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Read on to see an article posted on the OMG blog on 24 February 2019:

And the winner is…

The FTSE 100 lost 0.5% to 7,178 with the Aim All share improving a token 0.28%. The feel-good factor of lower unemployment with stronger wage growth was buried under the heap of political intrigue, which may not be easily blown away like a House of Cards.

The continued themes of Brexit and US Trade war posturing will continue to be the main market drivers, as economics is largely ignored. In the UK on Tuesday there is an Inflation report and a Speech by the Prime Minister. On Thursday there is another vote on the existing Brexit deal and a better outcome seems unlikely so delay inevitable. The US Trade wars could show a truce and the Red-flag US news is on Friday, with a likely lower GDP at 2.4% and the Consumer price index higher at 1.7%.

We anticipate investor interest increasing in growing smaller companies as the paralysis of Brexit ceases to even cause volatility.


Previews

MRS – 4.6p – High gearing low valued earnings
GFIN ¬- 5.7p – World domination does not come cheap


Reviews

UPGS – 59.7p – Interim success
WYG – 16p – AB Traction stakebuilding
CAR – 46.75p – Gyllenhammar company increases stake
DOTD – 93.5p – Organic growth continues
SYN – 102.5p – Films problem

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Previews


Management Resource Solutions (LSE: MRS)
4.6p (4.4p-4.75p)
Mkt Cap: £9m
Next Results: Interims Thursday 28th Feb

MRS earnings profile is volatile, but this year to June 2019 is set to be a bumper. Through its two wholly owned subsidiaries in Australia, it offers plant hire, equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, road construction to a wide base of Australian private and public sector clients. It recently won an AUD $900k contract for the structural fabrication of eight coal truck trays.

January’s Trading Update reported strong performance driven by demand from Australian resources and construction markets. The Profit before Tax helped by rigorous cost management, is expected to be around AUD$8.0m (18: AUD$6.0m), giving EPS of approximately 2.6p so a P/E just 2x, there is no yield. (AUD/GBP exchange rate of 1.7). There are no UK institutional investors and the reason for the UK listing seems to have depreciated with time.

Financials
Borrowings are high at £10m, with an NAV of £6m, although the finals reported that operating cash generated £7m. The Management are in the process of restructuring the debt which may dilute the shares.

Trading Strategy
High gearing, some selling, and no real UK support base has left the shares badly unloved. An improvement will reflect the new debt arrangement and the support the new broker Arden can generate.

 

Gfinity (LSE:GFIN)
5.7p (5.6-5.8p)
Mkt Cap: £20.7m
Next Results: Interims Monday 4th March

E-sports tournament organiser Gfinity‘s B2B and B2C revenue streams increased by 82% when its finals to June were reported with revenue to £4.3m (2017: £2.4m). The is driven by growth in both Gfinity’s managed services business (B2B) and its owned and operated gaming IP (B2C). The adjusted EBITDA loss increased to £12.5m, as it seeks to be a world leader in this sector. Plenty of notable non-financial achievements have been made such as partnerships with Formula I, Facebook, Domino’s Pizza and Unilever. Significant investments have been made into its technology platform and content over the last few years as it builds a brand in a dynamic industry sector with more than 2 billion people gaming, the majority of whom are under the age of 35. The revenue growth seems set to continue but losses of £8m are anticipated for the June 2019 year-end. Around 35% of the shares are not in public hand with just under 30% held by Charles St International.

Financials
The July year-end net cash of £3.7m was topped-up in October with £6m at 8p.
Trading Strategy

It’s a brave business model but the risk is that further funds will be needed before ‘visible earnings’ de-risk the ambitious aspirations.


Lighthouse Group (LSE: LGT) have improved from 25.6p to 27.1p and report Finals on Tuesday. We concluded that Financial Services is a difficult sector but barriers to entry increases the value and a ‘decent deal’ (perhaps not Tavistock), could see the shares improve.

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Reviews

UP Global Sourcing (LSE: UPGS)
59.7p (59.4p/60p)
Mkt Cap: £49.1m
Next results: Interims, 29 April

The share price of UP Global Sourcing (LSE: UPGS) has recovered strongly on the back of a recent trading statement. Interim revenues are 36% ahead at £65.8m. Even if one-off factors are taken out, then the underlying growth is still 21%.

The branded consumer products supplier is forecast to increase earnings per share from 5.4p to 7p this year. That means that the shares are trading on less than nine times prospective earnings and a forecast dividend of 3.5p would provide a yield of just under 6%.

UP Global Sourcing is presenting at the ShareSoc Growth Company seminar in Manchester on 26 February.

Trading strategy
Good value.

Original recommendation: 32p/35p

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