Small Cap Report (8 Mar) - IND, AGA, CUP, SCO, ATY

8th Mar '13 by Paul Scott

6 comments 12783 reads

Pre 8 a.m. comments

I've been away from home, working on two tiny laptops this week, so have been not terribly well organised. So I forgot that it was interm results day for my largest shareholding, Indigovision (LON:IND) yesterday, and ended up reading the figures on my phone on a train in the afternoon!

It seems to me that IND's 3 year turnaround plan under new CEO Marcus Kneen is well underway, with sales growth accelerating in Q2, and a confident outlook statement that full year results should beat last year's, therefore the sales pipeline is clearly strong. It's all coming together nicely there, after many years holding the shares, the company's full potential appears to be (at last) emerging. I'm seeing the company next week, so will comment further then, but everything the CEO told me six months ago is happening, and the market has not yet woken up to the significant turnaround that is happening at IND.

There are some really good underlying signs, such as that "3 former top peforming members of the sales team have re-joined the business". Also IND has poached a top sales manager from its largest competitor in Canada, who has commented on IND's new product pipeline being so strong that it was a no-brainer to join them. These sort of signals can often be the precursor to a big improvement in financial performance in my view, so I am quietly excited about the prospects for IND later this year.

Gross margins fell sharply, but I discussed this with the CEO some time ago, and was satisfied with his explanation that margin simply go up & down (as they have with IND) depending on which particular products & markets happen to skew the sales mix in a particular reporting period. There isn't any underlying trend, so expect margins to fluctuate between 50-60%.

In the meantime IND have raised the interim dividend by 10% to 5.5p, and 12p forecast for the full year provides a healthy yield of 3.6%. The 70p Special Dividend last year also demonstrated management's focus on delivering shareholder value, so any suprises with dividends are likely to be on the upside.

The forward PER is about 10, as this year (ending 31 Jul 2013) is expected to be H2 loaded (which they have been saying for some time, so it's not an excuse) based…

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campbellsmith

8th Mar '13

Greetings Paul,

I whole-heartedly endose your views on the AIM market. What next? Write to Vince Cable?

Campbell

Paul Scott

Hi Campbell,
I've been talking to the Directors of ShareSoc about how we can lobby for changes to the small cap market to improve liquidity & narrow spreads.
They welcomed me getting involved, so it's a project I'll be getting involved in, and trying to push for change.
Regards,
Paul.

SevenPillars

You will certainly get very little argument and lots of support from investors (and traders) to sort out this market maker vested interest spread issue. You are totally right to say that it does put people off from wanting to invest, after all who wants to start down 5-20%+ which can be the case on many of the AIM and smaller companies, when you can go for something slightly bigger listed on the full market and pay a small % on the spread?

AIM spreads are often a joke, but if the argument from the market makers is often one of liquidity, what is likely to happen if they are accepted into ISA's from next year? In theory this might attract more investors to AIM companies, but surely only if the spreads are better. Acceptance into ISA's should help liquidity, but only if the market makers play ball.

There is no reason why what you are suggesting, the move to a an order-driven electronic order book should not be done other than vested interests looking after their own money making interests. They behave as if technology hasn't moved on and it's still pre-big bang. Ironically, these are the type of people that tell others, especially businesses to get with the modern age or we will mark you down, yet fail to do so themselves. Seems to me they are engaged in a monopoly and restraint of trade, yet seem to get away with it.

jraitt

Hi Paul,
May I suggest that when looking at Investment Trusts you also look at their warrants. These are a very good way to leverage your investments without much of the risk usually associated with leverage as the risk can easily be valued. They are particularly good in the present market, but may be too illiquid for your investing style.
I enjoy reading your posts and learn much - a nice combination - keep them flowing,
John

ericb

if ATY wasnt listed the fabulously named Hugo Deschampsneufs wouldnt get his regular media exposure. He really should write some articles for Stocko - how about it Stocko ??

garbetklb

9th Mar '13

Hi Paul
There are some very interesting Investment Trust etc plays around. Discount on NAV is good starting point, but not THE answer when looking at unlisted assets, where valuation policy & robustness are key.
It amazes me that Investment Trusts have been so downplayed compared to open ended vehicles.... Except, when you look at IFA remuneration, it doesn't at all!
Maybe RDR will also be a factor in narrowing discounts?
Garbetklb

Small Cap Report (8 Mar) - IND, AGA, CUP, SCO, ATY

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Paul Scott

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