Friday, April 28, 2006
Invox falls cause portfolio pain
This week, shares in Invox fell almost 30% to end the week at 43p to sell. I am a long way down on my investments in this company.
Worryingly, there has been no material news to accompany this fall. It is as though news about the company is slowly leaking out to investors who rush for the exit. I have lost count of the number of times I have kidded myself that the shares have hit bottom.
So what to do?
In the absence of more news I cannot make an informed decision. Invox's two main divisions have been struggling for awhile now but how much worse can things really get for this company? Even if Invox only manages to achieve EPS of, say, 13p for the financial year, that would put the company on a P/E ratio of just over 3. This is an astonishingly low rating. Only very rarely does the market ascribe such a low valuation to a company earnings. This can be because either
a) the forecast earnings contain an exceptional item that will boost earnings only once
b) a substantial decline in earnings is expected
I know from my research on the company that a) is not the answer. That leaves b) and I can understand, from the recent interim results why the market thinks Invox's earnings are simply not sustainable. The home gaming (scratchcard) and internet service provider business are suffering turnover and margin pressure respectively. On the occassions where the market does apply such a low forward rating, this is normally to companies which are expected to slump to years of losses. This is very possible amongst insurers for example, where disasters, low premiums and a disappointing investment environment can form a deadly triple whammy that can wipe out a company entirely. Or amongst housebuilders, where falling houseprices set against rising raw materials, labour and land costs can push a business into the red.
However, it is difficult to see amongst Invox's divisions a comparable sort of business that can be forced to trade at a loss. Unlike insurers, it is unlikely internet service providers would launch into such an aggressive round of price cuts that profitability became threatened. And unlike the housebuilding industry, Invox sets the prices and the prizes in their home gaming division - so why would losses ever be incurred here?
The only real fear I have is that both businesses could suffer such biting declines in profitability that Invox continues to make a profit for only a few more years, delivering EPS of perhaps 13p this year, followed by 6p, 3p and then 1p. Discounting these earnings by 5% would put Invox on a fair value of 22p, a terrifying half today's share price.
I believe this is unlikely and earnings are likely to stabilise at some level. There is also the possibility of growth through new venture bingoloopy.com . But certainly it is very easy right now to paint a very black picture for this investment indeed.
The Artful Dodger
(0) comments
Worryingly, there has been no material news to accompany this fall. It is as though news about the company is slowly leaking out to investors who rush for the exit. I have lost count of the number of times I have kidded myself that the shares have hit bottom.
So what to do?
In the absence of more news I cannot make an informed decision. Invox's two main divisions have been struggling for awhile now but how much worse can things really get for this company? Even if Invox only manages to achieve EPS of, say, 13p for the financial year, that would put the company on a P/E ratio of just over 3. This is an astonishingly low rating. Only very rarely does the market ascribe such a low valuation to a company earnings. This can be because either
a) the forecast earnings contain an exceptional item that will boost earnings only once
b) a substantial decline in earnings is expected
I know from my research on the company that a) is not the answer. That leaves b) and I can understand, from the recent interim results why the market thinks Invox's earnings are simply not sustainable. The home gaming (scratchcard) and internet service provider business are suffering turnover and margin pressure respectively. On the occassions where the market does apply such a low forward rating, this is normally to companies which are expected to slump to years of losses. This is very possible amongst insurers for example, where disasters, low premiums and a disappointing investment environment can form a deadly triple whammy that can wipe out a company entirely. Or amongst housebuilders, where falling houseprices set against rising raw materials, labour and land costs can push a business into the red.
However, it is difficult to see amongst Invox's divisions a comparable sort of business that can be forced to trade at a loss. Unlike insurers, it is unlikely internet service providers would launch into such an aggressive round of price cuts that profitability became threatened. And unlike the housebuilding industry, Invox sets the prices and the prizes in their home gaming division - so why would losses ever be incurred here?
The only real fear I have is that both businesses could suffer such biting declines in profitability that Invox continues to make a profit for only a few more years, delivering EPS of perhaps 13p this year, followed by 6p, 3p and then 1p. Discounting these earnings by 5% would put Invox on a fair value of 22p, a terrifying half today's share price.
I believe this is unlikely and earnings are likely to stabilise at some level. There is also the possibility of growth through new venture bingoloopy.com . But certainly it is very easy right now to paint a very black picture for this investment indeed.
The Artful Dodger
Wednesday, April 26, 2006
Busiest day ever
On Monday, Invox, my most troublesome shareholding fell almost 20% to 50p to buy versus my original purchases at 82p and 93p. This is easily the largest decline I have ever suffered since beginning investing. Unusually, this large fall was not precipitated by a company profit warning or any other specific news but buy a SELL recommendation in a small-circulation tipsheet.
Invox remains forecast to make 17.5p profit per share this year and will probably report results in September.
To take advantage of this opportunity I sold 2000 shares in Fayrewood at 105p and bought more Invox at 49.5p.
Later in the day, NCipher shares fell back slightly, giving me the opportunity to buy at 233.5p, nicely below the entry price first suggested by my analysis.
Even after all of yesterday's excitement, SOCO went and topped all of that this morning with the announcement the oil explorer has found more black gold offshore Vietnam. This increases Soco's value considerably and the shares have pushed their way higher this morning to pass 1600p at one stage versus my 869p purchase price in March. SOCO has more than made up for Invox's suffering. But Invox remains extremely cheap and I expect the company will start to make a positive contribution later in the year - that's the plan anyway.
The Artful Dodger
(0) comments
Invox remains forecast to make 17.5p profit per share this year and will probably report results in September.
To take advantage of this opportunity I sold 2000 shares in Fayrewood at 105p and bought more Invox at 49.5p.
Later in the day, NCipher shares fell back slightly, giving me the opportunity to buy at 233.5p, nicely below the entry price first suggested by my analysis.
Even after all of yesterday's excitement, SOCO went and topped all of that this morning with the announcement the oil explorer has found more black gold offshore Vietnam. This increases Soco's value considerably and the shares have pushed their way higher this morning to pass 1600p at one stage versus my 869p purchase price in March. SOCO has more than made up for Invox's suffering. But Invox remains extremely cheap and I expect the company will start to make a positive contribution later in the year - that's the plan anyway.
The Artful Dodger
Wednesday, April 19, 2006
NCipher: almost cheap enough
NCipher (LSE: NCH) is a high-tech encryption hardware supplier. The shares currently trade at 240p to buy. Recently, the stock fell back sharply when a US software specialist pulled out of a takeover that priced the shares at 300p.
At the final results, NCipher announced cash reserves of £40.2m and earnings per share of 10.97p. Against a market capitalisation of £58.6m a quick calculation reveals 166p of the current market capitalisation comprises company cash. Ignoring the effects of the cash on the market capitalisation, that leaves 74p of business covered by the ongoing earnings which are forecast to rise further over the next two years (as is the norm for these technology companies - take care).
NCipher is clearly very cheap. I'd like to examine this one further as it is even cheaper than I had previously calculated. I'll check my numbers and report back but NCipher is clearly one cheap share, provided future earnings are maintained. I may be purchasing imminently.
The Artful Dodger
(0) comments
At the final results, NCipher announced cash reserves of £40.2m and earnings per share of 10.97p. Against a market capitalisation of £58.6m a quick calculation reveals 166p of the current market capitalisation comprises company cash. Ignoring the effects of the cash on the market capitalisation, that leaves 74p of business covered by the ongoing earnings which are forecast to rise further over the next two years (as is the norm for these technology companies - take care).
NCipher is clearly very cheap. I'd like to examine this one further as it is even cheaper than I had previously calculated. I'll check my numbers and report back but NCipher is clearly one cheap share, provided future earnings are maintained. I may be purchasing imminently.
The Artful Dodger
Sunday, April 02, 2006
Storming SOCO takes me to +1%
My purchase of SOCO on March 13th looks extremely well-timed. The shares have surged from my purchase price of 869.5p to 1101.5p to sell at close of business on Friday, the last trading day of March.
In addition, the market loved results from Chaucer and has pushed the shares up to 75p to sell, the highest they have been since my purchase at 42.88p on 2003. Fayrewood and Invox continue to malinger, waiting for the market to wake up to the value they present but I'm confident both will make a significant and positive contribution to returns in 2006.
Here's the portfolio review and things are looking much better than they were at the end of February. End of February:
Chaucer Holdings, 06/10/2003 at 42.88p (64p)
Fayrewood, 15/04/2005 at 112.5p (111p)
Fayrewood, 19/04/2005 at 111.5p (111p)
Invox, 10/01/2006 at 93.13p (70p)
Invox, 09/02/2006 at 81.5p (70p)
+ cash holdings
versus today's values and with SOCO back in the mix:
Chaucer Holdings, 06/10/2003 at 42.88p (75p)
Fayrewood, 15/04/2005 at 112.5p (104p)
Fayrewood, 19/04/2005 at 111.5p (104p)
Invox, 10/01/2006 at 93.13p (66p)
Invox, 09/02/2006 at 81.5p (66p)
SOCO International, 13/03/2006 at 869.5p (1101.5p)
+ cash holdings
total return for 2006: +1%
I expect a little more from SOCO this month. Chaucer is beginning to edge closer to fair value and the long-awaited awakening of Invox and Fayrewood could occur at any moment. I'm feeling a lot more positive about my investments now and have more cash to arrive in my account soon. It will need a home of course - and the research efforts must be stepped up.
The Artful Dodger
(0) comments
In addition, the market loved results from Chaucer and has pushed the shares up to 75p to sell, the highest they have been since my purchase at 42.88p on 2003. Fayrewood and Invox continue to malinger, waiting for the market to wake up to the value they present but I'm confident both will make a significant and positive contribution to returns in 2006.
Here's the portfolio review and things are looking much better than they were at the end of February. End of February:
Chaucer Holdings, 06/10/2003 at 42.88p (64p)
Fayrewood, 15/04/2005 at 112.5p (111p)
Fayrewood, 19/04/2005 at 111.5p (111p)
Invox, 10/01/2006 at 93.13p (70p)
Invox, 09/02/2006 at 81.5p (70p)
+ cash holdings
versus today's values and with SOCO back in the mix:
Chaucer Holdings, 06/10/2003 at 42.88p (75p)
Fayrewood, 15/04/2005 at 112.5p (104p)
Fayrewood, 19/04/2005 at 111.5p (104p)
Invox, 10/01/2006 at 93.13p (66p)
Invox, 09/02/2006 at 81.5p (66p)
SOCO International, 13/03/2006 at 869.5p (1101.5p)
+ cash holdings
total return for 2006: +1%
I expect a little more from SOCO this month. Chaucer is beginning to edge closer to fair value and the long-awaited awakening of Invox and Fayrewood could occur at any moment. I'm feeling a lot more positive about my investments now and have more cash to arrive in my account soon. It will need a home of course - and the research efforts must be stepped up.
The Artful Dodger
