PEG good value?

13th Sep '17 by GJBlakeley01

9 comments 4561 reads

I am just starting out in the world of the stock market really and though I would start a discussion in order to increase my learning from the experience of the community:

Im looking at Petards (PEG) as it seems to me that there will be increased appetite for more advanced security and surveillance systems. The company seems to be quite diverse in offering sales and ongoing servicing to the sector so will hopefully be building up ongoing maintenance contracts as well as revenue from new sales. Half year report sounds upbeat and revenue, sales and net profit are rising year on year. Plenty of cash, working capital and low debt.

With a stock rank of 90, health trend score of nine and an A+ magic formula score it looks pretty good to me. I feel that this will be a decent growth market to show some upside potential considering the -6.9% slide today.

What are people thoughts/views please?

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Effortless Cool

16th Sep '17

I sold out of Peg a few months ago at around the 28.5p level, but don't really see any value at present.

I have two key concerns:
- In spite of a strong order book, they seem unable to drive revenue meaningfully higher. this is needed to derive benefits from operational gearing.
- There is a large convertible issue that matures in September 2018. The conversion price is 8p and conversion will add about 14m shares, i.e. about 33% of those currently in issue. I suspect that most of the convertible holders will be sellers, and this is a potentially huge overhang.

gus 1065

17th Sep '17

Hi GJB.

In addition to the comments made above by EC, my initial concerns about Petards (LON:PEG) are the lumpy nature of its business (large ticket capital investments in security CCTV) which can lead to a bit of a feast or famine situation in their revenues and cash flows. Being so small, do they have the capacity to accommodate larger contracts in the good times or hunker down and live off any regular service type income in bad? Also, their very small scale/weak negotiating power compared to their large prospective customers may be an issue - will they end up being low margin price takers stuck with cost overrun risk to secure business? I recall they secured a decent contract with Siemens in 2016 but the business doesn't seem to have kicked on since then, evidenced by the lack lustre share price performance over the past 6 months. I also note from their financials that the business seemed to fall off a cliff in 2013. I would want to look into this in a lot more detail to understand the circumstances behind this and whether there is an inherent risk that could come round again. Last but not least, as with most micro caps, bear in mind the large bid/ask spread (about 4%) and the likely thin liquidity that might make it hard to open and close a position.

As you say, good Stock Rank and other metrics but care needed with micro caps IMO.

Best,

Gus.

dpo1130

Chairman sold shares prior to result was not a good sign:

(Petards, the AIM quoted software developer of advanced security and surveillance systems, announces that it has received notification that Raschid Abdullah, Chairman, has sold 122,500 ordinary shares at a price of 33.5 pence each. Following the sale, Mr Abdullah is directly interested in 1,158,972 ordinary shares)

Chairman sold shares prior to result was not a good sign:

(Petards, the AIM quoted software developer of advanced security and surveillance systems, announces that it has received notification that Raschid Abdullah, Chairman, has sold 122,500 ordinary shares at a price of 33.5 pence each. Following the sale, Mr Abdullah is directly interested in 1,158,972 ordinary shares)

GJBlakeley01

27th Sep '17

thank you : )

FREng

13th Oct '17

According to Stockopedia, the broker has reduced their 2017 net profit estimate by £375k to £675k in the past month but nudged up the estimated EPS. That seems to imply a forecast fall in the number of shares. Any ideas?

cheehowan

16th Oct '17

The problem in this space is the Chinese version products which are cannibalising the market.

7th Dec '17

Petards (LON:PEG) continues to fall. There's a meeting on 14 Dec where it seems certain that the vote will cause the outstanding loan notes to be converted to shares at 8p per share creating 18,498,400 New Ordinary Shares in exchange for all of the Company's outstanding 1,479,872 Loan Notes in issue.

If any significant number of those new shares are sold, it may drive the price down from today's 17 - 18.5. Sometime soon PEG will be a strong buy.

17th Mar '18

Results for 2017 were out this week. They were okay on the face of it. However:
- Revenue was barely up on the prior year and, with the order book down versus end-2016, it may be hard for them to deliver market expectations (up 13%) in 2018.
- Capitalised development costs were just over £1m. This is about 25% of the total payroll net of directors remuneration, which seems extraordinarily high.

PEG good value?

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GJBlakeley01

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