Small Cap Value Report (24 Jul 2015) - SAL, BOOM, GDWN, KBC

Good morning!

It's my last day in Spain today, and have to say I'm very impressed with Sitges - haven't been here for 20 years, and it's improved tremendously in that time - much better quality restaurants, and a lovely long promenade which has free WiFi in places. We've found the people here very friendly & helpful, everywhere we've been, and prices are reasonable. So a pleasant holiday spot, easy to get to (only 1.5 hr flight) which I will definitely be revisiting. No mozzies here either, which is a big plus for me, as I get eaten alive in Greece!

On to today's markets.

Spaceandpeople (LON:SAL)

(at the time of writing, I hold shares in this company)

I see that there has been a flurry of buying today, and the price is up 4p at the time of writing - which is encouraging, as that usually happens a day or two before good news of a contract win is announced.

Thinking about timings, we're due an update on the likely Network Rail contract win, which I hope could become a nice additional earner for this niche marketing company (which manages kiosks and promotions in the concourse space in shopping malls, and other open spaces).

It's sad that we have to rely on insider dealers to flag up that good news is in the pipeline, but that seems to be the way the London market works. So if a share price moves sharply, it's often because someone with inside information is getting in or out ahead of that news being announced. It's very rare for anyone to be punished for this, which makes a mockery of the law on insider dealing.

After the initial flurry of insider deals, you then get perfectly legitimate follow-on buying from other people who have spotted the unusual trades & price movement, and have worked out that the previous trades were probably initiated by someone with inside info.

If I can spot suspicious trades, why can't the FCA?! I think this whole area needs to be drastically tightened up.

Audioboom (LON:BOOM)

Share price: 5p (down 9% today)
No. shares: 533.3m
Market cap: £26.7m

Interim results - this company is a social media website & app, which concentrates on distributing audio content, particularly the spoken word. It's a smashing little website/app, in my view. However, I don't think it's a viable business at all.

The figures are attrocious - only £46k turnover in the six months to 31 May 2015, and a loss before tax of £3.3m, so at that rate of losses, the remaining cash of £6.2m is likely to only last about another year, when the begging bowl will come out again.

I'm really shocked that they are burning through the cash so recklessly, as there's no guarantee anyone will refinance the company this time next year. OK, they do have some big name financial backers, so maybe more cash has been promised?

Thankfully, my friend Was Shakoor talked some sense into me over lunch last autumn, making it clear that the company was little more than a pipe dream, and the shares were bound to collapse sooner or later, so I sold out near the top at about three times the current share price. As usual, Was was right.

As a general point, it's so important to discuss the bull & bear case, and it's often bears who have done more research, and better understand the fundamentals, in my experience. Whereas bulls often rely on blind faith. So I very much urge readers to abandon the emotional urge to demonise bears, and make personal attacks on them, but instead to take notice of what they're saying.

Generally my lunches with bears save me a lot of money, as they usually persuade me to ditch my story stocks just as they are starting to unravel. I'm very grateful to Lucian Miers and Matt Earl for making me (reluctantly) realise that Tungsten (LON:TUNG) was not worth over £200m at the time we discussed it a while ago. If I'd hung on, as the story unravelled, then I'd be sitting on hefty losses by now. The thing is, you can always buy back at a later date, once it's stopped falling, so decisions don't have to be final.

If in doubt, sell out, is the best approach in my view, when it comes to story stocks. I'm trying to wean myself off them altogether, as they nearly always go wrong. The time to invest in story stocks is early on, when they're doing that first big move upwards. Then once they've reached a silly valuation, it's best to just ditch them and move on. The danger comes when you start to actually believe all the hype.

Anyway, Audioboom reckon they can generate revenues soon, saying today;

"We are confident of our ability to deliver substantial growth in advertising revenues next year and remain focussed on achieving our long-term goals, targeting cash generation and profitability in 2017."

Goodwin (LON:GDWN)

Unfortunately, the technical gremlins have struck again, and half of today's report has just vanished! I haven't got time to type it all up again, so will just do quick bullet points;

Results today not bad, considering the group's reliance on the oil & gas sector

Order book comments also sound encouraging

PER is about 12 at current share price - maybe not low enough, given uncertainties?

Seems to be diversifying into new products & markets, to mitigate dependence on O&G sector.

Sound balance sheet, but heavy capex in the last year, so debt has gone up.

Overall - I like the company, but would only be interested sub-2000p, given the considerable uncertainties in the next couple of years.

KBC Advanced Technologies (LON:KBC)

Another oil services company, software & consultancy.

In line trading update today.

Trading in the first half has been as anticipated. The firm's order backlog, together with good visibility on the future pipeline of contracted work and software sales, gives the Board confidence that the Group's performance for the full year will be in line with its expectations.

The Directorspeak sounds upbeat too.

Shares have risen about 50% in recent months, and look priced about right, in my view.

I have to dash now. Hopefully this week's reports have been OK, even though I've been away. Normal service will resume from Monday!

Have a smashing weekend.

Regards, Paul.

(of the companies mentioned today, Paul has a long position in SAL, and no short positions.

A fund management company with which Paul is associated may also hold positions in companies mentioned.

NB. These reports are just Paul's personal opinions only. Nothing is ever intended, or should be misconstrued as advice or recommendations)