Small Cap Value Report (8 Oct) - AEO, TRAK, QPP, SNT, GRA

Tuesday, Oct 08 2013 by
10

Good morning! US markets dipped yesterday evening, so that is feeding through to the UK, where the FTSE 100 is expected to open down about 10 points at 6,423. I like market sell-offs, as they present buying opportunities, especially in smaller caps where it only takes a few clumsy sellers to knock the price back 10-20% in particular stocks, so it usually makes sense to have kept some powder dry, or at least have a bit of gearing available if you don't like leaving cash on the sidelines. Personally I think a modest amount of gearing is fine, providing you're well diversified, and only invest in decent quality companies with sound Balance Sheets. The key driver for me is whether the stock is good value.

The US Govt partial shutdown & debt ceiling negotiations is rumbling on as an issue. Investors may be sanguine for a while, but as it continues, the more likelihood there is of a sharp market sell-off. Hence why I have personally bought some short-dated Put Options on the US market (which drives the UK market), just as an insurance policy to protect myself against the (admittedly small) risk of a big sell-off. It's cheaper to do that then to exit small cap positions, and have to buy back in later at a higher price, and absorb another set of bid/offer spreads, which can routinely be in the 3% area with small caps.

Options are expensive, and usually expire worthless, so I only ever use them rarely, for a specific risk. However, in this case where a resolution of the specific political issues would in all likelihood drive a large rise in markets, I want to remain invested, but also want insurance to protect against a crash. I'm also being wary about opening new positions.

 

 

It's a real tiddler, at only £3m market cap, but the final results to 30 Jun 2013 from Aeorema Communications (LON:AEO) look pretty impressive this morning. It's a corporate communication & events company. Turnover has risen from £2.8m to £4.0m, with a profit delivered of £359k, against a £36k loss the prior year. Looks good.

They also have net cash of £1.6m, which is about half the market cap! A maiden dividend is being paid, of 1.5p per share. As is usual with companies this small, several individuals…

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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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Aeorema Communications plc is a United Kingdom-based live events agency with film capabilities. The Company is specialized in devising and delivering corporate communication solutions. The Company's subsidiaries include Aeorema Limited and Twentyfirst Limited. more »

LSE Price
26p
Change
 
Mkt Cap (£m)
2.4
P/E (fwd)
n/a
Yield (fwd)
n/a

Trakm8 Holdings PLC is a Big Data company. The Company, through its subsidiaries, manufactures, distributes and sells telematics devices and services. The Company focusses on owning the intellectual property that it uses in its products and solutions. It supplies its customers in the fleet management and insurance sectors across the United Kingdom. In addition, the Company provides hardware devices that can be integrated into third party telematics or Internet of Things (loT) solutions. It offers Configuration Manager, Product Datasheets, Radio Frequency Identification, Telematics Devices, Vehicle Connectivity and Accessories, among others. Its portfolio of solutions includes Trakm8 ecoN, Trakm8 Tacho, Trakm8 Secure, Trakm8 Logistics and Trakm8 Insure. Its portfolio offers telematics solutions, including dashboard cameras that enable customers to record driving incidents and mitigate the risk from crash to cash accidents. It provides bespoke solutions and engineering support services. more »

LSE Price
20p
Change
2.6%
Mkt Cap (£m)
10.0
P/E (fwd)
17.4
Yield (fwd)
n/a

Watchstone Group plc offers technology solutions to the insurance, automotive and healthcare industries. Its segments include Hubio, Healthcare (pt Health and InnoCare), and ingenie. Hubio provides integrated solutions to help organizations in the insurance and automotive sectors to build customer engagement and enable usage-based personalization. Healthcare includes ptHealth, a national healthcare company that owns and operates physical rehabilitation clinics across Canada, and InnoCare, a clinic management software platform and call center and customer service operation based in Canada. Its ingenie is an insurance broker. Using telematics technology, ingenie gives its community feedback, advice and discounts to help young drivers improve their driving skills. more »

LSE Price
114.25p
Change
-0.2%
Mkt Cap (£m)
52.6
P/E (fwd)
n/a
Yield (fwd)
n/a



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16 Comments on this Article show/hide all

Meldrew 8th Oct '13 1 of 16

A good balanced article. Gives me a clearer view of what to look for.

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djpreston 8th Oct '13 2 of 16
1

Hi Paul

Your comment on QPP is more or less exactly why I decided to take the nice gains on it and dumped our position at over 16p. There's just too many deals and too much paper being issued. Evenif the deals are good value, the sheer number makes me acutely wary of the high execution/integration risk. Our was also interesting to hear one fund manager that I really respect state it as his number 1 short but couldn't get the stockto borrow...

As I said at the time when I posted about our sale, I may be wrong but I just feel that much more comfortable being out than in.

cheers

Fund Management: European Wealth
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PhilH 8th Oct '13 3 of 16

Hi Paul,

What do you think of Robbie Burn's use of ETFX FTSE 100 Super Short Strategy (2x) Fd as a hedging strategy? The ticker is SUK2.

It's an exchange traded short fund that moves twice as fast as the FTSE 100. It can be purchased into ISA's and SIPP's. Obviously the downside is if the market continues to improve, however we're more likely to see sharp spikes down than sharp spikes up in the FTSE 100.

I'd appreciate any comments

Thanks
Phil

Professional Services: Sunflower Counselling
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PhilH 8th Oct '13 4 of 16

Hi Paul,


With respect to domain names such as printing.com ... I think this trend was driven by Google's search engine algorithms. Previously you'd receive an improved Google search engine position if your domain name included the search terms. So for a printing firm it's customers are going to be searching for 'printing' and therefore printing.com receives a higher score. That's why my the home domain for my business is counselling-cardiff.com as 'counselling cardiff' is the search term that the majority of my potential customers use.


I received a report today that surveys Search Engine Optimisers and the results suggest that this feature carries less weight in the current version of the algorithm and that might explain why they have rebranded themselves.


Hope that helps

Phil

Professional Services: Sunflower Counselling
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Crusty 8th Oct '13 5 of 16
1

I don't know about QPP, but if their model is a good one it could be a good time to get in whilst the share is depressed by an overhang. Nationwide Accident Repair Services (NARS) looks a better bet IMO. The QPP involvement should increase business and, since NARS is currently working well below capacity, transform the bottom line. NARS sp has retreated recently and I'm tempted to add ahead of the fog and ice season.

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marben100 8th Oct '13 6 of 16

Hi Paul,

However, in this case where a resolution of the specific political issues would in all likelihood drive a large rise in markets 

Just a word of caution there, Paul... Your comment is exactly what I thought in 2011, when I held puts as the US approached its debt ceiling limit at that time. If you recall, a deal was cobbled together at the last minute and disaster was averted... so I closed my puts. Then the market promptly tumbled by several hundred further points, after the ratings agencies downgraded US debt!

So, the market makes fools of us all! I have therefore taken out December dated puts this time, and will close them only cautiously, even if the issue is resolved before October 17th. If the market does subsequently recover strongly, I shan't mind taking the hit, as I'd expect porty gains to outweigh the cost of the puts. NB I started building my put position back in July (as I tweeted at the time), when the market stood at high levels, in anticipation of this problem - plus the Eurozone issues which haven't really been resolved and could creep out of the woodwork, now that the German election is out of the way.

Cheers,

Mark

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rumplestiltskin 8th Oct '13 7 of 16

I am always on the lookout for micro cap companies that have something special to offer. I particularly like Quadrise (QFI) and Westminster (WSG) which look very good for growth in 2014. However, the doom and gloom merchants at Money week are still predicting a calamitous collapse of our financial system in the not too distant future, which kind of makes investing in shares a waste of time. Do you have any views on this please?

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campbellsmith 8th Oct '13 8 of 16
1

Hi Paul,

THE RUN: Congratulations on a marvellous effort!
THE PHOTO (above): Your bathroom mirror needs a wipe.
THE SHARE ANALYSIS: Excellent & well done, keep it up!

Campbell

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hornbeam1 8th Oct '13 9 of 16

Excellent summary as always Paul on stocks I've never looked at before & read your comments on executive remuneration with interest.

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cig 8th Oct '13 10 of 16

In reply to post #77917

Search engine optimisation can only explain the branding of the customer facing service, there's no imperative to name the listed PLC the same. I bet this was just to ride the .com bubble when people bought any Internet-related shares regardless of price.

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cig 8th Oct '13 11 of 16

In reply to post #77915

Daily leveraged ETFs are more complicated than options, the way you pay for volatility is counterintuitive (google it) and they require much more capital. Options are OK in SIPPs, if all else fails in listed warrant form (at a cost).

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mpat89 8th Nov '13 12 of 16

Could anyone please suggest FTSE 100 options contracts with smaller contract sizes. I am looking to buy puts to hedge against downside risk on the FTSE. I have been unable to find the contracts I need but I know they exist as I used to trade them!

Professional Services: Web hosting
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johnrosier 9th Nov '13 13 of 16
1

I have bought some FTSE covered warrants. Epic SC40. 6500 strike price March 21st. About 13 x gearing. Purely telling you what I have done; not a recommendation! DYOR etc.

Website: JohnsInvestmentChronicle
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mpat89 9th Nov '13 14 of 16
1

Cheers John. I couldn't find the options I was looking for so will go for the warrants instead. Don't worry, I'm not planning to do it until we see a break of a major support and have my own plans! Was just trying to find a suitable vehicle, didn't fancy spread betting (though surprisingly this isn't a bad option at 1.5% p.a. financing for a short position and under 50 points spread on a long term bet).

Does anyone else share my view that we may be approaching the end of the cyclical bull, once support breaks I think we're in for a good 1-3 years of falling prices. I daresay we get down to 4,500 on the FTSE.

Professional Services: Web hosting
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cig 10th Nov '13 15 of 16

In reply to post #78986

The Liffe contracts are not that big (£10/pt).

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dscollard 18th Feb '15 16 of 16
2

it was a great call Paul and a turning point for me in terms of trusting my own analysis and insights versus the "experts" (that is a bit of a weird back-hand compliment I guess). By that I mean that IC and Simon Thompson had backed this as a bargain share and it did indeed enjoy stellar performance following that recommendation in Jan 2014 ( I had it on my wishlist then but was operating on the principle that if it looked THAT good and all....). I mean no disrespect to Simon Thomson nor to IC - we all make mistakes. The big difference is that mistakes like this can be costly and are eminently avoidable: Simon still gets paid, investors don't.

I tracked NBU as a case study from my own point of view: when it played out as you called and as many of these Chinese shell companies behave, it was to script

I don't pay for IC any more..I'd rather pay myself and screw-up my own biases all by myself...

That said, I read your small cap reports daily and like your style and idiomatic take: you deserve the credit you get.

Website: runprofits.com
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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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