It’s fair to say that during this results season both investors and the media are more inclined to focus on the newsflow from the mega caps at the expense of activity elsewhere. It’s also fair to say that this can create some potential buying opportunities worth exploiting. And there are three I have spotted in my small cap arena.
Dial into Globo shares
As anticipated Aim-traded shares in Greek mobile software provider Globo (GBO: 49.25p) made a significant share price break-out, having burst through the 47p major technical resistance level yesterday and activated my conditional buy recommendation (‘Going global’, 2 February 2015). It’s one that should definitely be followed and a move up to my 60p target price is not only firmly on the cards, but it could be very swift indeed.
The catalyst for the break-out was the eleventh hour extension to Greece’s financial bail-out from the troika of its international creditors: European Commission, European Central Bank and the International Monetary Fund (IMF). This means that the risk of a financial meltdown in Athens has at the very least been postponed until June. So with a Grexit from the euro on the back burner for now, then investors have become far less risk averse towards Greek shares. And as the heightened risk premium embedded in the valuation for London listed Greek companies diminishes, then expect valuations to rebound.
The cash-rich company generates 15 per cent of its revenues from Greece, and has contracts with the government which partly explains why investors have been cautious. But Globo also has a blue-chip client base including household names such as Intel and Siemens. In turn, this provides shareholders with a highly profitable and reliable income stream from Globo’s non-Greek operations. In fact, based on analysts’ pre-tax profit estimates of €34.3m on revenue of €99.8m in 2014, rising to €50.7m on revenues of €122m in 2015, EPS are forecast to increase by 11 per cent to 8.2 cents (6p) last year, rising sharply to 11.9 cents (9p) this year. On this basis, the shares are rated on a very modest eight times likely fiscal 2014 earnings, falling to 5.5 times 2015 estimates. That’s a bargain valuation for a company operating in a hot part of the tech sector. Moreover, with the company set to release a positive set of financial results, and a chart break-out now confirmed, then I continue to rate Globo’s shares a strong buy on a bid offer spread of 49p to 49.25p.
SeaEnergy making waves
The sharp fourth quarter profit declines of both BP (BP: 442p) and Royal Dutch Shell (RDSB: 2,186p) may have been grabbing the headlines, but amid news of the cost cutting by the oil majors, it seems to have gone unnoticed that some of the minnows are doing rather well. In fact, Aim-traded SeaEnergy (SEA: 25p) has just announced that BP (BP.) has brought forward its deployment of SeaEnergy’s R2S Visual Asset Management (VAM) spherical photographic capture of the oil group’s Atlantis facility in the Gulf of Mexico. The R2S photographic team is already on site in the US with project completion expected during the second quarter this year.
The contract is worth US$450,000 (£300,000) and highlights the ongoing use of the company’s services by the oil majors. Indeed, BP has used the R2S software/services on nine assets to date, including its three other offshore facilities in the Gulf of Mexico: Mad Dog, Thunder Horse and Na Kika. As I noted when I reviewed the investment case after SeaEnergy posted an upbeat pre-close trading statement (‘Going global’, 3 February 2015), there is a material cost saving for oil majors using the R2S technology on their rigs as it enables them to be monitored remotely from onshore without the need to travel to the asset itself. In light of the oil price slump, and budget constraints, I can see greater, rather than less use of this smart technology in a cost sensitive environment.
I also feel that investors are starting to realise this too, albeit SeaEnergy’s shares are still down on my original buy recommendation price of 29p ('Making waves', 20 February 2014). But with the company continuing to win new contracts, and the pipeline strong, then there is ample scope for the shares to play catch up. Ahead of its financial results on Thursday, 16 April 2015, I continue to rate the shares a recovery buy and maintain my 60p fair value target.
Communicating a profit surge in advance
Shares in marketing service provider Communisis (CMS: 56p) are tantalisingly close to signalling a major share break-out and one that I flagged up in my analysis six weeks ago (‘Break-out looming’, 12 January 2015). A close above January’s closing high of 58p would also complete a reverse head and shoulders pattern on the daily chart and set up a move to last summer’s high of 70p. We certainly don’t have long to wait as Communisis is scheduled to report full-year results on Thursday, 5 March.
Ahead of that announcement, support services analyst Andy Brown at brokerage N+1 Singer predicts a 20 per cent rise in fiscal 2014 revenues to £326m to lift pre-tax profits by a quarter to £14.6m and produce EPS of 5.6p, up from 4.7p in 2013. On this basis, expect an 11 per cent increase in the dividend from 1.8p to 2p a share. To mitigate risk, Communisis has already issued a pre-close trading update, so we are virtually guaranteed a bumper results release with no hidden surprises.
However, investors have failed to cotton on to the significance of that trading update which offers us a buying opportunity without the downside risk. Rated on 10 times last year’s likely earnings, falling to only 8 times earnings estimates for fiscal 2015, I would be a buyer of the shares now on a bid-offer spread of 55.5p to 56p ahead of next week’s results and the price break-out I anticipate they will spark. Buy.
Please note that I have published six columns in the past week and assessed the investment case on no fewer than 12 companies including a property developer and investor ('A bootiful investment', 19 February 2015) and a specialist in telematics software devices ('Zoning in on a profitable price move', 16 February 2015). These six articles are avaliable on my IC homepage.
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.75 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
