Good morning! Futures are indicating that the FTSE 100 should open slightly down, 12 points to 6,437. The US Govt shutdown does not seem to have spooked the markets (yet?) but I'm sure is making us all a little more nervous than we would otherwise be. I have noticed some small caps that I monitor and hold positions in, retrace quite a bit from recent rises, which is beginning to present the odd buying opportunity.
What I like about small caps is that it only takes one or two clumsy sellers, and/or a flurry of panic selling from short-termers to drop the price quite a bit - and if it starts triggering stop losses or forced selling at the Spread Betting companies, then all hell can break loose! These should be seen as good buying opportunities in my view, providing you are well prepared, having done your research, and have screened out companies with weak Balance Sheets and excessive debt.
Of course you can only buy if you have some cash on the sidelines, and/or have only used little or no gearing. It's so satisfying to be buying the dips, rather than being a forced seller from margin calls on the dips.
Not a great deal of company news this morning. Albemarle & Bond Holdings (LON:ABM) has issued a very worrying-sounding update on their financing, with a failure to reach agreement with its largest shareholder over underwriting an equity raise of £35m.
Two days ago I mentioned the problems at ABM, and commented;
"So ABM shareholders have woken up this morning to a near-50% drop in the share price, down to 67p at the time of writing. I wouldn't touch them with a bargepole, with that level of uncertainty over their financing. It's a very powerful reminder that Balance Sheets really do matter a lot, and that highly indebted companies are accidents waiting to happen, which is why I don't go near them."
Today's announcement makes it clear that the situation has got a lot worse, indeed looks to be critical. So anyone holding these shares now needs to understand they are a binary bet on the banks continuing to support the business, but hefty dilution now looks inevitable at some point, and it's anybody's guess at what price.
Risk averse investors wouldn't have bought the shares in the first place, so it's difficult to know what the share price will do now, but I would guess that another precipitious fall is likely. Personally, I would just dump any shares in it after today's announcement, take the hit, and move on.
Anyway, if you do hold the shares, then be aware that a 100% loss is now a very real possibility here. This excerpt from today's RNS would make me very nervous if I held any shares;
The Company has therefore signed the agreed terms of a deferral of the 30 September 2013 covenant test until 30 October 2013 with its lending banks and is now focussing its efforts on constructive discussions with the banks to explore all possible options to remedy potential covenant breaches later in the current financial year.
The deferral agreement will also lead to the appointment of a Chief Restructuring Officer to the Board by 10 October 2013. As at 30 September 2013, net indebtedness was circa £51 million. The terms of the deferral agreement cancel undrawn commitments under the Company's lending facility, reducing the facility from £65 million to £53.5 million.
Begbies Traynor (LON:BEG) announce a small acquisition, on what strike me as good terms - heavily biased towards deferred consideration on performance targets, which is exactly how it should be done, especially with people businesses - so that the people remain motivated to continue delivering sales & profit.
I recall when last meeting with Begbies management, possibly about a year ago from memory, that they indicated vendor expectations on pricing were beginning to come down to more sensible levels, which opens the door to small bolt on acquisitions at a reasonable price. That's clearly a positive thing, especially when market conditions are so subdued.
Sorry about this, but I can't find anything much else of interest this morning. Andor Technology (LON:AND) issues a trading update, and well done to their PR people for giving it a simple subtitle saying, "Trading in-line with expectations" - perfect, why can't everyone do this? Just put the key message, truthfully(!), as a heading. Investors just want clarity, not spin, so this is good to see.
On checking Stockopedia's figures though, the forward PER of 18.9 doesn't exactly look a bargain here, although the company has built up a material cash pile. It pays a small (sub 1% yield) dividend too. Although I question whether this should be priced as a growth company any more, judging by the last few years's sales & profits, that is open to questioning. On the upside, the outlook part of today's statement refers to record order intake, but with uncertainty over timing of customer call-off of those orders.
I don't know the business, but the valuation is too high for me to want to investigate further.
Results from Mobile Streams (LON:MOS) look good at the headline level. I don't usually look at companies with predominantly overseas operations, and this one looks messy in that its cash is tied up in Argentina. Also I feel that high growth companies in the tech sector can have such a short lifespan in the growth phase, before something else comes along that wipes it out, that you really have to question hard whether paying a high multiple for rapid growth that will probably be unsustainable, is wise.
I don't know, it's not my sort of thing at all. It looks cheap on a PER basis, about 10, but with all that political risk, is it worth taking a chance? It's not for me.
Right got to dash, sorry this has been a bit shorter than usual today, there just wasn't a lot of news of interest to me. Hope to see some of you at the ShareSoc technology seminar tonight, and a big thank you to everyone who has sponsored me in my charity fundraising for Scope - am running the London Parks Half Marathon on Sunday. My latest training run last night was a disaster, as my bad angle kept seizing up, so it took me 1hr 15min to hobble round 10.3km, so this is certainly NOT going to be a pleasant experience for me on Sunday, but hey ho, I'm committed to doing it now! Donations for Scope gratefully received on my page here.
Same time tomorrow!
(of the companies mentioned today, Paul has a long position in BEG, and no short positions)