion. However, institutions largely seem to be lapping up these private equity dumps on the market, high debt levels notwithstanding.

When will they conclude that the greed has become excessive and that enough is enough!

DOBBIES GARDEN CENTRES (AIM: DGC) The fat lady hasn't even entered the hall!

2007-06-15T16:39:00.000+01:00

Thank goodness, the Dobbies story is still alive and kicking and the Hunter is once again moving in for the kill, or so he hopes. The only problem now is that an even larger hunter, the T-Rex (dinosaur and not singer) of the retail world is lurking ready to strike.

The Scottish Hunter has now raised his stake to 20.6% by purchasing shares at 1750p and the boys from Hertfordshire (just around the corner from me) are having a little think about things. Hopefully the key decision makers on both sides will at least visit a garden centre or two this weekend to get a better feel of what they are letting themselves in for.

Having originally started building his stake at under 1200p Hunter could simply be playing with the Herts boys and be quite prepared to walk away with a nice profit-not anywhere as nice as mine though, at least in perecentage terms anyway!

I just can’t see the Hunter will be happy with Tesco in his garden centre space (he has stake in all the other big groups) and will endeavour to keep them out if possible.

The other possible scenario, which would take a bit of organising, is for the inheritance tax (IHT) planning investors to frustrate both predators. Alright, I’m dreaming a bit, but I reckon there is so much IHT money in Dobbies hidden in nominee names that these wise, more mature (diplomatic aren’t I !) investors should have a say in things. They might need a little encouragement to rise out of their rocking chairs (less diplomatic) but should be a force in this deal.

Let’s just hope the 2 big predators don’t mess it up altogether because Dobbies has been a truly great IHT stock .

Geong share placing - that's what I call management support

2007-06-12T17:06:00.000+01:00

Geong International announced its placing at the end of last week which raised £3.4 million to principally support the development, sales and marketing of its SmartBoxTM product range for SMEs across China and internationally.

It is very pleasing to note from the announcement the material share purchases by Directors and most encouragingly by management in general.

Chief Exec Weidong Wang applied for 62,051 shares £40,333), Chairman Henry Tse applied for 100,000 shares (£65,000) and Non Exec Peter Williamson applied for 38,461 shares (£25,000).

Members of the Company's Management (all Chinese remember!) acquired an eye watering 870,214 shares raising approximately £0.57 million. I consider this to be a material sum, and not just because they are Chinese and clearly earn substantially less than us overpaid folk in London and the South East, but for management in any small cap £22m market cap business.

That’s what I call a vote of confidence!

Geong International, little IBM in big China-it looks a great story!

2007-06-12T16:32:00.000+01:00

I recently had a very interesting meeting with the senior management of Geong International (AIM:GNG), a market leader in China in providing Enterprise Content Management (‘ECM’) solutions. I know it’s a tough one for most of us to understand!

It’s not your usual offering from China where manufacturing related activity is more the norm but the growth potential for this business appears to be phenomenal. I know that applies to many Chinese businesses but this is a little different!

Geong floated on AIM in June 2006 raising just £750,000 to cover float costs (yes, they can be that high). Unfortunately due to the errant ways of its first ‘supporting’ broker it saw its share price initially fall c20% from the float price (30p) in a matter of weeks. Since then it hasn’t disappointed and the shares have risen to the current level c70p with a current market capitalisation of c£22m. Thankfully it has also changed broker!

Geong focuses on the development, implementation and maintenance of Enterprise Content Management software solutions in China. It sells two products – PortalAge and SmartBox – to a wide spectrum of clients, and in addition supplies consultancy services.

Management possess excellent experience with a number having been with IBM China.

I met Henry Tse (Executive Chairman) and Weidong Wang (CEO) both of whom have been with the company since its founding.

Mr Tse (aged 60 but a youthful 60) worked for IBM for 30 years and his last position was General Manager of Personal Computer Group of IBM China/Hong Kong. From 1997 to 1999 he also served as the Managing Director of Compaq China. He was named The Man of Honour of Chinese Software Industry by the China Centre for Information Industry Development, China Software Industry Association, and Software World Magazine in 2006.

Mr Wang (aged 40 and also youthful!) was one of the founders of Geong and previously worked for the Peoples’ Bank of China, which he joined after graduating from the University.

Directors and staff currently hold 55% of the shares with the balance seemingly spread across numerous private client accounts in nominee names i.e. there don’t appear to be many real institutional holders, although that could change following the recent placing.

Almost 40% of Geong’s revenue is recurring with the other 60% from one-off customised contracts.

Blue-chip clients include the top 5 Chinese banks and 3 out of the top 4 futures exchanges in China. The top 10 clients generate 65% of the revenue with a dominance of blue chip names such as IBM China, Motorola, Air China, Shanghai Bank

Twelve months ago, Geong’s revenue stream was dominated by the financial sector. Over the last six months, Geong has not only increased its presence in the financial industry but has developed a presence in the automotive, transportation and technology industries.

Geong’s growth is looking assured as Chinese companies make enormous strides to catch up with western organisations in terms of systems and processes. The house broker is of the view that the 20% pa profit growth should begin to look ‘timid’ (interesting turn of phrase!) as Geong begins to expand within China.

Currently it generates all its revenue from Beijing and Shanghai and there are significant opportunities for Geong to expand in the new cities springing up in China. Broker’s forecasts currently assume no such growth, and they are taking an extremely prudent view in terms of cash conversion.

The 2007 full year results highlight the increased expenditure on R&D – from $95k a year ago to $181k this year. It is likely that such expenditure will be maintained as Geong begins to roll out new products over the next twelve months.

The headcount also increased from 240 to 304 within twelve months and this is likely to grow by another 20% over the next year.

Whilst the valuation looks fairly rich for a business of this type, especially relative to a UK peer group, one has to consider how fast this market is growing, largely from blue chip clients.

If one simply adds back the exceptional costs of cUS$400,000 incurred in 2007 in respect of the flotation I calculate a PEG for 2007 of .62 and based in the broker’s estimates a forward PEG for 2008 of 0.79. Ok, you can never really trust estimates but it still looks encouraging!

For 2008 the house broker is currently forecasting revenue of US$11.44m, operating profit of US$2.63m and earnings per share of 7.3 cents. This is after prudently allowing for a 15% tax rate although realistically it’s likely to be a lot less than this.

With the speed of change in this market I think it’s irrelevant to look further ahead than 2008.

The house broker’s full year forecast looks all the more achievable since Geong secured a contract with Lenovo Group to design, build, deploy and operate a bespoke dealer management and communications systems, based on PortalAge. The contract is to be completed within one year and the value is in the region of $2m.

Investor’s Champion Opinion

Geong has done fantastically well since floating in June 2006, having extricated itself from a potentially disastrous relationship with its first broker. It also effectively raised no new money, other than something to cover the exorbitant broker costs, to support the business and has managed things well given the rapid expansion experienced during the period.

The current shareholder base with Directors and 30 senior staff holding 55% of equity surely gives confidence to UK shareholders. Relative to UK peers one can also assume that salaries are extremely fair-to say the least!

More cash is needed to help with research and development, expand the sales force and market SmartBox so the recent placing which raised £3.4million will support this. Surely the sky’s the limit if this business can really make the most of all the potential in the Chinese SME market and keep a tight rein on increasing working capital demands.

Please send me an email if you would like to receive the full note on Geong.

DART Group - has the FD had enough of Big Phil?

2007-06-12T16:17:00.000+01:00

Dart Group announced today that the Group Finance Director, Mike Forder, would be leaving, apparently in light of the Group's recent relocation of its head office operations from Bournemouth to Leeds. No reflection on the business itself but it’s my humble opinion that long suffering Mike saw an opportunity to get away from Chief Exec Philip Meeson and went for it!

He will be replaced by Andrew David Merrick (aged 45 but sure to age quickly with increasing exposure to Chairman and Chief Exec Big Phil!) who will takeover as Group Finance Director from 24 July 2007.

Andrew joins the Group with seemingly a wealth of expereince gained as Director of Finance at Bradford & Bingley -no experience will have prepared him for Big Phil's attitude to shareholders, analysts and anyone remotely interested in 'his' business ! He is a Fellow of the Chartered Institute of Management Accountants and he’ll certainly need all the management experience he can muster to handle Phil and the bizarre attitude he brings to City meetings.

I would like to express my thanks to Mike Forder in his efforts in communicating the Dart story in the face of the huge communications jamming device that is Philip Meeson. I really don’t know how Mike put up with things for so long -he’s been suffering since ’98 after all!

Have a nice break Mike.

Phytopharm (PYM) - It looks like it could have a potential block buster

2007-06-07T23:01:00.000+01:00

There was very encouraging news this week for sufferers from Parkinson’s Disease with a positive announcement from Phytopharm (PYM), the pharmaceutical development and functional food company.

Pre-clinical data has shown that one of the group’s products, Cogane, reverses the changes in the area of the brain involved in Parkinson's disease. This data will be presented by Dr Jonathan Brotchie, an internationally recognised expert on Parkinson's disease, at 'The 11th International Congress of Parkinson's Disease and Movement Disorders' on 5th June in Istanbul.

This latest study was partly funded by The Cure Parkinson's Trust which was founded by four men with Parkinson’s to fund research, to hasten a cure for this debilitative neurological condition.

Commenting on the findings, Tom Isaacs, co-founder of The Cure Parkinson’s Trust said: “Cogane’s ability to induce a person’s own neurotrophic activity offers a very real prospect of a better treatment for Parkinson’s disease.”

The Cure Parkinson’s Trust has been funding a variety of research projects globally. For further details see: www.cureparkinsons.org.uk

Phytopharm appears to be on the verge of something really big with Cogane, however, there must be a concern that a business of its small size (mkt cap c£33m) and with the distraction of other drugs under research (E.g. Myogane) has the resources to run with this.

Further funding will obviously be required to support the next phase of study and Dr Brotchie’s work will help support this.

Let’s hope Phytopharm can remain focused on what looks like could be a potential blockbuster product and not take the route of least risk by spreading its resources too thinly across a broad portfolio.

From an investment perspective isn’t the point of investing in micro cap pharmaceutical stocks the hope of finding a real ‘ten bagger’. After all, if we want security we can all simply invest in a blue chip.

Global e-Network Holdings - another dubious pre-IPO offering (and a stupid name to boot)

2007-06-06T22:32:00.000+01:00

Another one of these pre-initial Public Offerings (‘pre-IPOs’) opportunities landed on my desk last week. Much like all the others I have seen over the past few months there was little to commend this to the private investor, but naturally quite a lot for the supporting finance house, which in this instance was Arc Equities.

According to the literature, Global e-Network Holdings (stupid name and spelling for a start!) ‘offers investors an opportunity to gain access to a company operating in three growing technology niches’. Given the level of funding that is required to grow in just one ‘growing technology niche’ this is already a questionable business model.

It is existing shareholders in Global-e who are selling, notably Arc Fund Management Limited, Monument Capital Partners Limited and Troff Limited.

So investors can forget about any potentially interesting EIS tax breaks for a start, as no new money is actually being raised. It also begs the question how they are going to finance these 3 high growth ventures, clearly they have a lot of cash in the bank! I suggest you read on.

Questionable financial projections

Page 21 of the glossy document reveals that management expects Global e to start making a trading profit in July 2007 and that one should have a look at the financial projections on page 24. I was expecting page 24 to reveal a page covered with numbers, however, the financial projections in question consist of just 2 lines! One line covers the projected Turnover for 2007, 2008 and 2009 while the second line presented the profit before tax for those respective years.

If you thought the financial projections were brief, the Accounts section in Part IV occupies just half a page. Only a Balance Sheet at 31st March 2007 is presented and half a Balance Sheet at that, with no information on the Share Capital and Reserves and no supporting notes.

The balance sheet does reveal that they only had £100,782 in the bank at end of March so there isn’t much to support the growth of the business

In seeking to sell their shares at a price of 3p / share they will therefore be making a huge gain in just 6 months. It is hard to calculate what progress has actually been made in this time, other than a nifty bit of financial engineering. But more importantly is this of any help to potential investors?

The 55 million shares they are trying to dispose of in this exercise equates to 22% of the issued capital. If a price of £1,650,000 is achieved this assumes Global- e has a total current value of £7.5m. Madness, total madness!

I fail to see why anyone in their right mind would entertain investing in this business, at least on the strength of the documents that I have seen.

In our opinion there needs to be better protection for potential investors in this sort of venture. Many are bound to be tempted by the glossy front cover and enticing quotes.

Please get in touch if you would like to receive a copy of the entire note.

SMC Group - The colourful tie departs!

2007-06-01T09:29:00.000+01:00

Following the recent trading statement SMC Group came out with an update to shareholders this week regarding the findings of the recent internal business review.

The review provided a series of recommendations to improve the profitability of the Group including the way the Group approaches the winning and execution of projects, the management structure, resourcing and the cost base of some business units.
It actually sounds like the whole business needs fixing!

It reported that whilst some (very few I suspect!) businesses within the Group continue to trade well, others have overheads which are out of line with revised revenue projections. So there is a lot of dead wood and they are all paying themselves too much!

Here comes the big one!
Following the Board meeting (as I said in my earlier blog, I thought it was going to be an interesting meeting) Stewart McColl the founder (and colourful tie man) has resigned and left the Group with immediate effect!

Gordon Watson (Stewart’s right hand man) has also stepped down from the Board with immediate effect but will continue working in a business development role in the Company

The bankers are apparently supportive but they always say that to begin with!

Sir Rodney Walker, the new Executive Chairman appears to be getting stuck in, but given the speed with which SMC has been cobbled together he could have a tough job ahead.

The shares were initially up c9% on the news so clearly there are some out there who welcome the news of Mr McColl’s departure.

RC Group - is it all hot air or is their real substance to this business

2007-06-01T09:23:00.000+01:00

RC Group, a provider of integrated biometrics and RFID security solutions (products the potential for which I have difficulty understanding) came out with a trading update this week. Although this was claimed to cover the Group's ‘financial performance’ in the first half of the 2007 financial year, no actual numbers appear to have been given which strikes me as somewhat strange.

It reported that it has experienced a strong start to this financial year, but what does ‘strong’ actually mean? Apparently this is attributable to the successful launch of several of the Group's products into the Chinese consumer market, and the launch of BioMirage (what on earth is this) into the South East Asian and Chinese consumer markets.

It has also successfully entered into ‘potentially lucrative’ joint venture and partnership agreements in the Peoples Republic of China ('PRC') and South East Asia to drive future growth. So, lots of potential but again no numbers!

There appears to be immense potential for this business but also what looks to me like an immense amount of hot air as well. The volume of regulatory news flow reminds me a little of Stanelco.

I understand that biometric products are really big in South East Asia but as I look out over the English countryside I'm sure you can imagine that it’s hard to relate to the potential of biometrics and RFID security solutions. All I do know is that if there is potential it’s bound to be a crowded market!

Dobbies – it’s actually happened!

2007-06-01T09:15:00.000+01:00

So after months of speculation and a soaring share price a buyer has actually come out of the shadows and made a bid for Dobbies, the garden centre group.

According to the retail specialists Seymour Pearce their trade sources are suggesting that the bid approach was not from the obvious suspect, West Coast Capital, Tom Hunter’s vehicle, but probably from a VC and possibly Apax.

However Seymour’s points out that Hunter (West Coast Capital) has a 10.6% stake and this is enough to prevent a compulsory acquisition of shares if he so wishes.

So there are now two possible scenarios. First Hunter forces the predator to pay through the nose, or, secondly, he blocks the take-over.

I just can’t see Hunter giving up now he has the prey in his sights. I am sure he has grown quite attached to Dobbies over the last few months!

I for one will miss little Dobbies when it leaves AIM.

Zytronic – Director comes out buying

2007-06-01T09:11:00.000+01:00

Following the recent c10% fall in its share price I see that Sir David Chapman, Non Executive Director of Zytronic, has seized upon the opportunity to acquire a few shares in the company.

While the purchase of 5,000 shares at a price of 210p per share is hardly likely to encourage wholesale buying it's a vaguely positive sign.

Zytronic the specialist manufacturer of touchscreens and optical filters for electronic displaysis has always appeared to me as a great little business and precisely the type of business for which AIM was really created.

The issue regarding the de-stocking by the group’s largest customer is obviously disappointing but apparently a temporary blimp in the grand scheme of things. Furthermore sales of the group’s key ZYPOS touch sensor product, appears to be going swimmingly and ahead of expectations. The current valuation is really supported by the huge potential for Zypos which seems to have the market to itself. I expect them to really start delivering on all the early promise over the second half of the year.

Norman Hay - it's been a great share over the last 3 years and it looks like there is more excitement to come

2007-05-24T23:17:00.000+01:00

Norman Hay, the AIM quoted diversified industrial group involved in chemical sealants and surface coatings came out with another pleasing announcement today.

Norman Hay (a nice straightforward name is always pleasing, remember James Halstead) describes itself as the UK's number one surface coatings company and a world leader in the supply of sealant chemistry for the automotive and construction industries. The Company's advanced chemical products and processes enable metal components of all sizes to be protected when operating in harsh environments, and are widely used in the oil and gas (that’s fashionable), aerospace and general engineering industries.

After having visited their Coventry site 3 years ago we have been keen followers of this quirky little business and the shares haven’t disappointed.

It announced this week that conditional agreement has been reached to sell the Company's Coventry freehold site to a subsidiary of UNITE Group plc, the UK's number one student hospitality company.

I love the following paragraph from the announcement:

‘For some time Norman Hay plc has anticipated that its city centre site in Coventry could not continue to absorb the changes required for the Group's future.’

To translate, management realised some time ago that they were sitting on a potential gold mine!

The current net book value of the asset is £1,840,000 and depending on the actual planning permission granted, the site will achieve a value of between £7,756,000 and £9,265,000.

To put things into perspective, the current market capitalisation of the entire Norman Hay group is c£17m.

The sale proceeds will be used in part to fund the relocation costs, with the remaining proceeds being reinvested in the Company to fund future growth. I suspect that there might also be a little left for a distribution to shareholders if everything works out as planned.

The bad news is that the sale of the property is also conditional upon the release or modification of a restrictive covenant which affects part of the site.

With the Hay family the largest shareholders and very limited share liquidity Norman Hay is the sort of AIM stock that is much more appealing to the small private investor than the big City institution.

It’s also rewarded those that were prepared to go through the numbers (and they aren’t very big or complicated) and realise that, despite its small size, this is a very attractive, cash generative little niche engineering business.

The shares currently trade at just under 12x 2007 estimates-you guessed it, only the house broker covers them-and they yield just over 3%.

The shares are up approximately 300% over the past 3 years and it looks like there could be more excitement to come!

Pixel Media - its looking encouraging for the minnow

2007-05-24T18:16:00.000+01:00

In the last five weeks, Google, Yahoo, AOL, WPP and Microsoft have all made acquisitions of substantial online media companies at stratospheric prices.

The house broker has reminded us that Pixel Media (AIM:PIXL), a new issue in which we participated last year and featured in my blog before, was itself an MBO of DoubleClick’s loss making Hong Kong operations about five years ago.

Google has now bought Double Click for $3.1bn, equivalent to 30x 2007 EBITDA or just over 10x historic sales. The broker has reminded us that In terms of Pixel these valuation metrics would equate to a value of 62p/share and 112p/share respectively.

Although we are hardly comparing like with like in terms of size, footprint and revenue the broker’s price target of 59p compares favourably with the lower of these valuations and also with the minimum of 61p for the deferred equity element of the earn out for the acquisition of Easy Growth (Chinese online affiliate marketing through Share Freedom Wireless).

The broker expects the market soon to latch on to the investment opportunities in marketing and advertising for the ever nearer 2008 Olympics in Beijing. But what about buisiness post Beijing games!

Kensington – not the best of news for those (like me) who were holding out for more

2007-05-23T16:39:00.000+01:00

Back in March Kensington, the UK ‘sub prime’(that’s US speak) mortgage specialist announced that it was still in discussions with a number of parties who had approached it. Today it announced that was in advanced discussions with a view to announcing a recommended offer. However, they went on to say that in the event that an offer is made it is likely to value the group at a price below yesterday's closing share price of 560.5!

There didn’t appear to be much left for the smaller investor. However, since deciding to exit the position I note the shares are trading at c481p which is now 'materially' below yesterday’s closing. Can one assumne that there are now potential short terms trading opportunities!

Today’s announcement simply stated that any deal would be at a price below yesterday’s closing share price, but not ‘materially’ below it.

Great fun, we shall see what happens!

Network Data - sunk costs but the business is still swimming

2007-05-22T22:19:00.000+01:00

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!

Nichols - does the offer look less likely and should we care?

2007-05-17T18:42:00.000+01:00

Nichols the AIM quoted soft drinks group and one of our AIM favourites announced today that it has traded successfully since the beginning of the new financial year and that results so far are on target to produce another year of growth. With regard to the preliminary discussions regarding the possibility of an offer (originally announced on 19th March 2007) they said that discussions continue, although there is no certainty that an offer will be made.

If one assumes that they were also in discussions well before 19th March it all appears to be taking a long time to sort out (good things come to those that wait I suppose). I sense that perhaps we might be receiving one of those ‘discussions terminated’ statements in the not too distant future. The shares rose fractionally on not much volume following today’s announcement. Offers notwithstanding it remains a good business.

Best of the best - getting better

2007-05-17T09:29:00.000+01:00

Best of the Best, the group responsible for those luxury car lotteries (although I don’t think I’m supposed to call them lotteries) at UK airports and a new issue in which we participated in August 2006 issued a positive pre-close trading update today confirming that they expect results for the year to 30 April 2007 to be in-line with expectations.

Having had the misfortune of joining AIM in August when UK airports were in turmoil one has to commend their efforts.

They have clearly had excellent second half performance with a continuation of the strong
trading conditions experienced in November and December. Apparently the new stand at
Gatwick South has resulted in a material increase in sales and they are due to expand into a number of new regional airport locations.

The shares have has a great run of late and having floated at 63p have been as high as 80p-not bad considering they were down at 43p at one point. Preliminary results will be announced on 19th July.

Main market new issue - eaga plc (The City will love it, some tax payers may be less impressed)

2007-05-16T12:24:00.000+01:00

I recently met with the management of eaga plc (no that isn’t a spelling mistake, it’s one of those lower case names that always strike me as strange-are there any really serious businesses with lower case names?) which is seeking to float on the full list with an indicated valuation range of £373m-£423m.

Brewin Dolphin is the house broker so name spelling notwithstanding I have given the offer some respect.

eaga was established in 1990 to tackle fuel poverty amongst vulnerable households and is the UK’s leading provider of residential energy efficiency solutions. From its humble beginnings of helping the poor through administering government handouts, its key management will now become multi-millionaires. That’s not a bad result for the eaga staff but probably less appealing to those UK tax payers who have funded the handouts and aren’t eaga employees.

I’m quite frankly staggered that a business with a market cap of c£400m can be created in such short time from simply servicing government initiatives. All credit to the management to have seized upon the opportunity and ran with it, but it’s a rather bizarre turn of events and a sign of the times in the UK. I do realise they aren’t the only ones benefiting in this way.

It almost makes the investment business appear moral!

A classic business model for our times; a group that recognised the potential in government initiatives at an early stage and has made the most of it. It clearly wants to diversify and become less dependent on its original paymasters and in the short term (at least to 2010) there doesn’t appear to be much in its way. Just think of all those energy efficient light bulbs ‘fuel poor’ households will be acquiring through eaga!

The suggested valuation (for the short term at least) looks very reasonable relative to peer group but these ‘relative’ valuation conclusions are sure to hit the buffers some day soon and the sector looks pricey.

The issue looks like it’s got great institutional support but I do question the morality of it all and that’s really saying something coming from an investment boy!

The term social justice has been bandied about by management. The social justice in question appears to lack consistency and I’m still not sure about that lower case name!

Please email me if you would like to receive the full Investor’s Champion note on this.

Analyst valuations – it’s always cheap relative to something else!

2007-05-11T18:11:00.000+01:00

Analysts appear to relish assessing companies relative to peer group.
Without mentioning names here is an extract from something I received today:

Relatively cheap compared to principal listed comparator

…we can see that ‘Company A’ December 2008 P/e of 17.7x is only fractionally ahead of the sub sector average (16.9x) and well behind that of ‘Company B’ (20.7x). Given a superior product and a more diversified customer base we believe ‘Company A’ should trade at a premium to the sector and we remain buyers.

So the analyst concludes that Company A is a ‘buy’ simply because it is trading at a big discount to another ‘similar’ company in the sector. Never mind that Company A and Company B are very different in size, quoted on different markets and that the sector in question has been concocted by the broker and doesn’t actually formally exist.

That’s my Friday whinge out of the way!

Devro - the sausage skin maker surely looks like classic take-out candidate.

2007-05-11T17:49:00.000+01:00

Having participated in the new issue of Hilton Food Group this week I also had a look at Devro, the maker of casings for sausages, hams and other processed meats.

The group recently announced that trading for the year-to date has been mixed, with the more mature markets (UK, US and Australia) being slower to gather momentum, while the developing markets have been buoyant. It concluded that it was confident about its prospects-aren’t they always!

A potential acquirer had arrived on the scene in January offering 150p a share for the business. Unfortunately in April the group came out with the announcement that they had been unable to reach agreement in relation to the pension scheme and that discussions between the Board and the potential offeror have been terminated.

The shares naturally tumbled from a high of c147p and are currently trading at 116p.

Devro surely has all the appearances of a classic take out candidate.
A highly cash generative business with manageable levels of gearing that has a very strong position in its market. The shares are also currently yielding over 4%.

I acknowledge there are plenty of negatives such as US$ exposure, impact of high energy prices, falling demand for meat products, the pension deficit, changes in foods standards, to name but a few.

All in all, it looks a fairly stodgy low growth business, but someone was clearly interested enough a few months ago to offer 150p a share. Furthermore, the pension position should have improved dramatically over the past few years, energy costs have stabilised, developing markets are growing and recent investment is starting to bear fruit……and there is always all that lovely cash to get excited about.

JAMES HALSTEAD –The AIM star still shines brightly!

2007-05-04T19:03:00.000+01:00

James Halstead, my star AIM holding of the last few years and a company covered in an earlier Investor’s Champion note on 13th April came out with the ‘usual’ positive trading update this week.

In the company's previous interim announcement on 28th March 2007, the Chairman mentioned that a major plant upgrade was imminent that involved the closure of one of the production lines. The company this week announced that the upgrade to the Polysafe facility was successfully completed (naturally) and full production resumed ahead of schedule (of course it did, James Halstead never disappoints!). Sales also continue to meet expectations.

My concern now is this Queen's Award for Enterprise that they have won. Gongs of this nature are often followed by a decline in share price, however, surely outcomes of this nature only apply to run of the mill businesses and not AIM stars like James Halstead!

China Shoto - Electric growth and an appealing valuation-so why the share price fall!

2007-05-02T09:29:00.000+01:00

I recently met with the management of China Shoto, the Chinese producer of industrial batteries and power supply systems which announced its year end results last week.

Although the group appeared to come out with some great numbers the market (or rather a small number of shareholders) was clearly unimpressed pulling the shares down c8% on the day.

For the year to end December 2006

- Revenue increased by 134% to £66.45 million (2005: £28.41 million)
- Net profit increased by 29% to £4.0 million (2005: £3.11 million)

…and this is the big one:

- Debtor days fell from 121 days in 2005 to 75 days in 2006-now that looks quite good for a Chinese business.

- An interim dividend for 2006 of 1.5 pence per share can be added to a final dividend for 2006 of 3 pence per share to give 4.5p for the year. Also very encouraging.

If a British company had come out with these sorts of numbers the shares would have soared. Furthermore, China Shoto has, in quick time, managed not only get its new plant up but also running at near to full capacity.

Admittedly there no growth in eps but none was really expected with the business having gone through a metamorphosis in the year, with fund raisings, acquisitions, new factories etc.

After all China, much like Rome (or Microsoft for that matter), wasn’t built in a day!

The core back up battery business grew by 38% with sales to China Mobile, the largest network operator, doubling and now representing c25% of group sales.

We acknowledge that earnings per share of 19.5p was slightly below the house broker’s estimate of 20p but given all the activity in the year and the work involved in getting the factory up and running we shouldn’t be too concerned at the current valuation.

The industrial back up power supply business should be flying with 3G being rolled out.

The new line supports the manufacture of batteries for electric bicycles and with bicycle production increasing by 78% in 2006 and c25m electric bikes forecast to be produced this year there is no problem with demand! The group has also expanded its sales network in order to address the replacement market as this develops and has opened 43 sales offices. This is essentially a commitment for the future which is clearly going to have an impact in margins in the short term, as evidenced by the operating margin falling from 16% to 9%. With regard to these falling margins, other factors include the increase in lead prices over the year (lead represents c55% of cost of sales) and the lower gross margins from the electric bicycle battery business.

Year end stock levels have obviously shot up but this is a very different business one year on.

I agree with the house broker (that’s a first) that a UK stock experiencing such positive conditions would trade at c13x to 15x next years estimates. Coslight, a Hong Kong listed peer trades on a calendar year 2007 PER of 19x. I wouldn’t be surprised if China Shoto is having regrets about coming to London!

The house broker estimates 15% earnings growth in 2007 and a yield of 3%. The stock currently trades on a calendar year 2007 PER of 7.3x falling to 6.5x for 2008.
The PEG is therefore just under 0.5-there aren’t many out there in the UK market on these sort of valuations at the moment!

Even if one takes a hatchet to the numbers and pulls back the earnings the shares still seem to look reasonable value. The debtor days (75 days average, but a big spread) still remain quite high as do year end stock levels (60 days) but this is a business that is expanding at the sort of rate of most of us have never seen from a UK operation so perhaps allowances should be made.

It should also be remembered that this is a Chinese business whose principal customers are big telcos and who is well supported by major Chinese banks.

Let’s see what happens!

Dobbies – vibrant growth

2007-04-27T23:04:00.001+01:00

Much like the plants it sells, Dobbies is showing vibrant growth. In this weeks AGM statement they announced that sales for the 25 weeks to 1st November were ahead by 38.8% overall, representing a like-for-like increase of 12.6%.

The new centre in Dunfermline (48,000 sq ft of covered space) also opened this week and a centre in Sheffield (98,000 sq ft of covered space) is set to open in September. A greenfield site in York by the McArthur Glen outlet centre has just been acquired and subject to planning permission, this should, with the Lisburn site, lead to at least two openings in 2008.

A very positive announcement causing many to marginally upgrade their estimates for the current and following years, however, it’s not just trading that’s exciting everyone. With the Hunter still circling as well Dobbies’ shareholders are having a great ride.

RC Group – the CEO comes out buying

2007-04-27T22:37:00.000+01:00

I see that the CEO and Chairman of RC Group today came out in support of the company’s share price purchasing 100,000 shares in the company at a net price of 111.45p per share. He now holds 18,270,000 ordinary shares or 7.8% of the issued share capital.

Having pocketed a tidy sum a few weeks ago after exercising share options I suppose he can afford for it.

Ocean Power Technologies - tax benefits lost

2007-04-25T09:31:00.000+01:00

Ocean Power Technologies the wave power company has announced the pricing of its US initial public offering at $20.00 per share. The Company’s shares will begin trading on the Nasdaq Global Market today under the symbol OPTT.

The Company also stated that it plans to continue to list its common stock on AIM. However, as the shares are now listed on a regulated market I assume that any potential inheritance tax benefits previously enjoyed by UK shareholders (or their estates) will now be lost.

RC Group – should a stock like this really be on AIM?

2007-04-24T18:02:00.000+01:00

In response to a dramatic fall in its share price I see that RC Group, a company whose valuation we have questioned previously, put out an announcement today.

The fall in share price appears to have been caused by the death of Nina Wang (often quoted in the media as being ‘the wealthiest woman in Asia') who indirectly owned 27.6% of RCG.

Mr. Tony Chan has filed legal papers staking his claim to the estate of the late Ms Nina Wang. The Chan family is one of the existing major shareholders in RCG and also holds 26.7% of voting rights in the company. Mr. Tony Chan's brother, Mr. Bobby Chan, is one of the founders of RCG. Dr. Raymond Chu, Chairman and CEO of RCG, has been an acquaintance of both Mr. Tony Chan and Mr. Bobby Chan for many years.

It all sounds a bit of a Hong Kong family affair to me which begs the question why on earth is it quoted on London’s AIM!

RCG has reaffirmed that business is progressing as usual and is confident that the Group's performance is on the course to meet market expectations.

With c2m shares being traded today many appear to have been spooked by the news.