Good morning! This is turning out to be a cracking week, with a lot of my favourite stocks reporting good, or at least acceptable results & trading updates. That's encouraging, as I've had a run of relatively poor performance for about a year, with my long term positions anyway, where I was beginning to think I was a magnet for profit warnings!
I was discussing this the other day with a fund manager, and we agreed that with small & micro caps, to be on the safe side, you have to assume that everything will warn on profits at least once every five years. That's a good rule of thumb anyway, and valuations should allow for this - i.e. small caps should be at a discount to the market as a whole, to accommodate the higher risk.
So it's a real problem at the moment when most small caps seem to be priced to perfection. I'm just not prepared to pay 20 times earnings for businesses that have historically been priced on 10-14 times, which is the situation I'm finding with many small caps that I research at the moment.
Happily, as we have so many to choose from (well over a thousand UK small caps), there are still bargains to be found, but it's getting harder to unearth them. Often I'm finding it's stocks where there is no broker coverage at all, or where the broker forecasts are lagging way behind reality of improving trading updates, that present the best opportunities, one of which is:
Avesco (LON:AVS)
Share price: 179p (up 27% today)
No. shares: 19.1m
Market Cap: £34.2m
(at the time of writing, I hold a long position in this share)
Interim results - for the six months to 31 Mar 2015.
I've been banging the drum about this share quite a lot this year, because the trading updates were flagging a much improved performance, but the share price was only modestly rising. Really good figures out today have put a rocket under it, up 27%, so the question now is whether to top-slice my position or not? I had a price target of 200p in the back of my mind, so it's not a million miles away from that. Let's get stuck into the numbers!
Revenue for H1 was only up 1% on prior year, but the important thing to note is that there were no…
