Good morning! We look set for a fairly ugly start, with the FTSE 100 Futures down 66 points at 6,442. As I've been saying for a while now, in my opinion small & mid caps are in a very frothy bull market, with a lot of valuations seemingly carried upwards unendingly on momentum, but increasingly detached from sensible valuation metrics. Hence in my opinion this is a time to be top-slicing or exiting completely from anything whose valuation looks full, and sitting on some cash to await the bargains that will be thrown at us once this euphoric mood of Mr Market turns once again to despair. I don't know how big the correction will be, or when it will happen, but I reckon it's coming.

That said, there are always bargains to be found in the small caps space, they're just harder to find, and less obvious at the moment - but I'm particularly focussing on companies that are out-performing against broker forecasts - because brokers tend to be too pessimistic in an economic recovery, forgetting about operational gearing, which can see profits shoot up much faster than turnover. So situations where that is happening can end up being cheap once results are issued that beat expectations.



Zanaga Iron Ore (LON:ZIOC) is a special situation that I like a lot - their interim results are published today, and the narrative gives a decent summary of the current position. They are jointly developing a world-class (in both scale and low production cost) iron ore project in the Republic of  Congo. In my view there could be further considerable upside on the current share price despite it having doubled recently. The big uncertainty is what level of dilution will be required to finance the project, using third party debt and equity. Glencore and ZIOC are jointly working on raising the financing, so I'm sure we'll get another update in due course, but so far so good. There is a cash pile of $35m as of 30 Jun 2013, and about half that is ear-marked for ZIOC's contribution to the 2014 development costs, so the cash backing behind the shares is diminishing, although the project viability has dramatically improved in recent months, with planned capex reduced from $7.4bn to the $2.5-3.0bn range, achieved by altering the plan to develop the…

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