I Read The News Today Oh Boy! 5-Dec-2017

5th Dec '17 by matylda

33 comments 11247 reads

Morning All!

Gateley Holdings ( Gateley Holdings (LON:GTLY) ) – 169.5p – £181.2m – PER 15.2

Interim Results For The 6 Months To End October 2017 – Revenue up 9.8% to £38.6m (2016: £35.2m), PBT flat at £4.2m following further investment in the business through additional staff and service lines and the Interim Dividend is also flat at 2.2p per share.

Still fails to inspire me.

Iomart ( iomart (LON:IOM) ) – 373p – £401.1m – PER 19.0

Interim Results For The 6 Months To End September 2017 – Revenue up 12% to £47.0m (H1 2017: £42.1m), Adjusted PBT up 9% to £11.6m (H1 2017: £10.6m). A maiden Interim Dividend of 2.25p per share has been declared.

Seems a decent company however these latest results don’t seem to justify a PER of 19 and Stockopedia seems to agree with a “Value” score of 23. The maiden interim provides more assurance here than the actuals.

Vianet ( Vianet (LON:VNET) ) – 136p – £38m – PER 14.9

Interim Results For The 6 Months To End September 2017 – Revenue of £6.71m (H1 2017: £7.06m), PBT £0.90m (H1 2017: £1.13m), Interim dividend flat at 1.70p.

Nothing to make me any more than Neutral here.

WYG ( WYG (LON:WYG) ) – 38.5p – £28.5m – PER 5.84

Interim Results For The 6 Months To End September 2017 – Revenue up 3.8% to £76.2m, Loss before tax £2.8m (H1 2016: profit of £0.8m) after provision of £2.45m for legacy contract claims from discontinued businesses - So with Revenue up 3.8% why is the loss not limited to £0.8m - £2.45m (-£1.65m)? The Interim dividend is flat at 0.6p per share.

No signs here for me to be interested any time soon.

Character ( Character (LON:CCT) ) – 427.5p – £89.4m – PER 10.8

Preliminary Results For The 6 Months To End August 2017 – “A solid finish to the 2017 financial year in-line with current market expectations - Even in the current tough trading conditions, we expect our cash flow to remain positive, our reserves…

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DWit199

5th Dec '17

The Stockopedia Smart Money Playbook addresses this very issue in the first chapter.

https://assets.stockopedia.com/ebooks/smartmoney/published/smartmoney.pdf

I'm not sure what happened to the InsiderRank that was promised a while ago. Presumably it's still being developed but the gestation period has been longer than an elephant, so I am expecting great things when it finally becomes available.

Albertos

Amino Technologies (LON:AMO)

Whatever is going on at Amino has little to do with directors selling/buying. There has been an institutional holder who wants to get out - Azini - they happened to have had a director on the board - Michael Bennett. He left in October with a very curt thank you from the company - which just about says it all - after Azini selling out from 11% in Dec 16 to a current 4%. It's interesting to note that other of their major shareholders have increased their holdings - probably from Azini's stock.

I always think of major shareholders / directors dealings as indicative at best, but in this case probably misleading. (I admit to a small holding here).

If nothing else why do we as investors state it is necessary to hold a diversified portfolio and then expect directors to concentrate theirs in the company/ies they a responsible for.

(?? Herbie, the last time Amino was at 75p was in 2013.)

Phil

Rusty2

Well that's what Stockopedia is quoting "2017-11-27 D.K. McGarva BUY 14,400 @ 75.00p 10,800"

That's under a company SAYE scheme - you'd have to be mentally insane not to go for. Zero indication on company prospects.

Phil

But that's my point. The only other buy recently is 2,780 @ 179.40p £4,987. Si said other directors have been buying, well I can't see it. Bennett still has about 3.5m shares?

Ok

See your point.

But I still think its a basic misconception to say Bennett has 3.5m shares - Azini does - he's no longer a director and they're looking for an exit. I'm tempted to agree with the conspiracy theory expressed somewhere above that the recent call for a GM to approve share buy-backs is to facilitate this.

Phil

rhomboid1

Bennett has no shares, he’s a founding partner of a VC fund that invested years ago in AMO and as they always do they’re realising their investment , as such he’s deemed to be an interested party in that transaction- it’s not a director sale , in substance it’s an institutional trade.

on other directors deals you’ve missed this;

‘- On 7 February 2017, Akiko McGarva, wife of Donald McGarva, Chief Executive Officer of the Company, purchased 7,805 Ordinary Shares at a price of 192 pence per Ordinary Share (the "Purchase"). Following the Purchase, Donald McGarva and his PCA's are beneficially interested in 450,453 Ordinary Shares, representing approximately 0.6% of the Company's issued share capital.

- On 7 February 2017, Keith Todd, Non-Executive Chairman of the Company, exercised options over 50,000 Ordinary Shares at a price of 125 pence per Ordinary Share (the "Exercise"). Following the Exercise Mr Todd and his PCA's are beneficially interested in 516,665 Ordinary Shares, representing approximately 0.7% of the Company's issued share capital. The Company has transferred 50,000 Ordinary Shares out of treasury to satisfy the Exercise.’

https://www.investegate.co.uk/amino-technologies--amo-/rns/director-pdmr-shareholding/201702071239562503W/

HTH

Howard Marx

6th Dec '17

On Wall St the adage is ‘There are many reasons insiders sell, but only one reason they buy.’

Leslie Jeng published a paper in 1999 which found:

Purchases by directors showed positive future ‘abnormal’ returns (returns adjusted for risk)
Director sale transactions showed no significant return pattern, positive or negative

http://www.nber.org/papers/w69...

matylda

Like the quote and thanks for the article - Much appreciated.

Geronimo9999

8th Dec '17

Amino Technologies (LON:AMO) Very encoraging read from all contributors to this thread. I have cancelled my stop loss on this stock as many ideas herein promulgated are very insightful. A great community out there!

simoan

I have always felt directors buying in the market was far more important than selling, so I am always more sanguine about the latter. I have no idea why anyone would write a paper on it though as the reason for buys being a better indicator are obvious when you think about it. What most people miss is the asymmetry at work i.e. most directors of listed companies either have equity because they founded the company or they acquire holdings through share option schemes and they can only ever liquidate the shares by selling in the market. So sales are always going to be more prevalent.

Of course, there are some exceptions and you always need to check that buys by NEDs in particular are not part of a pre-agreed share plan as part of their employment contract!

All the best, Si

11th Dec '17

Hi

Sold out of Amino Technologies (LON:AMO) today.

Did some analysis over the weekend after I noticed the "in line with expectations" trading update also pointed to a Revenue contraction - put down to "mix". Rookie error in not reading thoroughly. They said:-

"Gross profit and adjusted profit before tax are expected to be in line with market expectations, whilst revenue is expected to be similar to the previous financial year due to product mix."

This gives a falling revenue profile which is not pretty - H2 2016 £42M, H1 2017 £40M and H2 2017 £35M. Whilst revenue is not everything, something they said in the H1 2017 interims clashes with "Gross profit and adjusted profit before tax are expected to be in line with market expectations".

At the H1 2017 interim stage they said:-

"As announced at the time of the Group's trading update on 6 June 2017, gross margins in the second half are expected to be lower as a result of the shift in product mix towards newer product lines and industry wide pricing pressures for certain components in line with the current industry cycle. As is typical with the launch of newer products, these will command lower gross margins at first, improving over time as products are optimised. On a full year basis, we now expect gross margins overall to be higher than previously expected at circa 42%. Looking further ahead, we expect margins to also benefit from the execution of our pipeline of software opportunities."

At a 42% GM they cannot hit market expectations of 13p EPS (per Stockopedia). In fact they would need to increase GM compared to H1 2017 which they were at great pains to say would fall at the interim stage.

Something is not right here and it is quite possible there is a valid explanation - but my rule is that if the little information management send out conflicts then it is time to sell.

So perhaps Azini was right.

This is just my opinion, DYOR and no advice intended.

Phil

12th Dec '17

Phil,

At a 42% GM they cannot hit market expectations of 13p EPS (per Stockopedia). In fact they would need to increase GM compared to H1 2017 which they were at great pains to say would fall at the interim stage.

TBH I don't know how you can extrapolate from the Revenue and Gross Margin to make any kind of accurate prediction of EPS? You must have a very detailed model of expectations for the various expenses, tax etc. to be able make such a conclusion given only this information.

I think it's entirely possible they can manage 6p for the second half to make the forecast 13p FY EPS. You either trust what management say in trading updates, or you don't, because they have the numbers and we don't! If you don't trust them then you should sell so you have probably done the right thing. I have no reason to distrust them thus far - they have made sound acquisitions and managed the company well through a difficult patch a couple of years ago.

I'm struggling to find ideas for new investments at the moment and so I'm more likely to buy more Amino Technologies (LON:AMO) ahead of the results, particularly if the price weakness continues. I can't see many more solid places to have some money parked currently, especially given this part of the update:

The Company's cash position at 30 November 2017 was 13.0m (30 November 2016: 6.2m) as a result of good operating cash conversion.

"Good operating cash conversion" - music to my ears!

Simoan

Enjoy! Fill your boots!

Revenue and gross profit are over 50% of the story - you really don't have to be a prophet to figure out the rest.

I hope I'm wrong for your sake.

But to invest in a company with 2 half years of falling revenue, doesn't seem to know what its gross margin is from one day to the next is way too contrarian for me.

Phil

I hope I'm wrong for your sake.

I think your wrong. This was a year end trading update and management have the pro-forma numbers for the year in front of them. Even if you were right, how bad could things get? The balance sheet is rock solid with net cash. And BTW please don't worry about me! Amino Technologies (LON:AMO) is just a small part of my portfolio and not one I lose much sleep over.

You still haven't explained how you calculated they couldn't possibly hit the EPS target? I'm all ears and enjoy listening to a good bear case for my holdings but as yet you've not made one. IMHO you're making way too many assumptions about expenses, tax charges etc. in your calculation - it's like trying to solve simultaneous equations with 10 variables when you only know 2.

14th Dec '17

Si

Sorry I've had no internet for a few days.

(Lesson 1, if you own Sky, sell it, if you don't, never consider it.
Lesson 2, not having the internet is good for your wealth - wasn't there a study that proved the most successful investors were either dead or unaware they had shares?)

I was good at simultaneous equations at school but for the life of me I cannot remember how I used to solve them. Might be on dangerous ground here, but I'm pretty sure I wrote an algorithm in the late 70's prior to converting it into Algol 60 and inputting, on paper cards, into a computer the size of a multi-story car park - waiting a week to get the output back. Happy days.

I had a few bits of information:-
Trading statement says revenue will be the same as last year - therefore £75M.
H1 2017 interim statement was at great pains to say that margins would fall for the year - gave the figure of 42%.
Forecast EPS is 13.1p, number of shares in issue is 71.6M (both from Stockopedia).

Therefore, according to the top 2 bits of information the gross profit will be £31.5M.
According to the last bit of information, profit after tax will be £9.5M allowing for unusual items.

This gives a "gap" of £22M. I invite you to look at the income statements on Stockopedia - ignoring tax, interest and unusual items the expense cost structure of Amino totals £24.6M for the year 2016 and £12.4 for the 6 months of H1 2017.

Without some savage cost-cutting in H2 2017 (which was not alluded to at the H1 stage) they cannot reach the profit estimates for the year 2017 at a 42% gross profit margin.

Can they actually reach their profit estimate for the year? Yes they can but the profit margin for the year would have to be far greater than they stated at the H1 stage - as you say, they have all the information to their finger-tips, so what they said at H1 seems to be wrong. This concerns me, not just because seven and a half months into the year they said that margin was falling and four months later they say margins are rising.

The reason they said the gross margin would be less than suggested by the first half was that the launch of their new products would depress the margin - new products commanding less margin than old legacy ones. So if margin is going up it implies the launch of these new products, their future, is not going as well as they expected.

This was my reasoning.

Happy Xmas and a prosperous New Year

Phil

(My opinion, DYOR and no advice intended)

15th Dec '17

I sometimes greatly enjoy life without internet connection, especially when I'm on holiday for a few weeks when I don't even keep up to date with the news back home in the UK. I find it allows me to think more clearly about things that really matter in life. Of course, it's OK when internet absence is voluntary but not good at all when the muppets at your broadband supplier screw up :( However, in my experience they're all as bad as each other.

I see where you're coming from in getting from the top to bottom line. I did have a look at the recent income statements and did a similar analysis. There's just too many unknowns to make a decision to sell an entire holding based on this type of extrapolation IMHO. I have to trust the Amino Technologies (LON:AMO) management given their record to date and I have no reason to believe they are covering anything up given that they must have initial numbers in making the trading update.

The 13.1p forecast represents YoY EPS growth of 30%. It's on a PER of 14 so the PEG is 0.5; cashflow generation is excellent and the company has no debt/ net cash, plus the outlook in the trading update was positive for the year ahead in terms of the sales pipeline. It has a StockRank > 90, an above average yield, well covered dividend and good quality scores. If I start dumping holdings like Amino, I won't have a portfolio left. As someone that is already 35% in cash and soon to be 50% due to a large bonus payment into my SIPP, it will take a lot more than several assumptions about the 2017 income statement (that I am in no position to make) to get me to sell out at this point.

Happy Xmas and a prosperous New Year to you too!

6th Feb '18

Hi Phil,

Well, I'm pleased to say you were wrong! :-) Good results from Amino Technologies (LON:AMO) this morning and the market drop has given an opportunity to buy back in for little more than you sold at in December. Adjusted EPS came in at 15.27p for a 12% increase on last year. So a PER of 12, a nice positive outlook, lots of cash and 10% increase in the dividend too. What's not to like?

Happy Days, Si

Hi Si

Thought you might drop me a line today.

Still not totally sure - perhaps the next set of results from Amino Technologies (LON:AMO) will convince me - I'd like to see some top-line growth.

In the meantime - enjoy!

Phil

Yes, I enjoyed the results so much I topped up Amino Technologies (LON:AMO) at 191.4p. Also managed to get some more Air Partner (LON:AIR) at 120p this morning. Happy Days! Let's hope there are some more bargains tomorrow...

Thanks for your analysis which made me revisit the Amino trading statements which was really helpful. EPS would have been bang on 13.1p were it not for a tax credit. Also interesting to see a big increase in software and services revenue which will hopefully become a permanent fixture going forwards.

I Read The News Today Oh Boy! 5-Dec-2017

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Matylda

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