Saturday, October 8, 2011

Diary: shft, cms

Dear Diary
I was asked to provide some reflection on my diary, so here goes ... I originally decided to try commiting to it after reading Geoff Gannon's article (grrr, can't find the link just now) on writing your thoughts for 10 minutes every day. So far, the diary seems to take rather longer than 10 minutes. Looking back on some of my posts, I realise that I hadn't quite conveyed my thinking that I had intended. Sometimes I was more bullish than I appeared, and sometimes it's the other way around. I think another problem is that when you talk about a stock or theme, you also appear to be recommending it implicitly, which is not necessarily the case. In expressing one's views, it can be quite a raw experience, because one's often exposing one's naivety. Looking at the writings of some other bloggers and investors, one often feels like a Salieri in the presence of Mozart: a kind of curse in which one is able to recognise genius, but not replicate it. I am but a monkey rubbing the sticks together. Or, my personal favourite: otters banging rocks. I also think that if I say something, then there is some moral burden to saying it. I can't help thinking that putting a rider "DYOR" is a bit of a copout. I see that some journalists have no such problems.

SHFT - Shaft Sinkers - Support Services - 112.6p/£54m
SHFT operates in the mining sector: shaft sinking, contract mining, mine operation, tunneling and large underground excavations. It was picked up in an article on Motley Fool on 08-Sep-2011, where it was noted for its value characteristics. Since then, the share price has declined 23%, compared with the Footsie, which has remained about flat. Ah, value shares, don't you just love them? The company has net cash of 11m, PER of 5.1, and ROE of 26%.  The company seems to have floated earlier this year, so beware at potentially buying at a cyclical high point if you're looking at this from a "magic formula" angle. It's trading at price to free cash flow of 6.3, and has an EV/EBITDA of 2.4. Those are very low values. I don't own the stock myself, nor have I any plans to, so DYOR. Oh wait!

CMS - Communisis - Support Services - 26.3p/£37m
This one crossed my path via an article posted by ExpectingValue on 18-Agu-2011. Kudos to you, EV! According to Google Finance:
The Company is engaged in the provision of products and services to assist its clients with customer communications. It services include the delivery of data and analysis services to help clients with their customer strategies, as well as risk analytics
Huh? Reading the rest of its description is a bit confusing, too. Why is it that consultants, presumably requiring very high levels of communication skills, resort to these kind of gobbledegook explanations of their business activities? Grr. OK, minor venting finished. It looks like it is mostly involved in direct mail (which to you and me means junk mail), whether delivered as postal mail, or electronically. Its ROE10 (median ROE over the last decade) is 7.4%, against a current of 3.5%. This thing is clearly no great business, but it might give good returns if you believe in a reversion-to-mean scenario. It is on a PER of 6, and analyst forecasts look quite robust. Read EV's article for a more in-depth discussion.


Lewis said...

Thanks Mark!

That was my slightly more bullish second look - great minds think alike, though, as my first piece on Communisis opened with the following..:

"Communisis is a company that sends mixed messages. It’s almost one I passed over completely after taking a quick look at its website, but its numbers lured me back and so I grudgingly allowed myself to spend some time to understand the business. Call me simple, but I like businesses I can understand easily, and Communisis describe their activities as: “More effective and more profitable marketing communications. That's what we do. We optimise marketing activities by adding value to customers and prospect communications”. Fantastic! Barratt make houses, Cranswick make sausages, but Communisis doesn't seem to be too specific.

I do wish they’d give investors a nice, concise explanation of their activities instead of the above. Marketing is a very blanket term!"

Mark Carter said...

Lol. It's like when companies say they are a "value-added business". I always think: "as opposed to what? One that takes it away?"