DividendMax Small Companies – Opinions for 2015.
We re-iterate all of our small cap picks for last year (2014). See our comments below with regard to their performance and why we stick with our views.
All prices as at publication on 6th January 2014
1) Photo-me international (PHTM) (139p)
Photo-me has really turned the corner in recent years and not only has very strong growth prosepects via its emerging laundry unit business, but also generates cash very strongly and pays out decent dividends. It sits on a fairly demanding P/E of 21 times but this comes down to 18.5 times ex-cash. The business has other ideas in the pipeline including a digital printing kiosk and supermarket car washes, both of which build upon existing strengths. Underpinning the shares is a very decent yield of 3.5%. They have promised a dividend increase of 30% in the current financial year. On top of this they have a habit of paying special dividends. A solid, safe investment, with lots of cash and solid growth prospects with the strong chance of continued above average dividend increases. They go ex-dividend on the 2nd April for 2.34p.
2) Globo (GBO) (40p)
Globo has been walloped because of its connection with Greece, but the reality is that it is growing rapidly and its solutions are relevant and in demand across multiple geographies. Now is an excellent opportunity to pick up the shares. They are trading on a forward P/E of 4.6x with expected EPS growth of 35%. Its profit figures for the past 4 years (in Euros) are:
2010 - 4.63
2011 - 12.02
2012 - 17.22
2013 - 27.4
For 2014, brokers are pencilling in 38.1 million and in their recent Q3 statement they said 'We expect positive free cash flow generation to continue during the last quarter of 2014 and we remain confident that our year-end results will meet market expectations.'
The Q3 trading report had the following statement which to me makes you realise how little the Greek connection matters.
Costis Papadimitrakopoulos, CEO commented:
"We are happy to report that, seventeen years after the Group's foundation, our business continues to innovate and grow on all fronts. After my move to California, the company has established a more US-driven development path. Our reputation and position in the market continues to go from strength to strength and I expect this to be reflected in the future performance of the Group. We are confident that the successes of the first nine months of the year will continue through the remainder of 2014 and beyond."
They also have a net cash position of 36.3 million Euros and the market cap is only £149 million.
3) Tungsten (TUNG) (284p)
Tungsten was suggested to me by a DividendMax subscriber and after looking into them, they look very interesting indeed. Tungsten serves 56% of the Fortune 500 and 67% of the FTSE 100 by connecting the world's largest companies and government agencies to their thousands of suppliers globally. It enables suppliers to submit tax compliant e-Invoices in 47 countries, and last year processed transactions worth over $187bn for organisations such as Alliance Data, Aviva, Cargill, Deutsche Lufthansa, General Motors, GlaxoSmithKline, Henkel, IBM, Kellogg's, and the US Federal Government.
They produce their half yearly numbers soon (14th January) and they will be worth looking at to see if their powerful user base will translate into profits for Tungsten. They are expected to treble revenue in the year to 30/4/2015, but make a loss and in the next two financial years are expected to make earnings of 22p and 30p for prospective P/E's of 13.4 and 9.9 times respectively.
4) Laura Ashley (ALY) (30.5p)
We choose Laura Ashley for their strong brand and high dividend yield. We don't see them becoming a Next but they are rolling out their franchise very well and their last set of figures were actually pretty good. In the second half of the year they face a very weak comparable from last year when they completely blew the Christmas trading period. The market is not pricing in much success and they could well surprise to the upside. They are underpinned by a very high yield.
5) Afren (AFR) (42p)
Afren are risky in that they, like many oil companies are seeing revenues fall off a cliff as the price of oil keeps on plunging, but they do have considerable assets and are well hedged for the coming months during which an oil price recovery is widely predicted. We agree with this as the speed of the current fall will bring a stabilisation of the price sooner rather than later. There is the possibility of a bidding war between two other indiginous African oil companies, but little chance of a major stepping into the fray in our view. Afren can withstand the falling oil price, but clearly as it keeps falling, the value of its assets in the ground can be picked up more cheaply. Nonetheless, we think they are worth a lot more than the current share price of 42p.
2014
1) Cathay International Holdings. (CTI)
We are pretty disappointed by the performance of Cathay which began the year at 32.6p, rose to 40.5p and then fell to 27p. We are unaware of any reason for the poor performance and we look forward to the final results in March that will have a full year of inositol production in the numbers.
2) OPG Power Ventures (OPG)
OPG performed extremely well rising from 56.5p to 99.25p, a rise of 75%. We believe that they will continue to deliver and outperform the stock market in 2015.
3) Toumaz (TMZ)
After a strong performance with the shares reaching a high of 7.37p, Toumaz fell back and are trading slightly higher than when we recommended them. If they achieve their stated objectives of 'The Group aims to become cash flow positive in 2015 and to have increased revenues fivefold by 2017.', then we expect the shares to perform extremely well over the next few years.
4) Imagination Technologies (IMG)
Imaginations shares rose by 32% in the year and we expect them to develop further over the next few years. They are well positioned for strong growth.
5) Graphene Nanochem (GRPH)(Market Cap £137 million)
Graphene are a blue sky stock who are moving in the right direction. It is difficult to say when they will fully realise their commercial potential and delays to their commercial deployment of their Platdrill series hit the shares hard. The shares fell 62% over the year. They remain a risky proposition and at current levels the shares have great potential, but the newsflow needs to be positive before the shares can be acquired.
