Sunday, November 13, 2011

Diary: AZN, INTQ

AZN - Astrazeneca - Pharma an biotech - 2908.6p/£38.2bn

Big pharma company AZN just seems to be getting cheaper and cheaper. On 08-Nov-2011, its shares fell 3.2% due to news that its high risk/return experimental antidepressent (TC-5214) doesn't seem to work. On the the same day, the FTAS was up 1.0%. Panumre Gordon reiterates buy, morgan stanley downgrades to underweight. It's neil woodford's biggest holding in invesco per income, at 8.4%. YTD, AZN shares are down 0.4%, compared with FTSE down 6.0%.

AZN has a PER of 6.6, almost 0 gearing, net cash £19m, and z-score of 3.27. It has very large ROCE and ROE, making it a "magic formula" company.

INTQ - InternetQ - Media - 135p/£41.1m

I'm not sure how this one came to my attention, but I made a note to write up about it anyway. It's possible that I actually interviewed for the company, and was offered a job in it, at the back end of 1999. It was doing some website stuff, the specifics of which I forget. I took a job elsewhere at IQ Financial, which shortly after fell into difficulties, and I was slung out. I reapproached the other company, but apparently they had a surprise slump, too. Late 1999 was not a great time to get into tech, because it was the time that the bubble was bursting. I'm not sure if it was InternetQ that I was offered a position for, but the company name sounds awefully familiar. Never work for a company with a "Q" in its name, seems to be the moral here!

One director owns £24.5m worth of shares, and another owns £1.4m in shares, which I think is an encouraging sign. Always good to see skin in the game. I'm always a bit wary of directors that "go for growth" that have nothing to lose. Punch Taverns seemed a particularly egregious example over the last decade, taking on enormous debt and expanding. Anyway, that's neither here nor there.

According to Google, INTQ "offers mobile marketing solutions and digital entertainment". Meaning? Their website provides a couple of case studies, which will hopefully make things a little clearer.

Case study 1: Azercell Telecomm is Azerbaijan's biggest phone company, with 4m customers. It used INTQ to create a sweepstakes promotion for its mobile, the "lucky SMS" campaign. By downloading mobile content and sending a blank SMS message to a designated short code, Azercell customers had a chance to win prizes, including a luxurious apartment in Baku, which seems unusually generous; although of course there were many other cheaper prizes.

Case study 2: Brazil's Oi is a fixed line and mobile phone operator with 36m subscribers.
Under the theme of ?One Car per Day?, a cascade of PR events and creative television spots promoting Oi?s ringtone services aired over 80 days.  Oi subscribers were offered previews of the latest ringtones and urged to download them through an InternetQ shortcode, with the bonus of being automatically entered into a daily raffle to win a brand new Volkswagen Fox.

 A VW Golf was one of Azercell's prizes, so there's obviously a thing about VWs. I bought a Volksie a few months ago - a Fox as it happens. Good cars. May dad egged me on to get one instead of buying a cruddy Ford again. The Foxes are discontiued. Again, I digress.

INTQ has a number of other case studies, all seeming to involve texting an SMS number to win prizes, and play some games.

Posts on the BBS

Some snippets of posts that I've seen on Bulletin Boards. Interactive Investor gets a little bit of a following, although it's certainly not a dense following -  which is a good sign. LSE has only rare posts that are not particularly informative. Most of it is speculation on where the share is heading next (consensus is upwards).
  • 05-Oct-2011 INTQ successfully settle breach of contract dispute
  • 13-Oct-2011 First Columbus says: increased commoditisation of network operator's services has created a need for new mobile software and services which help push mobile forward. Companies mentioned are Bango, eServGlobal, Monitise, Parseq, 2ergo, InternetQ, Emblaze, Globo, Artilium, Mobile Streams, and Zamano.
The BBS aren't especially informative on this company.

6 m/e 30-Jun-2011

Highlights from their half-yearly report on 12-Sep-2011:
  • revenues  €21.8, (2010H1 €18.8m)
  • EBITDA: €2.9m (€2.6m)
  • operating progit €1.6m (€1.7m)
  • PAT €1.4m (€1.9m)
  • penetration of new territories in Asia and Africa
  • strong growth expected in second half
  • £12m placing in July at 275pps (directors did not participate in the placing)
  • demand for services continues to gather momentum from both existing and new customers
  • new business pipeline remains strong

As an aside, I've noticed that Asia seems to be very up-and-coming amongst many companies, with Europe being more problematical. India is also a country that keeps cropping up, and maybe that's one to keep an eye out for. Africa also gets the odd mention, so there appears to be money to be made even here.

The numbers

INTQ was admitted to trading on AIM on 10-Dec-2010. Beta 0.51. PER 5.5, negligible gearing, neglible debt, z-score 4.9. 52-week low 127.5p, 52-week high 322.5p - so it's trading at the low end, and is "technically oversold". According to my calcs DB02/22, it has ROC 36.1%, UEY 7.3%.


It certainly has a growth story, although I'm not sure how sustainable that is. Return on capital is high, but it has UEY (unleveraged earnings yield) which is too low to be interesting from a "magic formula" viewpoint. Maybe OK as a growth play due to high returns on capital. At a PER of 5.5, it's not atrocious in terms of valuation, so maybe OK as a high-risk growth play. I'm not a holder of INTQ. It happened to cross my radar for some reason (grr, note to self: I should note down as to why these things cross my radar).

Defensive Value Investing

UKVI (aka John Kingham) recently publised a report "Defensive Value Investing: The search for value among large, prosperous businesses". I am pleased to accompany a link back to his PDF. Excerpts are below.

He covers rules for the defensive investor, taking them from Graham's 1949 edition of Intelligent Investor:
  • Adequate but not excessive diversification - 10-30 companies
  • each company should be large, prominent, and conservatively financed (most people have heard of, they've been around for decades, are typically the top three in their industry, can be classified as "blue chip")
  • long record of continuous dividends
  • price paid should be reasonable in relation to average earnings for the last five years or longer. Don't exceed 20X
One way to look for propserous companies is to select only those that have made aprofit for every one of the last ten years. EPS should be stable over the years, preferably showing an upward trend. Revenues should also have shown a similar pattern of increases over the long term. Dividends should have been paid in every one of the last ten years and never cut.

Avoid companies where interest bearing debt is more than five times the operating profits. Also, look for operating profits at least 5X interest payments.

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earings are virtually certain to be materially higher five, ten and twenty years from now" -- Warren Buffett

"There is now an overwhelming amount of data to suggest that in many environments, simple [numeric] models significantly outperform human (expert) judgements" -- James Montier

1 comment:

John @ said...

Thanks for the mention Mark. Much like your diary, I think it's useful to write out your thoughts on investing, even if most of the ideas are handed down from the greats.

I would say that I have a little more faith then Graham (perhaps misplaced) in higher growth companies that may trade above 20x historic earnings average, such as Reckitt Benckiser. Of course a 20x limit is still very sensible, I currently use it more as an average across the portfolio rather than a hard limit but the intention is clear - don't overpay for castles in the sky.