$RGS.L – Regenersis – what gives?

Business support services company RGS (Regenersis) “specializes in a range of after-sales services, which include product repair enabling its clients to deliver service to their customers. Its depot services consist of same day warranty, non warranty repair and refurbishment, together with returns management and warranty claim management”. So if your smartphone packs up under warranty, RGS will carry out the repairs.

RGS has been a great little earner for me. I first heard about it in October 2012 from an investor I admired. I bought in at around 120p, and sold at around 200p in July 2013. RGS share price had stalled at that point, and I decided to tidy up my portfolio. In very early September, I was reminded about it again by John Rosier (http://johnsinvestmentchronicle.com/), who is a far better invester than me. Results weren’t far away, and consensus was bullish. I decided to buy in again, at 208p. This decision turned out better than I expected, and the share price, as it began to rocket immediately after purchase. If only all investments would all work out like that.

Come March 2014, I decided to bail out at 339p. The company had just released some results, but there was a bad market reaction to the news. John was bullish, but Paul Scott expressed concerns about their margins, balance sheet and “exotic accounting measures”. Dividends were up, and the outlook seemed generally bullish. Sometimes shares can offer you a dilemma, where any act, or its ommission, could be the wrong one. I decided that car dealer LOOK (Lookers) was a much easier call to make, so I decided to do a swap.

In late September, RGS issued its finals. Revenues increased by 10%, but adjusted EPS (where you ignore all the bad news) decreased by 4%. This sent the shares into tailspin, causing their shares to drop 320p to 240p. The shares haven’t recovered, and currently stand on 200p.

Shares are a funny old game. Quite often the obvious is wrong, and all sorts of things happen that you never expect. Also, standard stock market lore says that you shouldn’t make investing decisions hastily. I’m not sure I agree with that. I have made some pretty good decisions under time pressure.

So where are we now, and is RGS a good investment at 203p. The truthful answer is I have no idea. The outlook statement is very bullish, as the group continues to target double digit growth in revenue and profitability, and opportunites for organic and acquisitional growth remain strong. The shares are on a PE of 10, and analysts are expecting double’digit EPS growth.

Yet, at the back of my mind, I have hesitancy. Maybe I´m being phased by the dreadful performance of AIM this year. Maybe that makes it a buying opportunity. Maybe the AIM market is just experiencing “The Quindell Effect”. I simply don´t know. Maybe I don´t like the way the market reacted to their finals. The M’Score also suggests it is an earnings manipulator, having problems with the depreciation rate, control of expenses, and accruals. Average ROCE over the last 6 years has also been poor, at 7.2%.

And talking of The Quindell Effect, there were some interesting tweets by MrContrarian https://twitter.com/MrContrarian on the subject of AIM. He originally tweeted

Head of AIM “[problems] around a small number of companies does not indicate a problem with the wider model” http://www.ft.com/cms/s/0/2ca98784-6fe1-11e4-90af-00144feabdc0.html … Super!

I repsonded

@MrContrarian Over 10y, All-Share up 50%, AIM All-Share down 27%. Seems very much a case of a “problem with the wider model”.

His subsequent response was very interesting

@mcturra2000 It was clear from Mark Fahy’s response at #Mello2014 that LSE measure AIM success by no. of firms listed, not investor safety.

So basically, there we have it. AIM is all about the Benjamins, probity be dammed.

Notwithstanding the foregoing, I wish you the best of luck with your investment in RGS, whichever way you decide to go. I´m not tempted, at least at the moment. I admit upfront that I could be entirely wrong, though.


About mcturra2000

Computer programmer living in Scotland.
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3 Responses to $RGS.L – Regenersis – what gives?

  1. paulypilot says:

    Hi Mark,

    I moderately like RGS at 200p, have bought a few recently.

    Interesting comments on AIM generally. I think LSE are making a total hash of AIM, it’s become a laughing stock really, any old junk can (and does) float on AIM.

    Regards, Paul.

    • mcturra2000 says:

      Hi Paul,

      Thanks for the comment. Best wishes on your RGS buy. I’m sure you know what you’re doing. I’m given to understand that Naked Trader was interested in the shares earlier on in the year.

      I have no idea what his or John Rosier’s stance is on it now. I think John tends to favour stop-loss systems, so maybe he’s gone off the boil on it. That’s pure speculation on my part, though.

  2. Pingback: Nov 2014 | Mark Carter's blog

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