Small Cap Value Report (7 Mar 2016) - FJET, AVG, APC, CAMB, TCM

Monday, Mar 07 2016 by

Good morning!

Fastjet (LON:FJET)

Share price: 43.8p (down 35% today)
No. shares: 66.4m
Market cap: £29.1m

Profit warning - and it's a bad one;

Based on current management forecasts, the Board expects results for 2016 to be materially below market expectations and the Group no longer expects to be cash flow positive for the year.

Did anyone believe the company's assertion in Dec 2015 that it would reach cashflow breakeven? I made it clear in my report here on 22 Dec 2015 that I was highly sceptical about this claim (although if true, then the shares might be worth a closer look).

This really is quite scandalous actually. You can't just tell the market that you're approaching cashflow breakeven, then retract it 3 months later, with some half-baked excuses about poor trading conditions that we've been given today;

Further to the operational update in December 2015, the challenging market conditions affecting much of the African aviation industry have been a lot more prolonged than management originally forecast.

Surely management should have been taking a prudent view in their forecasting, not assuming that market conditions would improve? Why did the NOMAD (Liberum Capital) approve the Dec 2015 RNS which gave an unrealistically rosy view? That will have cost some investors losses - since they will have relied on that upbeat statement to buy shares.

Action is being taken to stem the losses (stable doors spring to mind);

fastjet has already taken action to manage its operating costs and overheads and is implementing further measures including reducing capacity and rationalising the route network to align it with current demand.

It gets worse - the company might need to raise more cash;

The Board monitors the Company's cash position very carefully and with over $20m of cash available at the end of February 2016, and based on current forecasts, it has sufficient funds to meet its operational requirements. The Board may consider raising further funds during the year to provide additional headroom and ensure the Company has the necessary resources to fund future growth as market conditions improve.

So, it's got enough cash, but it hasn't, at the same time.

EGM requisition - Easy Group (12.6% shareholder) has requisitioned an EGM to get rid of the CEO & Company Secretary. That sounds a very sensible proposal to me.

My opinion - this is yet another jam tomorrow company that has gone disastrously wrong. Management clearly…

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fastjet Plc is the holding company of airlines, such as fastjet Airlines Limited (fastjet Tanzania) and fastjet Zimbabwe. The Company is engaged in providing airline services. Its segments include Tanzania, Zimbabwe, Central and Angola. It operates approximately 10 routes to over 10 destinations in approximately six countries in Africa. Within Tanzania, the Company operates routes connecting Dar es Salaam to Mwanza, Kilimanjaro, Mbeya and Zanzibar, while in Zimbabwe it operates between Harare and Victoria Falls. It operates international routes from Tanzania to Kenya (Nairobi), South African (Johannesburg), Zimbabwe (Harare), Uganda (Entebbe) and Zambia (Lusaka). Its tickets are sold through travel agents, trade, Website bookings (desktop and mobile) and general sales agents, and in Tanzania, the Company runs its own sales offices. Its subsidiaries include Fastjet Aviation Limited, Fastjet Leasing PCC Limited, Fastjet Air TZ (BVI) Limited and Fastjet Leasing UK Limited, among others. more »

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Avingtrans plc is a United Kingdom-based company, which is principally engaged in the provision of engineered components, systems and services to the energy, medical and traffic management industries around the world. The Company operates in energy and medical segment. The energy and medical segment is engaged in the designing and manufacturing of machined and fabricated pressure and vacuum vessels and process plant and equipment for the power, oil and gas and medical markets. The energy and medical segment is also engaged in the designing and manufacturing of fabricated poles and cabinets for roadside safety cameras and rail track signaling. The Company's geographical locations include the United Kingdom, Europe, North America and Rest of World. The Company's subsidiaries include Crown UK Limited, Stainless Metalcraft (Chatteris) Limited, Composite Products Ltd, Hayward Tyler Ltd and Peter Brotherhood Ltd. more »

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APC Technology Group PLC is a United Kingdom-based company, which provides design, specification and distribution of electronic components and systems, lighting technologies and connectivity products. The Company's product ranges from critical components and Internet of Things (IoT) solutions to light emitting diode (LED) lighting. The Company's specialist electronic component distribution business, trading as Advanced Power Components (APC), is a distributor of specialized electronic components. APC Lighting Technologies trades as Minimise Energy Limited (MEL), which is engaged in the design, specification, supply and installation of individual LED projects. The Company, through Minimise Solutions Limited, offers advisory services to monitor, measure, analyze and verify energy and water usage. The Company, through EEVS Insight Limited, offers energy savings solutions. The Company provides services to the defense, aerospace, industrial, real estate, logistics and healthcare sectors. more »

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  Is LON:FJET fundamentally strong or weak? Find out More »

19 Comments on this Article show/hide all

Cisk 7th Mar '16 1 of 19

Afternoon Paul

Avingtrans (LON:AVG) does look to be doing better, it was a good contract announcement this morning for a range of engine components on what could be one of the best-selling engines in the coming years. Add to this a contract won almost a year ago to provide containers for nuclear waste as part of the Sellafield decommissioning. And the Board seem to be straight-talking, the annual report commentary is always a good read.

It takes time for these deals to come about, aircraft parts are not readily interchangeable for alternatives due to the long lead times in designing and certifying the parts. So it's quite a moat for Avingtrans (LON:AVG) to build.

Add to this the promising other parts of the business - from composites to road signage - you've got a group with the potential to do well in the coming years.

Still in aviation, contrast this with the lame duck Fastjet. What a shocking state of affairs.

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2020vision 7th Mar '16 2 of 19

Paul, has your view on seeing machines altered since the interims releasedate today and the extended auto deal?

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QuaysideCapital 7th Mar '16 3 of 19

I echo 2020's query. Would be very interested to hear your thoughts on Seeing Machines (LON:SEE) Paul.


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Paul Scott 7th Mar '16 4 of 19

In reply to post #123257

Hi 2020vision,

I've only had a quick look at the results & contract win announcement from Seeing Machines (LON:SEE) so this is only a quick view. The figures are not as bad as I had feared, but the cash position looks to be getting tight, even allowing for the deferred licence fee receipts within debtors, because ongoing cash burn looks quite high still.

Good news re the car manufacturer repeat order. Would be interesting to know the size of the contract.

I might have made a mistake, selling out recently. However, I'm trying to pull away from speculative stocks as much as possible, as that's where my losses seem to usually come from.

Regards, Paul.

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harry34 7th Mar '16 5 of 19

I have a position in Caffyns (LON:CFYN) and Vertu Motors (LON:VTU) rather than Cambria but am concerned that the sharp fall in the £ compared to the Euro (on Brexit concerns) will put car dealership wafer-thin margins under even greater pressure

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skyvan 7th Mar '16 6 of 19

Fastjet. Any sub-Saharan airline ever made any money?

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apad 7th Mar '16 7 of 19

Royce's are squeezing their suppliers. Depends how good a deal the management has been able to pull not the size of the contract.

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herbie47 7th Mar '16 8 of 19

Re: Cambria Automobiles (LON:CAMB) I found the statement a bit vague, forecast is +30% EPS not sure this will meet that, shares are now down on the day so profit taking or uncertainty in the market? I feel yes doing well now but how long will it last its not just interest rates but also rate of exchange and recession. I do hold but considering an exit fairly soon.

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Michael Mortphew 7th Mar '16 9 of 19

In reply to post #123266

harry34 - This is what Simon Thompson had to say in IC touching on your concerns. Hope it helps. I think his point about consumer confidence and security of employment is very relevant - could all change over night. I've got a small holding in Vertu (as a patriotic Geordie) but will be looking to sell-up if it puts on a few more pence after tomorrow's announcement.

".......a deflationary price environment, combined with a global growth scare and the forthcoming Brexit referendum on Thursday, 23 June 2016, make it highly unlikely that the Bank of England will raise base rate this year. Borrowers and consumers alike will therefore continue to benefit from record low interest rates and real wage growth. Indeed, the flattening of UK government bond yield curve has led to some enticing finance offerings for personal borrowers in both the unsecured and secured debt markets. Given that a large number of private car buyers have been using personal contract plans and unsecured car loans to fund the purchase of their vehicles, the ongoing availability of cheap credit should continue to be supportive of demand from this segment as long as consumers have security of employment.

I would also point out that the UK is strategically a very important importer of new cars from EU countries, something that has not been lost on German automotive manufacturers who account for a third of all new cars sold in the UK each year. True, sterling has lost 10 per cent of its value since last summer which erodes the profits to be earned by exporters to the UK. But as the fifth largest economy in the world, and with over 800,000 jobs in Germany alone dependent on the UK car sector, there is a huge dependence on maintaining exports to our important end market. In any case, the devaluation in sterling against the euro has only taken the single currency back to a cross rate last seen in September 2014, a time when the UK car sector was motoring ahead. So although I am far from complacent about the implications of a Brexit, I am also aware that major EU exporters to the UK simply can’t afford to walk away from such a lucrative source of earnings....."


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2020vision 7th Mar '16 10 of 19

Paul, it's widely known that Seeing Machines via Takata are working with General Motors, today's RNS confirms the tech is being rolled out across the GM range. In terms of size of order GM produce approx 10m cars per annum. Interested in your views on the spin off auto company mentioned in the interims if you get a chance to read it.

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jraitt 7th Mar '16 11 of 19

Hi Paul,
re SEE strange first half Sales/Service revenue up 76% Mining revenue up 6% but still says excluding licence fee revenue for full year will be "marginally lower than last year"
I saw you said that you were avoiding speculative shares but wondered if you had glanced at the Active Energy - AEG - RNS today. It does seem like a truly disruptive technology at the right time. It does have a "proper" business which appears now to be growing exporting woodchip from Ukraine to Turkey - largest maker of chipboard. Add to that Canadian forestry interests that seem to have big potential. It's one I feel I should love like the gorgeous girl across the room staying with the lady you brought to the party may be more rewarding later.

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simoan 7th Mar '16 12 of 19

In reply to post #123266

I have a position in Caffyns (LON:CFYN) and Vertu Motors (LON:VTU) rather than Cambria but am concerned that the sharp fall in the £ compared to the Euro (on Brexit concerns) will put car dealership wafer-thin margins under even greater pressure

I don't see what relevance this has to CAMB? Their main dealerships are for cars made outside of the EU e.g. Aston Martin, Jaguar and Land Rover. They have no French or German manufacturer representation to my knowledge. Perhaps this fear relates to other dealers but I don't see how it applies to selling cars made in Solihull other than that any parts sourced from abroad by the manufacturer may get more expensive if Sterling depreciates.

With regard to the wording of the RNS it is almost word for word the same as last years March trading update and so feel people are trying to read too much into it, as always. 


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simoan 7th Mar '16 13 of 19

In reply to post #123287

OK. Just to put the record straight, I've now had time to check the full list of CAMB dealerships in the last results announcement and they have one Renault garage under the Motorparks brand, as well as some exposure to Volvo, Fiat and Alfa Romeo. Although it's not really something I'm too bothered about to be honest because the UK market is so important to European car manufacturers. 

Overall, I like that the company is well managed and has a history of muted trading statements and then over delivering at results time and see no reason not to expect the same come May 10th. I think the reference to "Gross profit per unit" increasing for both new and used car sales is very positive as any margin improvement in such a low margin business can have a magnified effect on the bottom line.

All the best, Si

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mammyoko 8th Mar '16 14 of 19

Hi Paul

Any chance of commenting on the 450 trades in Matchtech Matchtech (LON:MTEC) yesterday? Nearly all were for 2 or 4 shares. What are the algos up to? Now yielding over 5%.

Many thanks


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cig 8th Mar '16 15 of 19

In reply to post #123269

Kulula (Comair) doesn't seem to be doing too badly.

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cig 8th Mar '16 16 of 19

In reply to post #123284

Sounds like a possibly interesting company, but after a few minutes of googling, it seems you're investing with that kind of character. (But DYOR, it could be a false match or a slanderous website.)

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TMFMayn 8th Mar '16 17 of 19


Interesting to compare Telit with Cisco, which is also involved in IoT ( as well as other technologies. Cisco expenses all of its R&D as incurred -- $6bn a year in fact.


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FREng 8th Mar '16 18 of 19

In reply to post #123302

Could it be automatic dividend reinvestment?

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Aislabie 8th Mar '16 19 of 19

I have stayed long TCM since commenting here at the time of the last results and any confidence relies on the company doing what it says it will do. For the time being I am satisfied and the gradual decline of the shorts suggest that more are giving them the benefit of the doubt.
As Paul says , if they do in fact move to being genuinely cash generating (I have no arguments that they are not currently) then they will again be doing what they say and the price could move sharply.

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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