By johnrosier, 13-Dec-2013 11:38:00
Synectics (572p and 3.0% of JIC) issued a year end update this morning saying that revenues for the year ending 30th November were approximately 9% above those of the prior year and that it anticipates underlying results to be in line with market expectations.
It went on to say “Growth was particularly strong in the Group's Synectic Systems division, providing proprietary large-scale surveillance systems for specialist high end requirements. The largest component of growth came from sales in the Asia Pacific region, which included the successful deployment of one of the largest and most technically challenging systems in the Group's history.”
Conclusion:The share price has reacted a little negatively, off about 4%, with some profit taking. The stock has more than doubled over the last year and no longer looks incredibly cheap but on 15.1x November 2014 consensus forecasts for 17% growth and 12.6x November 2015 for 20% growth it still looks to me , pretty attractive. I guess there may have been a bit of disappointment that there was no excuse for upgrades to forecasts with today’s statement. I’m glad I reduced my holding at the end of November but for now I will be sticking with my remaining position. Happy holder!
By johnrosier, 13-Dec-2013 08:36:00
Melrose (284p and 3.0% of JIC). Long term readers of JohnsInvestmentChronicle will know I am a huge fan of Melrose Industries; I like its “buy, improve, sell” strategy and the management who have proved over the years to be adept at pursuing the strategy and creating value for shareholders. On the 7th November I reduced my holding, as you can see in the chart above, locking in some profits. It has since drifted back and so this morning I have increased the holding back up to 3.0%. On consensus forecasts it is valued at 16.5x December 2013 earnings for 43% growth. The prospective dividend yield is 2.8%. Its trading statement on the 19th November was pretty robust and Elster is clearly performing well, with the company achieving larger and faster improvements in its operating performance than it originally anticipated. It has made a number of disposals in the last year so we can also expect news on a return of cash to shareholders during 2014. (See transactions)
By johnrosier, 12-Dec-2013 09:29:00
easyJet(1462p and 4.0% of JIC). I have this morning increased my holding back up to 4%. Clearly my decision to cut my holding back to 2% on 8th November was a mistake. As one of my readers pointed out at the time, I was a little too quick to pull the trigger, worrying that it was breaking down through the 200 day moving average. The 200 dma turned out, as so often happens, to be a good support level.
I have increased my holding because the shares look reasonable value, (on consensus forecasts it is valued at 13.9x current year earnings for 15% earnings growth), the company is generating a lot of cash, (for the second year running it is paying a special dividend; 44p this year, 35.08p last) and the close yesterday, at a new all-time high, looks pretty bullish. In addition, as demonstrated in the lower chart from Stockopedia, analysts are still behind the curve and are upgrading earnings. (See transactions)
By johnrosier, 11-Dec-2013 12:44:00
I have closed the position in the FTSE 100 put warrants that I bought in early November, to provide some protection to the portfolio against a sell off in the market. I have booked a small loss but will look to open a new position, probably in a June 2014 dated put warrant, in the next few weeks, should we have the much anticipated santa rally! (See transactions)
By johnrosier, 11-Dec-2013 08:21:00
Fox Marble (22p and 2.1% of JIC) has issued a trading update this morning. It reports that; it has orders for €500,000 worth of marble with €100,000 invoiced; 200 tonnes of block marble is being shipped for processing in Italy; 300 square metres of cut and polished product has been shipped to its distributor in New York; it is investing a further €550,000 in quarrying equipment and at 1st December it had net cash of €5.7m. So far so good but in what might be seen as being slightly disappointing it says it has chosen to take a prudent approach to capital expenditure and delay completion of its processing plant by six months. It says that delaying the completion until 30th September next year will allow it to mirror the growing order book volume more closely with the costs of completing the factory.
It goes on to say that production levels are being achieved in line with expectations and it remains on track to achieve its 2014 targets. “It anticipates its order book will grow at an increasing rate as its distribution channels gear up and it is focussed on aggressive marketing of worldwide block marble as well as cut and polishes slabs.”
Conclusion; It’s good to see it making good progress both quarrying the marble and getting it to market. It’s difficult to read whether the more cautious approach to building the processing centre is a welcome adoption of a more sensible strategy, of timing investment more closely with sales, or whether it reflects a more cautious view of sales growth in 2014. On balance I think the statement should be read positively as the investment case I laid out yesterday was based on the expected cash generation in 2015 and beyond. Happy Holder!
Fusionex International (314p and 2.3% of JIC) has announced the launch of its GIANT big data analytics solution. “It has been in test phase with a number of customers during 2013 and is now available for full scale deployment”.
Ivan Teh, Managing Director said "The launch of Fusionex GIANT is a significant strategic catalyst for our business and is an important step forward to establishing our Big Data Analytics ecosystem. We believe that GIANT is a truly disruptive and innovative product that will revolutionise the way many organisations tackle the challenges of Big Data.
It is our view that simplifying Big Data, in a 'cost-optimised' and intuitive way, is central to helping organisations derive true business value. We are excited about the prospects of seeing GIANT being deployed globally and remain confident that our Big Data Analytics expertise will continue to underpin the Company's strategic growth."
Conclusion: The shares have drifted sideways since I bought the holding on 7th October and hopefully this announcement will be the catalyst to get the share price moving again. Giant is an important product for Fusionex so the market will be looking for strong adoption by both existing clients and new in 2014. On current consensus forecasts the shares are valued at 26.4x September 2014 earnings for 23% growth and 21.7x September 2015 for a further 21% growth. It needs to achieve these growth rates to justify the current price; there is no room for slippage. Happy Holder!
By johnrosier, 10-Dec-2013 12:11:00
Fox Marble (22p and 2.0% of JIC portfolio). I have just bought a holding in Fox Marble (FOX). It is listed on the AIM market and has a market capitalisation of £24m. The Chief Executive, Chris Gilbert and Managing Director, Etrur Albani (holds both a Kosovan and British passport) each own just under 17% of the company. It has an impressive Board; it is chaired by Andrew Allner, who is also Chairman of Marshalls and Go-Ahead. Chairman of Meggitt, Sir Colin Terry and Roy Harrison, former CEO of Tarmac, are non-execs. I hope to be indebted to friend and former colleague, David Thornton who brought this to my attention in the December edition of Red Hot Penny Shares, where he was recently appointed editor.
Fox owns and is developing marble mines in Kosovo for export. It has current indicated resources worth €16bn based on an indicated 91.3m cubic metres of reserves. (On top of that Fox also has access to a further 235m cubic metres of inferred reserves). Mining marble is a fairly simple process and as such upfront investment is relatively small. It is investing in a processing plant to enhance the value of its product by cutting the blocks into polished slabs before shipping. The uplift in value is huge with the value of a one cubic metre block rising from around €400 to €2,100 when processed into finished slabs. The bulk of investment has been made with the completion and equipping of the processing plant outstanding. It has a strong balance sheet; in June net cash stood at €5.3m and it subsequently raised €2.9m in August.
The main markets are US, which imports 15% of world production, roughly the same for the whole of Europe and then the Middle Eastern markets; Saudi Arabia and the UAE.
Kosovo has clearly had a troubled recent history but has a government which has adopted an EU based legal system and has adopted the € as its currency. Fox has good relations with the Government who are clearly keen on the inward investment, employment and the high profile of a London listing the Fox brings. Royalty rates on extracted marble are only €0.5 per cubic metre as the Government is keen to attract inward investment into the mining industry.
Quarrying at four sites started this year and shipping of “blocks” has already commenced and will increase into next year, providing cash flow to the business. 2013 revenue is forecast at £1.7m. In Q1 next year the first shipping of processed slabs will commence and build throughout the year so that by 2015 we should see strong growth in turnover and cash flow. On its broker’s forecasts, which may well turn out to be conservative, turnover of £8.3m is expected in 2014, growing to £25.0m in 2015, leading to earnings per share of 2.4p and 12.0p respectively. The Company intends to pursue a “very aggressive” dividend policy, so in 2014 a dividend of 1.7p is forecast rising to 10p in 2015 and 16p in 2016. That puts the shares at 22p on a forecast dividend yield of 7.7% for 2014, 45% for 2015 and 73% in 2016!
Conclusion; this looks extraordinarily cheap to me, maybe because mining stocks are currently out of favour, maybe because investors are wary of investing in Kosovo or maybe, it is just too small to be on radar screens. Given the huge potential to generate cash, the experienced management team, (who have large holdings in the Company) and the heavy-weight main Board, I think there could be considerable upside and have bought a 2% holding. (See transactions)
For more information see www.foxmarble.net
I have sold the holding in Amino Technolgy to pay for the purchase of Fox, Whilst Amino looks cheap on cash flow grounds the latest results were a little disappointing and I think it is difficult to see what will get it moving in the short term. I have booked a small loss of £85 on the Amino holding (See transactions)
By johnrosier, 07-Dec-2013 18:51:00
Saturday 7th December 2013
A poor start to December for the FTSE All Share Index with it returning -1.3%. The JIC portfolio on the other hand had a better week, falling just 0.1%. Year-to-date the returns are +17.1% and +40.9% respectively.
The best performers were; Thorntons +8.0%, (on top of the +6.8% in the preceding week), Berkeley Group +7.8% following excellent interim figures, Crawshaw Group +7.6% and Plastics Capital +6.6%, again after good half year figures on Monday. Agriterra had a pretty awful week, falling 16% and giving up much of the hard earned gains of the last month or so. A recurrence of disturbances in Mozambique leading to 10 deaths has not helped. Regenersis gave up 7.4%, which I guess was a bit of profit taking after the recent strong gains.
On Tuesday I met the management of Plastics Capital following interim results from the Company on Monday. I wrote the meeting up yesterday and am a happy holder given the sales growth achieved in the first half, the strong cash flow and an encouraging outlook.
In the weekly investment magazines, Fusionex is mentioned in Shares Magazine as “readying itself for a pre-Christmas launch of its Giant big data suite which could push the shares beyond 313p”, Amino Technologies is one of the six stocks reckoned to be “good value picks with recovery potential” in it cover story. Finally Agriterra gets a mention in its sector report on food producers; it is described as “a long-term lock-away” with it speculating that “February’s half year statement might contain a positive update”. The Investors Chronicle describes Igas Energy as a “speculative buy”!
I made no changes to the portfolio during the week.
Next week I am not expecting any announcements from any of the JIC holdings. On Wednesday Plastics Capital goes ex dividend 1p per share.
By johnrosier, 06-Dec-2013 10:00:00
Plastics Capital (121.5p and 2.1% of JIC Portfolio) On Tuesday I had a meeting with Faisal Rahmatallah, Executive Chairman and Nick Ball, Finance Director following its interim results announcement on Monday.
The main highlights of the results was a resumption in sales growth driven in main by the mandrel business, where sales were up 56% year on year. The dividend was increased by 52% and the business continued to be very cash generative so that despite the increased capital expenditure of some £1.03m, (compared to £184,000 the year before) and a higher dividend, it still managed to reduce debt, which fell to £8.067m compared to £8.369m at 31st March.
The Company seemed confident about future growth in its businesses. The mandrel business is clearly performing well and it won a key account with caterpillar Europe. If it can prove the superior capabilities of its mandrels there is huge potential to grow that contract from the current 10% of Caterpillar’s mandrel business. It has also started to supply its own mandrel lubricants which could grow into a significant profit generator. The bearings business is making steady progress signing up new customers but there is a long lead time and it described sales in the first half as disappointing. It has invested to enhance its capabilities such as reducing the speed of manufacture of tooling from 26 weeks to 12 weeks. The creasing matrix business saw steady sales but the outlook for the second half looks more encouraging with Europe recovering and the USA strong. It has had success targeting specific end users and has won major accounts with DS Smith and Smurfit. Sales at its industrial films business was described as “reasonable” but again it was seeing signs of improvement in the second half. Profitability was squeezed in the first half through raw material price increases but they are now benefiting from a falling input prices. It installed a new line producing higher strength film at lower prices and expects to make a full return on the investment within two years. It says there are lots of opportunities to grow profits and as an example it is targeting the high strength sack market in Q1 2014.
Conclusion; this was the third time I have met management and there is a re-assuring consistency to the story. True, I could find plenty of other investments opportunities that are more exciting to write about and would get the pulse racing, (I have got one for later on!). I think however, that this is what everyone should be looking for in an investment. The management act like owners of the business, probably because they own substantial chunks of equity, (in Rahmatallah’s case 8.7%) and manage it sensibly for the long term. It generates substantial cash, (net debt has fallen from £19.6m in March 2009 to £8.1m today), it uses its capital wisely, investing where it sees opportunities to boost sales and enhance its market position and it has made sensible long term strategic decisions such as its entry into the fast growing Chinese market. Its recent acquisition of Shanghai based creasing matrix business, Shengli, which is close to completion, will I think, prove to have been a very good move. With growth resuming in the first half and with an air of confidence about the second half I think the shares on 10.2x consensus forecasts for March 2014 for 18% growth, falling to 8.8x March 2005 (17% growth) and 7.9x March 2016 (12% growth) and with a dividend forecast to grow 50% this year to 3.0p (2.5% yield) followed by 4.0p in 2015 and 5.0p in March 2016 look attractive. I am pleased I bought the holding last month. Very happy Holder!
By johnrosier, 06-Dec-2013 07:53:00
Berkeley Group (2282p and 2.9% of JIC) Interim results for the six months ended 31st October 2013; another strong set of figures from Berkeley Group. Pre-tax profits are up 19.6% to £169.5m, earnings per share increased by 22.0% to 100.0p and an interim dividend of 90p has been declared. The balance sheet looks strong with cash due on forward sales up by £293m to £1,745m. It has 25,060 plots compared to 25,684 in April and has a further 10,000 plots in the pipeline. It anticipates that the future gross margin in its land holdings will be up 6.8% at £3047m, thus achieving its targets of over £3bn, and at the 31st October it had net cash of £78.9m
The dividend, which will be paid next month, represents 4.1% of the current share price and is part of its planned return of cash to shareholders. To meet its first milestone it needs to pay out a further 270p per share by September 2015. The Board is not only confident of achieving that but also of returning £1.7bn of cash by September 2021.
Conclusion; Berkeley Group is clearly benefiting from the strong demand in London and the South East which is leading to firm pricing and low cancellation rates. It is however investing in new land, £278m committed during the period for six new sites, and is confident that it has the land in place from which to meet its targeted cash returns. After the 90p being returned in January the Company is targeting a further 1.48bn, or 50% of the current market capitalisation to be returned in the next eight years. Not many companies are so explicit about their plans and the discipline it brings in terms of capital allocation should be welcomed. Very Happy Holder.
By johnrosier, 05-Dec-2013 08:12:00
easyJet (1407p and 2.3% of JIC); November passenger stats show it carried 3.4% more passengers than November 2012 at 4.255 million. The load factor was 89.0%, slightly down on the 89.6% of Nov 2012.
Conclusion; comparatives are getting pretty difficult for easyJet given the growth in its load factor over the last few years. The market will be looking for any evidence of falling passenger growth and whilst today’s figures do show a decline in the load factor I think it is small enough not to cause too much concern. The shares have had a good run since its full year results last month and are now valued at 13.2x September 2014 consensus earnings forecasts for 14% earnings growth. In February it goes ex its final dividend of 33.5p and a special dividend of 44.1p giving a 5.5% dividend yield on just those two payments. Happy Holder.
Dolphin Capital (40.75p and 3.9% of JIC) has issued a Q3 trading update in which it says that the Sterling NAV at 30th September was 78p before deferred income tax liabilities and 68p after. This is 4.3% and 4.4% below the 30th June figures of 82p and 71p respectively. Nearly half of this was due to the 2% appreciation in sterling versus the Euro and the rest was due to regular operating expenses and the depreciation of Americas properties in € terms due to the appreciation of the US$. The statement goes on to describe operational progress at its various resorts.
Conclusion; in my September 24th review of its interim results I expressed a little frustration at the lack of progress in its share price and the dearth of news demonstrating the value of its assets. Since then the share price has moved up about 9% and now sits at a 40% discount to NAV after deferred tax liabilities. Again I will stick with it given the discount to assets and the potential for NAV accretion but it would be nice to see some concrete demonstration of the value in its portfolio rather than the constant drift downwards in the NAV each quarter. Slightly frustrated holder!
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