Small Cap Report: TRCS, IND, SPA, VLX, LOQ

Firstly, I'm pleased to announce that I've linked up with Stockopedia, so a warm welcome to new readers from there. Also just a quick reminder that this is absolutely NOT a share tipping blog, so nothing contained here is ever financial advice. It's just a place for discussion of small caps which interest me. The mantra here is Do Your Own Research! (DYOR).

Tracsis

Shares in Tracsis (LON:TRCS) have performed very well, and am kicking myself for not having bought any when it was recommended to me by a friend some time ago. They are a small software company, supplying mainly systems to manage public transport, especially trains. Serial out-performing trading statements have brought it a loyal investor following & strong share price rises. The shares are up 10p today to 143p, a mkt cap of £35.6m. Growth is stellar, with turnover up 112% to £8.7m (only a quarter of the mkt cap though), and adj EBITDA up 164% to £3.3m. Cash balances are very strong, up £2.9m to £7.6m.

In fact it has a cracking balance sheet, with current assets of £9.1m (incl. £7.6m in cash), and just £3.4m total creditors. So that gives them about £5-6m in surplus cash that could be used for acquisitions or divis/buybacks. Stingy dividend though, only 0.55p for the full year.

The outlook sounds buoyant, but I wonder how sustainable these figures are? I don't know how much of the revenue is recurring, is there not a risk that at some point the large new contracts could dry up, and profits might vanish?

The bottom line is this. If profits growth can be maintained, then with 10p EPS in the bag for y/e 31 July 2012, the shares are cheap on a PER of 14. OR, if those profits are unsustainable in the long run, then the company could be set for a fall. On balance I don't want to take the risk, so will pass on this one. But I can see the logic for holding, if you know more about the business than I do, and are convinced it can continue growing. 

Indigovision

Note that Indigovision (LON:IND) - which is my largest market position - has gone ex-divi today, hence the 85p drop. A 5p final, and 70p special divi will both be paid on 30 Nov, if they are (as expected) approved at the AGM on 8 Nov. To my mind, there is no way the prudent management team would be prepared to give away substantially all of the cash pile that they've carefully built up over 5 years, unless the company is trading its socks off. Therefore I am expecting a positive AGM trading statement next week. I might well top-up with some more at 410p, having managed to buy a couple of cheap large blocks of stock at below market price yesterday for friends. I'm surprised they've dropped by more than the divi amount today, but maybe the 17% fall due to going ex-divi spooked some small holders into selling, not realising that it was the divi effect accounting for 75p of the fall? Who knows.

It's back from the dead day, with CPP Group rebounding on news of a possible bid. The shares have risen to 28p, after recent lows of well below 10p. 

Dismal (for investors, if not management) CD/DVD distributor Mbl Group (MUBL) has also recovered somewhat, up 21% to 14p today. Shaft Sinkers (SHFT) is up 8% to 41p, on news that operations have resumed. 

Finally, joke stock Pursuit Dynamics is trying to tap gullible investors yet again for more money - this time they want £6m at 3p a share. Wasn't long ago that this perpetual hype machine was over 600p a share.

So having veered away from that last paragraph using my bargepole, let's get back to some decent companies.

Volex (LON:VLX) might be worth a look. They make electrical cables in the Far East, but it's a UK company. They've had a lousy H1, to 30 Sept, reported today. But the outlook confirms full year revised guidance, and sounds positive for next year. So I'm tempted to dig a bit deeper here, as the fwd PER is showing as about 6, and there's minimal net debt. Could be a nice turnaround story? I shall report back if it floats my boat after more research.

Virtual queuing systems (for theme parks) provider, Lo-Q (LOQ) reports with an in line (haha, geddit?!) trading statement. It's delivered very well indeed, and well done to all my friends who've made a packet backing this one, but with the PER up in the mid-20s, it's difficult to see much value there in the short term anyway.

Had a quick glance at interims from 1Spatial (LON:SPA) , a management consultancy & software business. They just about managed to scrape into the black at the EBITDA level, so a £14m mkt cap doesn't look interesting to me.

OK that's it for today. Thank you again for all the kind donations to my charity fund-raising efforts in advance of my first ever Half Marathon attempt in Feb 2013. The training runs are going really well, and managed my longest & quickest to date last weekend, running 7.5 miles in 1hr 21mins. Not too bad, considering I'm 44, and 2 stone overweight, so not built for running! Your donations are certainly spurring me on, thanks! If you would like to show some support, please donate via this link to my JustGiving page.

Regards, Paul.

(of the shares mentioned above, Paul holds a long position in IndigoVision only, and no short positions)