Small Cap Report - GBO, TMMG, CRE, API, SAL, CDY

OK, let's look at this morning's RNSs.

Globo (GBO) is a share I've always had nagging doubts about, after reading their Annual Report. It is regularly promoted in the financial press (which rings if not alarm, then at least mild warning bells). They divested their Greek operations in Dec 2012. It's a very lop-sided disposal deal with only E1m received on signing, and the other E10.2m sales proceeds deferred. Hmmm. The first thing I would do when scrutinising Globo's next set of accounts is to write off that E10.2m debtor!The other thing I would look closely at, is their policy of capitalising internal costs into intangible assets. You might find that profit is nowhere near as high as they claim, once you adjust the accounts to a more conservative basis expensing all costs.

However there's no denying that the trading statement this morning sounds very good. EBITDA is expected to be E29m for 2012, up 42%. I'd want to add back the costs they capitalise though, and work out what the profit really is, rather than this inflated EBITDA figure. Their mobile offerings, CitronGO!, GO!Social, and GO!Enterprise have all shown strong sales growth. It does look tempting, but I'm not happy with the accounts, so will pass on it (will probably kick myself when they double or triple from here).

Mission Marketing (TMMG) looks potentially interesting. I think this is a good time to be buying into cheap, cyclical shares, such as PR & Marketing companies - several of which are still on cheap multiples of earnings. They have operational gearing, which means that when the economy improves (as I believe is likely for 2013), then profits rise disproportionately fast when increased turnover is achieved (due to most costs being fixed, so extra turnover drops through to much higher profit).

They put out a nice bouncy RNS this morning, gushing about a new contract win (Harley-Davidson) for their subsidiary "Big", based in Leicester. There are no figures of course, that would just complicate the message! Someone was telling me the other day that they never use advisers based in London, because if you use people based elsewhere in the UK, you get the same service for a much lower price. Worth considering as a general point.

TMMG is on a fwd PER of only 5.8, but it has quite a bit of debt, equivalent to just over 50% of the mkt cap, so on a crude basis that would take the PER up to nearer to 10, which is worth considering, but not amazingly cheap.

Quite low margin work too, and no dividend, but could be a nice cyclical recovery investment over the next couple of years? I bought into Creston (CRE) recently, who operate in a similar space, but the beauty of Creston is that you get a lovely 4% dividend yield whilst you wait for the shares to go up.

With interest rates so low, I think dividends are very important, and buying into high yielding shares is a key part of my investing strategy at the moment. Although I'm also mindful of the fact that we're currently in a roaring bull market for small-mid caps, and hence the emphasis will gradually shift back to aggressive ratings for growth, rather than value.

I think it's important to adapt one's strategy to prevailing market conditions, so I'm also hunting around more for early stage growth situations, so I might drop my minimum mkt cap limit from £10m to £5m accordingly, as I think the risk of de-Listings is receding, especially for companies that are trading well.

A wobbly-sounding statement from API Group has been published this morning. This company put itself up for sale quite a long time ago, and there haven't been any takers yet. Today's update says that indicative proposals have been below the current share price of 90p, and there have been no formal offers as yet.

The shares have fallen to 76p, and risk-reward doesn't look great to me, even at that price. We now know the upside is probably minimal, since bids (if any) are likely to be below 90p, and the downside case (if bid talks are called off completely) would probably take the shares back down to 60p.

It doesn't seem to have paid a divi for 12 years either, so I'm pretty sceptical on this one, but who knows, things can change & maybe a bid will emerge?

Spaceandpeople (SAL) is a £20m mkt cap company which manages promotional space in shopping centres, mobile kiosks, etc. Their trading update today says that 2012 results should be in line with market expectations. That is for just under 8p EPS, so at 95p the shares are on a PER of about 12, which is probably about right. The divi isn't bad though, and a yield of 3.5% is expected for 2012. They also report that net cash has risen to £391k. Not huge, but at least it's positive.

Casdon (CDY) is a tiny company, making tiny products - miniature toys. Their interim results this morning are excellent, with profits having more than doubled to £693k. That makes the £2.7m mkt cap (even after this morning's 20% rise!) look potentially exciting. I tried to speak to the CEO a moment ago, but he wasn't in, so I spoke to their accountant, who wasn't very helpful. Although I did glean that the Interims probably contained one-off sales which are not likely to be repeated, which is hinted at in the RNS. So unsustainable profits, and an uncommunicative company, mean I won't be investing here.

OK that's it for today, have a great weekend, and see you back here on Monday morning.

Best Wishes,
Paul.