Small Cap Value Report (2 Oct) - ABM, BEG, AND, MOS

Wednesday, Oct 02 2013 by
13

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…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

LSE Price
84p
Change
-0.6%
Mkt Cap (£m)
106.1
P/E (fwd)
14.9
Yield (fwd)
3.4




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10 Comments on this Article show/hide all

jjis 2nd Oct '13 1 of 10

Begbies looks fairly indebted too!?

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campbellsmith 2nd Oct '13 2 of 10

Notice that New Pistoria Income Ltd have increased their holding in IndigoVision (IND) from 4% to >14% within six months!

 

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jraitt 2nd Oct '13 3 of 10

In reply to post #77739

Did you look at MOS?

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kenobi 2nd Oct '13 4 of 10

interesting that the market seems a bit relaxed about the uk government shutdown, the bigger problem to my mind is the debt ceiling in 2 weeks time, with the republicans not willing to do anything unless obamacare is stopped or delayed, and the president not facing re election again, probably feeling that the affordable care act is popular among most americans, and likely to become more so as they start to see the benefits, (though obviously not everyone will be a winner). Who will blink first ? will the republicans follow through on their bluff and force some kind of default ? or will they muddle through like they did after the fiscal cliff ? remember what a big deal that seemed like at the time ?

K

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SevenPillars 2nd Oct '13 5 of 10

In reply to post #77747

That's right. The bigger issue here is the debt ceiling. Republicans have tried to link the big Obama issue of health care with a raising of the debt ceiling not just the passing of a new budget. In some ways Obama can't give up on his flagship policy, so as usual this is likely to go down to the wire while the game of politics is played. The longer it goes on, especially if the debt ceiling issue isn't resolved and is linked to the budget issue, the reality is the market will ultimately respond to send a message to the politicians.

This of course raise questions about democracy and the power that markets ultimately have to get what they want. Knock a 1000 points off the Dow in a few days and you will get the politicians thinking and usually responding in the way the markets want. If the politicians continue to play politics and there is any hint at US default, a stock market crash response is likely as happened when TARP was delayed. I can see the same happening again, so right now, until the dust clears on both issues, but especially the debt ceiling, opening any new long positions is potentially dangerous and a gamble on the situation being resolved before the due date. I think you need to be very brave to do that.

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cig 2nd Oct '13 6 of 10

In reply to post #77750

Unless you're short term trading, any long positions, new or existing, should be fine: just switch off the news and come back in one month. Long term holders are not affected by temporary spikes up or down.

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SevenPillars 2nd Oct '13 7 of 10
1

In reply to post #77769

Even if you are a long term investor why would you buy now when things might be cheaper in a month? Maybe a lot cheaper if these immediate issues aren't resolved. Right now you might as well watch and wait until things are clearer. If trading short term it is a different matter, but even here risk and current market action suggests the short side is the better option. That is as long as you are not exposed short in the event of a deal that will probably see the market celebrating again.

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cig 2nd Oct '13 8 of 10

It seems to me extremely unlikely that the issue won't be resolved in a month, because as you've described yourself the market will just go down temporarily for how much it takes for the Republicans to surrender -- Obama has no reason to, he's got a much stronger hand and he's way more clever than the idiots opposite. The uncertainty is only on the exact timing, but it's unlikely to last much beyond a couple of weeks given the disastrous consequences an actual default would have.

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Beginner 2nd Oct '13 9 of 10
2

Re Andor Technology (LON:AND), the company occupies part of the old Mackie's engineering site that was taken over by the government, and the firm has also been handed a large number of supporting grants over the years because it brings employment to a deprived area (though most employees do not actually live within twenty miles of what is a very unpleasant area). What I am trying to say is that whatever the figures say the company depends to a great deal on the goodwill and charity of government. On top of this the yield is very low, and they will soon be faced by increasing competion from outside the UK. This my be a case of sellotaping to bargepoles together to gain the appropriate distance. (Soak ankle in hot and cold contrast baths for 30 minutes a day, avoid strapping, and stay off it as much as possible for now. Good luck!)

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lightningtiger 3rd Oct '13 10 of 10

ADN in my selection would be not for me but would have been good from 2009 to August 2011. I much prefer Globo. A simple comparison of the two companies now speaks for itself.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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