Tuesday, March 22, 2011

Shares to consider

Here is a list of companies that recently crossed my path, for which I thought I'd do a quick write-up. This is in no way a recommendation to buy any of the shares I mentioned; they were just suggestions that were made to me in passing. I'm paying them a cursory glance, and you can investigate further if you are interested.

CNMI - Camper & Nicholsons Marina Investment - real estate investment and services
Acquires, develops and operates marinas. It also provides servicea and consultancy to other marinas.
MKT CAP: 12m
PE: -2.2
PTB: 0.4
Z-SCORE: 0.0
It has a terrible z-score, and an insolvency ratio of 6 years.

The company was floated (if you'll forgive the pun) in 2007, and has made losses in each of the last 3 years. It has no inventory, as a current ratio of 2.8. So it has an adequate cash position for now. Net current assets are £7m, which is a huge chunk of the market cap. Long-term liabilities are £26m.

Earlier this month, the board announced preliminary results for y/e Dec 2010:

  • sale of 45% beneficial interest in IC Cesme Marina to majority owned subsidiary, transaction completion expected in March 2011
  • CB Richard Ellis appointed to carry out a strategic review of the business which is now fully underway
  • the board is "aware of the significant discount to reported new asset value at which the Company's shares continue to trade on AIM and are determined to address the situation"
The company issued equity in Nov 2010. Potential investors might want to check out how dilutive the company has been.

Scary company. I see a lot of risk in this one, so some digging would be required to see if this is a true asset play.

DVO - Devro - food producers

Produces "edible collagen casings", for salami, hams, and other cooked meat. Mmm, that's good collagen. It also produces non-edible collagen and casings for medical use.

MKT CAP: 447m
YIELD: 2.6%
PE: 15.5
PTB: 2.9
Z-SCORE: 5.4

Analyst forecast EPS growth of 13% in 2011, and a further 9% in 2012. Balance sheet is excellent. ROE10 is 17% (median ROE over last 10 years), and ROE for 2010 also 17%. 

This company has, clearly, a completely different risk profile to CNMI, and you stand a much better chance of sleeping at night with this one. The median PE for this company over the last decade is 12, so you're paying over the historic norm is you buy now.

In Feb 2011, the board made a preliminary announcement for the results to y/e Dec 2010. They reported the following outlook for 2011: 
We expect to see sales volumes increase further as the capacity from recent investments comes on stream and new products displace gut.  We will continue to seek margin improvements as the benefits of manufacturing efficiencies come through, and we are planning significant new investments to provide capacity for further growth in 2012 and 2013.  I am confident that our management teams around the world will maintain the excellent progress of the past three years.
Offhand, it seems like a fairly solid company, and a pretty safe long-term hold.  Not compelling value.

RNO - Renold - Industrial Engineering
It manufactures industrial chains (for power transmission and conveyor chains) and torque transmissions (car gearboxes and power transmission).

MKT CAP: 80m
YIELD: 0.0%
PE: 23.4
PTB: 2.4
Z-SCORE: 1.0
ROE10: 5.6%

In Feb 2011, the board announced an interim management statement, noting:
  • market conditions had improved across all of our areas of operation with additional incremental gains in market share during the first half and that we expected the sales trends established in the first half to continue
  • trading has increased in line with the board's expectations
RNO's earnings have been erratic over the last decade, and its ROE at a very low figure. The company also looks weak financially. EPS for 2011 is expected to be 1.56p, and in 2012 it is 3.55p, giving it a forward PE of 10.3 for 2012.

RNO seems like a fairly weak company, both in terms of its business model and balance sheet. It had an operating loss for y/e June 2010, which was the first loss in a decade. It's difficult to see much attraction in the share.

TIK - Tikit Group - software and computer services
Software consultants
MKT CAP: 38m
YIELD: 2.5%
PE: 13.4
PTB: 2.4
Z-SCORE: 2.6
ROE10: 23%

Over the last decade, revenues have grown from 9m to 27m, and profits grown from 1m to 3.8m. Balance sheet looks OK, but not as strong as it used to be. Analysts forecast earnings growth of 13% in 2011, and 9% in 9%.

Earlier this month, the board issued preliminary results for the y/e Dec 2010 noted:
The board is pleased with the progress made during the year. The group remains in a strong position and is well placed to benefit from the trend towards IT outsourcing, particularly in the legal industry. The fundamentals of our business are excellent, and we look towards the future with optimism.
TIK is a very small cap, which is a bit of a put-off for beginners. I would want to see much better value for money before being enticed further. just my opinion, of course. I'm also not fond of software consultancy firms, which seem quite vulnerable to economic fluctuations.

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