Small Cap Value Report (23 Feb 2015) - MAR, BOOM, AVAP

Good morning. A quick & relatively early report today, as a lunchtime meeting in London beckons. As the sun is shining, I might even dust down my bike and take it with me on the train - there's nothing quite like turning up at meetings drenched in sweat!!

Mar City (LON:MAR)

The fallout from 4pm Friday's shock profit warning continues today, with the share price down another 21% to 52.5 at the time of writing. Whilst this is now below NTAV, given the appalling lack of financial control demonstrated in Fri's announcement (retracting an inline trading statement just 3 weeks earlier and almost halving estimated profit for 2014), then I don't think any of the figures coming from this company can be relied upon at the moment. They need to get a new, and credible FD in place, and have the 2014 figures audited, before I would be prepared to look at these shares again.

I'd want a very deep discount to NTAV to even consider taking a punt on these shares now. Everything has changed. The house broker has this morning withdrawn their estimates too.

The proposed property transaction with management is dreadful I think. If I held shares, I would vote vote against it. If mgt owe the company money, then they should pay it in cash, with interest. It's their problem to dispose of property to raise the money, why should that be foisted onto the company in lieu of cash payments? Or at the least, the properties should be sold at a discounted price, which would be in line with the open market fire sale value of those properties, not a theoretical price calculated by a professional valuer.

Audioboom (LON:BOOM)

This was a nice little speculation last year, but looking at the results today, I'd say you'd be pretty crazy to still be holding the shares. Revenue for the 11 months to 30 Nov 2014 was only £51k! So the combined efforts of all the people in this company can only generate the same sort of turnover as a self-employed individual doing something moderately technical.

The adjusted operating loss was £2.1m, rising to £3.9m after exceptionals and share based payments.

Audioboom is a nice app, which I use myself. But seeing these figures, if I held the shares I would have immediately sold. They clearly have a big problem generating any revenue at all, and profits are probably never going to be achieved. It's going on my bargepole list on fundamentals. There again, I wouldn't short it, as funny valuation metrics (based on £x per user) can be used on deals in the social media space, which have been known to give sky-high valuations for apparently worthless businesses. So it would be far too dangerous to short this, on the off-chance that say a US tech company might suddenly appear with a huge premium priced bid approach.

With £8.9m cash in the bank, BOOM won't need to raise any more cash for the time being.

Avation (LON:AVAP)

We were discussing this aircraft leasing company in a lot of detail last week. There's an announcement his morning that they have signed new 6-year leases on 4 aircraft with Flybe. Avation is expanding at quite a pace, which should drive earnings up, as their cost of capital is also falling, as reported last year.

The house broker points out today that AVAP is looking good value on a price to NTAV basis (the best way of valuing leasing businesses in their view, which makes sense to me). Also the broker points out that AVAP has options over 22 new ATR planes, which have a premium value of $1.4m each, so an additional $30.8m value which is not yet reflected in AVAP's balance sheet.

So if they are right about that, then the shares could possibly have more upside? I think they are interesting at this level (140p), and hold some personally, as indicated last week.

Gotta dash, see you tomorrow!

Regards, Paul.

(of the companies mentioned today, Paul has a long postion in AVAP, and no short positions. A fund management company with which Paul is associated may also hold positions in companies discussed)