6 month checkup

A review of what I was writing about 6 months ago.

BARC I said this offered a reward/risk of 5:1 on a PBV basis. Price then: 321p. Price now: 283p. Bad call
LAM I said looked good at 149p, with a big gap up to 300p still to fill. Price now 148p. Mediocre call so far, but the price has been picking up lately, so there could still be some life in this yet.
BLVN Looked good at 69.50p, with some great assets, but is now at 58.53p. There’s been some hefty dilutions, so so far, it looks like just another mining AIM stock with plenty of sizzle, but no steak. 
DSC was at 153p, now at 191p. I had calculated the reward/risk on a PTBV basis was 3.9, but didn’t find that enticing enough. I noted tat ROE had been uniformly bad over the last decade. My decision to ignore it was a bad one.
PFD was 88.75p, now 131.5p. At the time it stated that it would eliminate the CEO role. PFD reached a low of 60p in July, so it wouldn’t have been plain sailing to where we are now. 
If you’re looking for disaster stocks, then actually PFD would have made a good purchase in August 2012 at around 65p, when it was trading at about 2/3 of its 200dma. That would give you a prediicted 50% upside. You would have had to have steel nerves, because the price dropped to about 55p in September. Ouch! BUT, the good news is that if you had had patience, you could have held for 2 months, and sold out at about 100p, where the price reached the 200dma. so, whether you made or lost money would depend on your timing. At a price of 88.75p in Feb, the share price was just dipping below the 200dma. Technically, that looks a dangerous move, a fact borne out as the share price slid to 60p in July. That might have just not been quite enough to get you back in. The share price is now 131.5p – although if you were looking to trade on the 200dma you would have gotten out at around 87p.
A share I bought recently was KAZ, at 316p, which is based on a discount to 200dma idea. The implied upside is about 60%. It is now at 301.5p. It looks like the bottom is in at 250p, and it is currently trading in a narrow trading range. KAZ will sell its stake in ENRC, and use some of the proceeds to buy back its own shares. I also like the fact that KAZ has a large market cap and has been on the Market (FTSE250) for 8 years. That at least gives it some credibility. It would have been nice to see a full 10 years, but 8 is acceptable. It is in the mining sector – in copper to boot – so an investment is hardly risk-free. Sentiment is very negative. We hall see how this works out.
RHL was 67p, now 51.5p. The company said that it will be “H2 weighted”. Paul Scott viewed that as a precursor to a profits warning. It certainly didn’t do its share price any good. Unfortunately, Paul didn’t do an update on its interims. Market cap is only £34m.
ABM was 223p, now 143p. I actually thought it was quite good value at the time; a view that was clearly mistaken. Actually, if you look at the 12m chart over on Stockopedia (http://is.gd/Es2gmn), you can see that the market was spotting problems. The 200dma had been in downtrend for some time, and was not able to breach it. 223p would have been close to the 200dma at the time, making it a sell more than a buy. In hindsight, ABM never looked like a good share to trade on a 6m timeframe, and what I said was a buy point was in fact a near-perfect selling opportunity. There’s no guarantees that the shares wouldn’t have made it above the 200dma, of course – but then you’re starting to take a higher risk. The closest thing that ABM got to a “buy” over the last year was after it had a profit warning, and fell to 140p. However, I have noted in the past that investors should not necessarily expect rapid recoveries after an initial bounce. This turned out to be a good observation, as the share price has, indeed, traded sideways since then. The 200dma has further declines in an almost perfect straight line, and there doesn’t look to be a good reason to buy in right now. I also think that the small market cap of £79m doesn’t help it. There is a small uptrend in the share price since May, although I don’t see much to get excited about.
TRI was 55p, now 65p. Paul Scott wrote that he was unimpressed with the company, noting that it was a low growth, low margin business, which seemed to be run mostly for the benefit of the directors. Share price performance has been pretty good, though. 
AVON was 437p, now 491p – beating the Footsie by about 10% over that period, which isn’t bad. Paul Scott said that they looked fully valued at the time. The shares did reach a low of 369p in April, though. 
CUP was 176p, now 63. A very interesting share! Derided by value investors for the quality of earnings, director sells, and all-round fishiness. There was a good story surrounding the shares. If you look at the chart, you’ll see a different story. The 200dma had actually been rather flat for many months beforehand – a sign that the market thought there was something fishy. This certainly looks like a factor for investors to think about. Great growth stories should have momentum – if you see a company persistently trading below its 200dma – then you should seriously reconsider the validity of the story. Now, it’s true that good growth stock can undergo a period of consolidation (look at PRZ, for example, which turned out to be a fabulous pick by me for the NFSC) – but when the bulletin boards are abuzz with its prospects, and it’s trading at an absurdly low PE – it’s a sign that something is not right.
Maybe someone might have bought at 120p, hoping for a move back to the 200dma. That move would have been a bad one in light of the fact that CUP is now at 63p. I think that there would have been a number of safety features that would have helped an investor avoid getting involved with this share, though. Firstly, it’s AIM, on a market cap of £45. Secondly, the clear discrepancy between the share price action and what it “should” have been given the company’s story. Thirdly, the short listing time for the stock. Watch out for those, as it is often after a few years of trading that you get to find out what the weaknesses in the company are. Fourthly, the company is an “idiosyncratic” one – it’s not what you’d call a “bread’n’butter” company that makes houses, rents out hotel rooms, sells ciggies, mines resources, and so on – its line of business is “unusual” in nature.
Its share price has been disasterous since the beginning of the year, and you would not have done yourself a favour by buying after the profit warning at around 80p. either. 
VNET, was 121p, now 69p. Yikes. This company was chosen by Paul Scott for the NFSC competition. Blogger redcorner (http://quinzedix.blogspot.co.uk/) urged caution, though, citing a host of warning flags such as judicial, regulatory and legislative risks, and aggressive representations by management. He described it as “more like a coin toss despite the cheap PER”. We’ll give that one to redcorner.
DTG was 151p, now 253p. This one landed on my radar courtesy of CantEatValue (http://canteatvalueinvesting.blogspot.co.uk/). Well done CEV! I took a naive look at the company and estimated a risk/reward of 4:1 on an EV/EBITDA basis. Once again, I rejected it because it “wasn’t interesting enough” – I was looking for a threshold of 5:1 for small caps.
With hindsight, it seems that I was too strict in my threshold – and it’s interesting to see a recurring theme here. A blogger suggests a value share, I do a reward/risk assessment on the share price, the value is pretty good, but I reject it because it isn’t “enough”. The share then goes on to perform spectacularly. If I had set a threshold at 3:1, I would have dont great. This certainly gives me something to think about – which precisely underlines the value of keeping investing journals and reviewing them for strengths and weaknesses!
Love this quote from MoneyWeek: “This bull market is 100% horsemeat”. Very topical for the time.
SHFT was 48.12p, now 24.25p. Some people were cazlling it a good turnaround propsect, and the trading update certainly talked the talk: contract wins, improved order book and expected profitability. Come July trading update, the company said that “The Group’s South African operations continue to face a difficult operating environment.” Oh dear, who ordered those results? This announcement caused the share price to plummet to 15p, where it stayed for the rest of the month, but has since climbed to 25p. Investing at that point would have been good, obviously, but I would have classed it as a high risk trade. SHFT has had a very short flotation period and low market cap of £11m. At least it isn’t on AIM. This is another one of those companies that don’t seem worth the risk. Yes, you “might” make money if you get your timing right, but the company fundamentals are so unpredictable that you are basically taking an outright gamble.
VLX was 112p, now 11.5. Paul Scott said, at the time, that the company had some appeal, but was put off by the fact that it was a low margin business. I had actually bought some shares in it, having been influenced by some positive comments elsewhere. I have since sold out. I was overstruck with the stature of the author, yet it didn’t make a good buy. The shares had tanked late last year. The market cap is only £73m. I should have heeded my own lesson that these are not high probability trading ideas. 
SID was 19.75p, now 12.91p (suspended). I actually sold (not all) at that point, which turned out to be near the top. Oh my, what a disaster the share turned out to be subsequently, sucking in many value investors on its way to suspension. I was happy enough to book a 47% gain at that point. It was a tricky sell for me to make, as I wanted to buy THT. I hadn’t anticipated the subsequent suspension, so my sale was more by luck than judgement.
THT was 48p, now 81p. This one is very interesting, and illustrates a clash in styles between value investors and recovery investing. Paul Scott didn’t like the shares, pointing out that the balance sheet looked stretched, there was no meaningful divvies in sight for the forseeable future, and general risk all around. The recovery guys really liked it. The company had new management, and a new strategy. Unprofitable shops were being closed and the company had reported that they had “strong trading plans in place and exciting new products across all channels”. It looks like they will actually make a profit in H2 – something that they had failed to do before. THT, like TCG, are perhaps classic recovery plays. Look for a fairly basic product which is likely to still be relevant, new management, a fairly basic but credible turnaround strategy, and evidence that it is actually working. Get out if it looks like you’ve made a mistake (which is almost inevitable) – regardless if it is a profit or a loss. There’s a lot of money to be made for getting it right.
MGNS was 541p, now 677p. I see that I calculated the reward/risk at about 6.5. What did I do? Nothing! When I start doing reward/risk calculation, I really really need to pay attention as to what the number comes out as. Now, of course, the number I obtain is likely to be “completely wrong” – but as long as it’s completely wrong in the right direction, and by a sufficient margin, then I’m likely to make money. I had made some notes about some interesting things going on in the company. There was a board shakeup. Send out the clowns. A particular point I noted was that John Morgan returns to his position as CEO following the resignation of Paul Smith. Investors should probably take heed of moves like this. We saw a similar thing happen in LAM. Incumbent directors made a hash of things, and the old boys were bought in to bring order to the chaos. File that one in the memory banks for later!
Well, that’s plenty enough for now. Happy investing to you all. I’m off to watch telly.
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About mcturra2000

Computer programmer living in Scotland.
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