Namely, that when I suggest buying shares in a small-cap company, the result is often a spike in market activity in what are generally quite thinly traded shares. For example, when my annual bargain portfolio of 10 shares for 2011 was published on Friday 11 February, almost 50m shares were traded on that day in Polo Resources - against a previous daily range of 2m to 4m. That equates to £2.8m of trades for a £122m company.
Nor was that an isolated example; two million shares were traded in Ambrian Capital which drove the share price up 6 per cent on the day; 1.2m shares were traded in Shore Capital (share price rose 10 per cent); 0.5m shares were traded in First Property (price up 8 per cent); 0.8m shares were traded in Terrace Hill (price up 20 per cent); 360,000 shares in Pilat Media Global (price up 9 per cent).
Clearly, I'm glad that investors value the extensive research that I put into these articles, and I'm humbled that many readers consider my skills and track record good enough to back with their own money. But I can also see that it's frustrating for anyone coming late to the party to see that a company's share price is already half way to my target before they've had a chance to buy!
I cannot do much about share price movements, or the spreads that brokers make on small-company shares. But what I can do is try and give all readers an equal chance of buying the shares at or close to the price I've indicated.
With this objective in mind, my weekly magazine column will now be published online at noon every Monday - four days before the magazine goes on sale. In order to access the column online, you will require an IC Advantage subscription, details of which are given at the end of this article. The column will also be included in that day's 'IC Daily' editorial email, which is dispatched around three o'clock in the afternoon.
In the meantime, here are updates on some recent successful calls:
■ LMS Capital ('Capital returns', 14 Feb 2011), an investment company with a market value of £150m, clearly appealed to readers and, in a falling market, the shares have shot up 15 per cent from 54.5p to 63p, well on the way to my 70p six-month target price. That looks very achievable as a trading update last week highlighted the fact that the shares are currently trading on a deep 28 per cent discount to net asset value, despite the fact that LMS had a pro-forma net cash position of £14.6m at the end of March following disposals of investments and the takeover of Prostrakan. I continue to rate LMS's shares a value buy.
■ I also continue to rate shares in Netcall a buy, although I am fully aware that many of you could only buy at around 16p to 16.5p, rather than the 13.25p offer price quoted in my article ('Queuebusters', 17 Jan 2011). The shares hit my 20p target price fairly quickly and I subsequently upgraded my target to 23p ('Target prices', 7 Feb 2011). So, with the shares now trading on a bid-offer spread of 17.5-18p, I see this as a further buying opportunity, especially as the company, which offers software to make telephone call handling more efficient, and which boasts over 600 clients in the private and public sectors, is delivering operationally.
In the six months to end-December, Netcall's underlying pre-tax profits trebled to £1m and analysts expect profits to rise from £1m to £2.3m in the 12 months to end-June 2011, producing EPS of 1.5p. This is based on revenues of £14.1m, of which £10m is recurring on an annualised basis, and includes contributions from 20 new customers signed up in the first half including three new hospital trusts and seven local authorities. Moreover, streamlining the back office has produced net annualised savings of £1.5m following the acquisition of rival Telephonetics. Rated on 10.5 times forecast earnings (adjusted for Netcall's £4.8m cash pile), the shares remain attractively priced.
■ Thousands of online subscribers read my article on Workspace ('Hot property', 14 Oct 2010 - online only) and trading volumes indicate that many agreed with the investment case and bought the shares at 22.5p. I subsequently upgraded my target price to 29p ('Property plays', 18 Apr 2011) which was hit six trading days later. Including a 0.27p a share dividend paid in February, those who followed my advice have made a 30 per cent return in little over six months and I would now advise banking profits.
■ Finally, my decision to keep faith with Elektron, a small-cap manufacturer of technology and engineered products, looks sound after the company issued a bumper set of results last week ('Switching on Elektron', 29 Nov 2010). Underlying pre-tax profits more than trebled to £5.1m on revenues of £50m in the 12 months to January 2011, producing EPS of 4.2p. The board also announced a 60 per cent hike in the dividend, to 0.8p a share, which looks fully warranted as the company generated £3.1m of operating cash flow in the period. Moreover, this strong cash generation should enable Elektron to pay down its £4.3m of net borrowings, even though gearing is comfortable at 29 per cent. Having risen 17 per cent to 43p since I advised buying at 36.5p, and rated on nine times earnings estimates of 4.7p, my target price of 50p is starting to look conservative.
