Small Cap Report (26 Feb) - CAP, VNET, GOAL, DOTD, TNO

It's likely to be a bumpy day today, with a sharp sell-off in the USA last night, so FTSE 100 futures are currently indicating an open around 100 points lower. Still, given recent bullishness, I think a correction is overdue, and all part of a healthy market. If you've done your research properly, and only invested in good quality companies on reasonable valuations, then days like today hold no fear, just sit back and enjoy watching the traders panic like headless chicken!

 

The proven best way of consistently out-performing the market is to focus on a value strategy, and to ignore background noise. So I shall be looking for value opportunities.

One such (hopefully) opportunity arose yesterday when Clean Air Power (LON:CAP) suddenly plunged 30% (see chart on left)

It is a blue sky stock, but reasonably priced considering the positive recent trading news, completed fund-raising last autumn, and interesting potential for its Patented comversions which allow diesel engined HGVs to operate mainly on liquid gas. Someone apparently dumped around 11% of the company at 5p a share, so I grabbed some more at 6p just before that trade printed, and seemed to have caught the low. I just hope there is not any bad news in the pipeline, but having done my research already, I knew that the key cash position was fine, so deemed it safe to take the plunge. Let's see how it plays out.

 

The other thing to consider is that most small caps have much too wide bid-offer spreads to even consider trading in & out of them. Hence you take your position, and stick with it. All the more important then that you've done your research thoroughly.

 

Just a short report this morning, as I'm off to London for the ShareSoc Investor Day & Members Meeting. There are some interesting speakers lined up, and it will be a good chance to talk to other active investors, and I am hoping to lobby the representative of the Stock Exchange over ways to improve small cap liquidity, and most importantly, to narrow those bid-offer spreads! Wide spreads are the bane of our lives, and completely unnecessary, since all we need is for ALL small cap shares to become SETSmm traded, then we can get our brokers to put our own orders straight onto the order book. The solution is so simple & obvious. I will push hard to get something done on this. The market needs to be order-driven, not quote-driven.

 

Vianet (LON:VNET) announces that the CEO has bought 65,000 shares at around a quid each, following their profit warning last week. That's a decent signal of confidence, and a meaningful amount of shares given the relatively modest salaries of VNET Directors.

 

Goals Soccer Centres (LON:GOAL) announces its final results to 31 Dec 2012. I've always quite liked this company, they are the largest operator of 5-a-side football centres in the UK. However, it still has too much debt for my liking at around £50m, so it will stay on my watch list for the time being. Trading seems to be reasonably solid though. There are also a lot of exceptionals this year, which worries me somewhat.

 

Interim results from dotDigital (LON:DOTD) look pretty good - a strong increase (40%) in operating profit versus the same period last year, although it looks fairly flat against H2 of last year. They have net cash of £4.6m. Looks an interesting company, so I want to flag it, but don't have time to go into the figures now, or I'll miss my train from Hove to London.

 

Results from RSM Tenon (LON:TNO) look pretty awful - this firm of accountants has a disastrous level of debt, now £80.4m, and the shares are little more than options on it surviving - which in my opinion is only likely with a heavily dilutive issue of shares (and who would put money in, just to bail out the Bank?). So treat this one as ultra high risk, given the excessive bank debt.

I am repeatedly amazed at how inept firms of accountants are at managing their own businesses, despite selling themselves to their clients as being financial experts! I trained as a chartered accountant 20 years ago, and in all honesty they are completely clueless about how to run a real business. All they know is how to audit, and calculate tax, but put them in a real world management role, and most of them are useless, in my opinion. RSM Tenon's latest accounts lend support to my opinion.

 

Sorry, but I'm going to have to leave it there for today. I shall report back on how the ShareSoc meeting goes, see you same time tomorrow.

Regards, Paul.

(of the shares mentioned today, Paul has a long positions in CAP and VNET, and no short positions)