Bumper small-cap gains

In fact, having written 47 online articles this year and covered the investment case on no fewer than 50 companies in this time, with equity market conditions benign and investor sentiment positive there have been no shortage of buying opportunities. It also means that adopting a disciplined approach of buying the dips on my watchlist of shares has paid hefty rewards.

For instance, in the past week I have spotted buying opportunities in the shares of Raven Russia ('A major buy signal beckons', 11 March 2013); and repeat buy signals in three companies: Netplay TV ('Another roll of the dice', 13 March 2013); Spark Ventures ('Spark a re-rating', 14 March 2013); and Sanderson ('Jumping the gun: take three', 14 March 2013). I was also able to react in real-time to news from Global Energy Development ('Patiently waiting', 11 March 2013) and offer a short-term potential trading opportunity on the S&P 500 ('Profit from St Patrick's day', 11 March 2013).

These articles were released on our website in real-time during market hours last week and readers registered for our free IC Daily email were sent an alert to notify them of these potentially profitable buying opportunities. You need full online access to read the articles, but you can upgrade your magazine subscription to incorporate full online access for a modest £20 additional annual payment - and the pay-off can be substantial. For instance, shares in Raven Russia have rallied through the 70p chart breakout point and are now halfway to the 80p share price target following a bumper set of results from the property company. And having originally advised buying shares last month in gaming operator Netplay TV at 12.5p, and repeated the advice at 16.5p last week after they had drifted down from a high of 17.5p, the shares have since surged to 19p after the company announced the extension of its contract with ITV until 2016. In fact, by closely monitoring newsflow and prices on all the companies on my watchlist I am ideally placed to note repeat buying opportunities.

Profit upgrades for Communisis

For instance, I have issued multiple buy recommendations over the past year on marketing services provider Communisis (CMS: 52p), during which time the shares have almost doubled. Following last month's fundraising at 40p a share, which raised £20m, analysts have now released their earnings forecasts for 2013 which are bang in line with the 5p-a-share forecast I made when earnings estimates were suspended due to the placing and open offer. This means that the shares are now trading on 11 times forward earnings, offer a prospective dividend yield of 3.4 per cent based on a rise in the payout from 1.65p to 1.8p this year and are priced on a hefty 28 per cent discount to pro-forma book value of 73p a share. Moreover, with the benefit of an ungeared balance sheet and with capital available for acquisitions, the company can now focus on higher-margin contracts and continue to weed out the less profitable business (as it has being doing recently).

The improving margin picture has not been lost on analysts and Johnathan Barrett at N+1 Singer has raised his pre-tax estimate by £1m to £12.2m for 2013 based on a 3.3 per cent revenue upgrade to £237m to produce EPS of 5p. He has also upgraded his 2014 estimates from £11.8m to £13.8m to partly factor in an additional £5m rise in annual revenues to £245m, but mainly to reflect the increase in operating margins. If these estimates are hit, this means the company's EPS will rise further to 5.5p in 2014 and the forward PE ratio will drop well below 10. It also means that Mr Barrett's 2p-a-share dividend estimate for 2014 would be covered 2.75 times by post-tax earnings. On that basis, the forward yield rises to 3.8 per cent. So, although Communisis hit my 55p target price a fortnight ago post results, I can see upside in the earnings story and I am comfortable running my profits - especially as the valuation is hardly exacting.

Making a Fairpoint

My 2013 Bargain Shares portfolio is performing well and there has been a raft of news to comment on from a number of the companies in the portfolio, including debt management specialist Fairpoint (FRP: 107p).

There was a lot to like about last week's full-year results after Fairpoint reported a 15 per cent rise in underlying revenues to £29.9m, an 87 per cent increase in adjusted pre-tax profits to £7.6m and a doubling of underlying EPS to 13.4p. With net operating cash flow almost trebling to £12.6m, this not only meant an £8m swing in the debt position so that Fairpoint ended the year with net funds of £1.6m, but paved the way for a 22 per cent increase in the payout to 5.5p a share.

Moreover, with analysts at Shore Capital expecting adjusted pre-tax profit to rise to £8.1m this year, which would produce EPS of 14.3p, there should be scope to raise that payout again - especially as "the board is committed to a long-term progressive dividend policy, which takes into account the underlying growth in earnings and strong cash generation". In fact, that cash pile has almost doubled since the year-end after Fairpoint received a further £1.5m in exceptional fee income as the final element of the VAT refund processed through the open IVA cases.

Trading on a modest eight times historic earnings, offering a yield well over 5 per cent and modestly priced above book value of 98p a share, I continue to rate Fairpoint shares a buy and would not be surprised to see earnings estimates upgraded as the year progresses and a further large boost to the dividend.

How Simon Thompson's 2013 Bargain Shares Portfolio has performed

Bumper dividends for Randall & Quilter

Randall & Quilter (RQIH: 130p) is a specialist in managing the run-off of insurance companies and Lloyd's of London syndicates that have stopped underwriting new contracts, but have already settled liabilities arising from policies written. It is a huge market worth nearly £30bn in the UK - accounting for 15 per cent of the non-life insurance market - and in excess of $500bn (£316bn) globally. It is also hugely profitable, which is why R&Q has been able to pay out over 23p a share in dividends in the past three years. And shareholders can expect further returns shortly after the board announced the payment of 5p a share to shareholders next month. This follows the payment of 3.4p a share in November and 4.9p in June last year. Trading on a discount to book value of 139p and offering a 12-month running yield of 6.3 per cent, I continue to rate the shares a value buy.

Terrace Hill on solid foundations

Shares in property developer and investor Terrace Hill (THG: 17.75p) surged after I recommended them as one of my Bargain Shares for 2013. However, having rallied from an opening price of 15.4p on 8 February to a high of 22p, they have drifted back to 18p on profit-taking. From my lens, this looks an ideal buying opportunity - especially as the investment risk has improved markedly since my initial recommendation. However, the shares still trade on an unwarranted 33 per cent discount to EPRA net asset value of 26.8p.

Since then, the company has announced a site sale and forward funding agreement with Legal & General Property for its 1,104-unit student accommodation scheme in Southampton city centre and has exchanged contracts for the sale of the majority of its remaining residential assets, comprising 925 units, in a £70m deal. That disposal, at close to book value, accounts for 95 per cent of Terrace Hill's wholly owned residential assets and over 90 per cent of the properties held within its residential investment joint venture in which it has a 49 per cent interest.

So, once you factor in the net proceeds from both deals, Terrace Hill's net borrowings are slashed from £47.2m to £20.2m and balance sheet gearing drops from 78 per cent to 34.6 per cent of shareholders' funds of £58.4m. And even if you include all debt on joint ventures, net debt has been cut from £85.7m to only £26.7m, which means that gearing (including all non-recourse loans) is a modest 45.7 per cent, down from 142.1 per cent. We can expect further debt reductions, too, because Terrace Hill has initiated a programme of sales to owner-occupiers for the remainder of the residential portfolio, comprising 35 units in Manchester and the South West. These are in the books for £5.5m and chief executive Philip Leech notes that "the few retained properties being sold to owner-occupiers are expected to achieve prices at levels in excess of book value".

Prospects for the core foodstore property development business are well underpinned, too. In particular, Terrace Hill has a secure pipeline of projects, which have a build-out value of over £240m for clients including Sainsbury's and Asda - so it's hardly short of work. In terms of the pipeline, three new stores have been pre-let, forward funded and are under construction, another four sites are in the planning process and nine additional sites are under consideration. Forward funding purchases mitigates investment risk and underlines the profit potential from these schemes when supermarkets complete on their purchases.

So, given these positive fundamentals and the strengthening of the company's balance sheet, I can see significant scope for the share price discount to book value to narrow in the months ahead. Buy.

Polo Resources set to hit gold

Shares in Aim-traded investment company Polo Resources (POL: 26p) are trading marginally above my advised buy-in price and on a hefty 36 per cent discount to book value of 39.8p a share (using the current exchange rate of £1:$1.49) - even though there are obvious catalysts for a re-rating in the months ahead. In fact, Polo has just announced that the mineral resource estimate (MRE) from its 90 per cent-owned Nimini gold project in Sierra Leone is due in June 2013.

Analysts at Liberum Capital "expect these drill results in combination with the remainder of the highly successful 2012 programme will add meaningfully to the resource update". In order to eliminate the need for immediate funding and dilution to existing shareholders, Polo and its operator, which holds the 10 per cent balance in the gold project, have adjusted the pace of drilling. The revised drill programme will focus on the shallower strike extensions at Komahun and target gaps in the shallower areas of the existing resource, which looks sensible as does the year-end target to complete a preliminary economic assessment based on the results of the MRE. The operator has also repaid a $2.5m loan to Polo, so by my reckoning Polo is currently sitting on net cash and short-term investments of $37m, or 9.2p a share.

In other words, strip out this cash and Polo's investment portfolio is being valued on a 46 per cent discount to its pro-forma book value. Given the upside potential of the portfolio and management's track record in realising and distributing value to shareholders, this is a bargain basement valuation and I rate the shares a buy ahead of forthcoming news on the Nimini gold project.

MORE FROM SIMON THOMPSON ONLINE...

Since the start of this year I have written no fewer than 47 online articles, all of which are available on my homepage. These include articles on the following companies this week:

Sanderson ('Jumping the gun: take three', 14 March 2013)

Spark Ventures ('Spark a re-rating', 13 March 2013)

Netplay TV ('Another roll of the dice', 12 March 2013)

Global Energy Development ('Patiently waiting', 12 March 2013)

US equity market trade ('Profit from St Patrick's day', 11 March 2013)

Raven Russia ('A major buy signal beckons', 11 March 2013)