What investors seem to be missing here is that the cash-rich company only generates 15 per cent of its revenues from Greece, and its blue-chip client base - including the likes of Siemens, Intel, Oracle, SAP, TNT and McKinsey - offers very profitable revenue streams from its overseas operations. Indeed, the company continues to win new contracts, the latest being a $1.2m (£0.8m) award from a US Fortune 100 company for 50,000 licenses of the company's Go!Enterprise enterprise mobility management (EMM) product. This product enables employees to securely access their corporate intranet and any other internal web application through the secure mobile browser of GO!Enterprise Office and have controlled access to enterprise information like email, files, contacts, calendar, tasks and notes from any mobile device.
It's not a one-off contract win either as licenses from Fortune 100 companies soared 60 per cent between 2013 and 2014, highlighting the demand for Globo's products. The latest contract win follows on from a three-year award from Milton Keynes Council to provide its employees with solutions for mobile security, device management and mobile apps. Globo's GO!Enterprise platform supports centralised distribution of GO!Apps on any mobile device, a feature that is proving popular with organisations looking to expand their engagement with employees and customers through mobile technology in a secure environment.
Indeed, in a pre-close trading update yesterday Globo has revealed that revenues from Go!Enterprise almost doubled from €29.9m (£22.5m) to €57m last year, accounting for 54 per cent of Globo's total turnover. The spread of contracts is truly international with Globo generating revenue from the Middle East and South East Asia (20 per cent of first-half revenues in 2014); the Americas (22 per cent); Eastern Europe (33 per cent) and Western Europe (6 per cent).
True, the company has been criticised for its cash flow generation in the past, a factor that has weighed on its share price. But it's worth pointing out that 83 per cent of cash profits were converted into cash flow in the first half of 2014 and free cash flow was positive at €4.2m. In any case, net cash at the end of December was still €40.3m (£30.3m), or 8p a share, after accounting for last summer's $12m (£8m) acquisition of Sourcebits, a San Francisco-based developer of mobile applications, purchased on a multiple of 6.7 times cash profits. The company's working capital position is robust with current assets of €132m almost three times higher than total liabilities of €48m at the last balance sheet date.
And the strong working capital position, and improving cash flow generation, are both likely to be features in the year ahead due to rising enterprise mobility sales that have a shorter payment period of 90 days compared with 150 days for Globo's consumer segment. In the circumstances, investors are likely to focus more on the growth profile and value on offer. On both counts, Globo shares are undervalued.
Robust earnings growth expectations
Based on RBC Markets pre-tax estimate of €34.3m on revenue of €99.8m in 2014, rising to €50.7m on revenues of €122m in 2015, expect EPS to increase from 7.4 cents to 8.2 cents for 2014, rising sharply to 11.9 cents (9p) this year. On this basis, the shares are rated on seven times likely fiscal 2014 earnings, falling to 5 times 2015 estimates, a bargain basement rating for a company operating in a hot area of the technology sector.
Indeed, analysts at IDC predict the EMM market (covering security and support of mobile workers) will grow from about €800m in 2012 to €2.2bn by 2017, representing a compound annual growth rate of 22 per cent. IDC also forecast that the mobile application development platform market (mainly mobile apps development and deployment) will be worth €4.8bn in two years' time, up from under €1bn in 2012. So to capitalise on the growth opportunities, and grow its customer base and build on its US presence, Globo plans significant investment in sales and marketing efforts in the year ahead. In particular, there will be a focus on direct sales to end-users in 2015.
Reassuringly, results for the 2014 fiscal year are in line with the aforementioned analyst estimates and current trading is strong.
Trading strategy
It's worth pointing out that Globo's share price appears to be forming a base, having shown solid support at the 40p price level for the past 11 months. From a chart perspective, a move above last autumn's highs of 47p would not only signal a chart break-out on both the swing and point & figure chart, but it would be confirmation that a base is finally in place and one that should be acted upon in my view. That critical price level also coincides with a move above the 200-day moving average which has been flat-lining.
In the circumstances, my recommended trading strategy is simple: buy Globo's shares on a close above 47p and place a price target of 60p to coincide with the price high from June last year. True, you could buy them in the market at 43.5p today, but I would rather wait for the chart break-out to be confirmed to mitigate risk as I am pretty confident that the eventual break-out above 47p, when it comes, will be the real deal. Conditional buy.
Built for solid profitable gains
Epwin (EPWN: 92p), a manufacturer of extrusions, mouldings and fabricated low maintenance building products, has issued an inline pre-close trading update ahead of full-year results on Thursday, 16 April 2015.
The company listed on the Alternative Investment Market (Aim) at 100p a share last summer and, having recommend buying the shares at the time ('Moulded for gains', 29 July 2014), I reiterated that advice a few months later ('Delivering results', 22 October 2014).
One of the main reasons for giving that advice was to lock into a solid proposed dividend of 4.2p a share in 2014, rising to 6.4p in 2015. The pay-out is well covered, too, as the company's house broker and nominated advisor Zeus Capital predicts Epwin will report pre-tax profits and EPS of £18m and 10.8p for 2014, rising to £18.6m and 11.4p in 2015, based on revenues of £266m and £272m, respectively. On that basis, this year's prospective dividend is nigh on 7 per cent. That's not only attractive, but according to analyst Andy Hanson at Zeus Capital it means the company has the fifth highest dividend yield for companies with a market capitalisation over £50m and with dividend cover of at least 1.5 times.
Importantly, the company's cashflow generation certainly underpins those dividend forecasts. Indeed, having started life as a listed company with net debt of £9m, Epwin actually ended last year in a net cash position. This implies that the company generated at least £11m of positive cash flow in the second half of last year, factoring in the £1.9m cash cost of a 1.4p a share interim dividend paid in October.
It's worth flagging up too that Zeus' earnings forecasts for the current fiscal year conservatively factor in little further cyclical improvement in trading and assume that operating margins will be flat at 7 per cent. That may prove too conservative if the UK economic recovery proves more robust than some anticipate. Epwin generates 70 per cent of its revenues from the repair, maintenance and improvement market, so is a cyclical play on both the domestic economy and housing market. Also, there is scope for cost savings to exceed expectations, too.
But even if Epwin only delivers on what to me look like cautious analyst forecasts for the 2015 fiscal year, then its shares are hardly highly rated on little over 8 times earnings estimates and underpinned by a well covered dividend. Trading on a bid-offer spread of 90p to 92p, giving the company a market value of £124m, I remain a firm buyer of Epwin's shares ahead of the forthcoming full-year results.
Profitable passage
Aim-traded shares of SeaEnergy (SEA: 21p) have had a rollercoaster ride since I recommended buying them at 29p ('Making waves', 20 February 2014), hitting a high of 44p at one stage, but have been a victim of the falling oil price since the autumn. In fact, the shares have now halved in price from around 40p in September.
In my view, this is completely at odds with the operational progress SeaEnergy has been making. In a pre-close trading statement released yesterday, the company reported a record year for its highly profitable R2S's core service division. This business offers a Visual Asset Management (VAM) technology that produces 360 degree spherical photographs of locations and builds up three-dimensional (3D) models. Moreover, R2S's order book is robust for the first half of the new financial year.
As I reported when I last updated my view ('Cash rich and undervalued oil plays’, 17 December 2014), investors seem to have massively overreacted to the company's exposure to the oil and gas industry. That's because VAM enables oil rig operators to keep a visual record of all key parts of an oil rig, monitor its condition and changes to the fabric, with a view to carrying out maintenance. In the current cost saving environment for the oil majors - four of the five supermajors are customers of SeaEnergy - the operational benefits and cost efficiencies delivered by VAM more than justify the cost.
In fact, only last month SeaEnergy won a significant contract with a Canadian supermajor and to date has not seen any cancellations or deferrals of projects. I also understand that the business is seeing new enquiries and new orders for oil and gas operators that are already in cost-cutting mode. Another positive is that the company’s marine business, which has three vessels under management, has now turned profitable.
Releasing value in legacy assets
True, the fall in the share price of Aim-traded North Celtic Sea-focused oil and gas explorer Lansdowne Oil & Gas (LOGP: 7.25p), a company in which SeaEnergy owns a 21.4 per cent legacy stake, worth £2.2m, means that it will have to book a non-cash asset impairment charge on this holding at its forthcoming full-year results. The holding has a book value of £5.35m in SeaEnergy's accounts.
Lansdowne's share price weakness reflects the delays in closing a farm-out deal Barryroe licence in the North Celtic Sea Basin which has 346m barrels of oil equivalent of recoverable 2C resources. Aim-traded Providence Resources (PVR: 58p) is the operator of the licence with an 80 per cent interest in the field and has been negotiating on behalf of Lansdowne which has a 20 per cent interest in Barryroe. However, I am still of the opinion, and so is SeaEnergy’s board, that "Lansdowne will achieve a farm-out of its Barryroe discovery, and following this event, its share price should recover and there may be an opportunity to commence SeaEnergy's exit from this investment".
It's fair to assume that any non-cash impairment will be reversed in this scenario. That's because both Landsdowne and Providence Resources would seek to have a carried interest to first oil and be reimbursed for their costs incurred in exchange for cutting their stakes in the Barryroe license. I understand that Lansdowne has invested £12m to date, a sum equating to more than its market value.
In any case, with SeaEnergy being attributed a stock market value of only £11.5m, little more than the £10.1m total consideration the company paid for R2S in August 2012, since when that business' earnings have exceeded expectations, then the Lansdowne stake is in effect in the price for free as is SeaEnergy's profitable marine services division.
In my opinion, the share price valuation is simply anomalous and one double the current level would still offer value. Needless to say, on a bid-offer spread of 20.25p to 21p I rate SeaEnergy's shares a buy and feel my 60p target price is not out of place either.
■ 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'
