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Well, if you are watching paint dry you must have at least done some productive work for the day. I was busy laying carpet tiles, I may decide to watch them bed in for a few days.

November's GCI is out. The publication runs two portfolios for education reasons and I suppose to also prove its editorial stock picks are sound. The income portfolio is designed to "generate a healthy income from a selection of small caps, which should over time have superior capital and income growth prospects to their counterparts in the FTSE 100." Rockrose has been added due to the attractive dividend yield - "I am also buying Rockrose Energy which has indicated 85p of dividends for the current year, which provides a yield of 4.7%. Unfortunately we have missed the xd date on the first 60p of this, but I believe this stock is seriously undervalued and should generate some strong income and capital growth over coming years."

GCI also has a capital portfolio. Rockrose has been in this portfolio since Feb 2019, in at a purchase price of 760p. Comment this month - "Rockrose surrendered some of last month’s gains but also went ex a 60p dividend which has not yet been received. This is our largest position with a 10% weighting and I am happy for it to remain so."

To avoid the copyright police I'll plug them. An excellent publication, well worth the subs fee. Email them for a complimentary copy!

SNN

You're welcome, jsmith.

I can't see a per of much more than 20, hence my suggestion on where the sp should get to. The previous highs of around 150p were based on optimistic profit figures which never materialised. For example, eps of 7p were expected for 2018 and 9p for 2019. The market corrected for this causing the sp slump. 2018 eps came in at about 4.3p (adjusted) - way off expectations. Low and behold, 4.3p times a per of 20 equals …… Bingo!

jsmith - the implication is based on 90p current share price divided by 10.7 per = 8.4p. The update says IST is 'comfortable' with forecasts.

It appears that forecasts have very recently been increased - ie. guidance from the company has been given to brokers. I will be exceedingly pleased should the current year come in at anything over adjusted eps of 5.5p.

A lot is going on with this company and as the update says it is wrong to focus on near term profits. I think there are a lot of new income streams being introduced which have not yet fully come into the results (but they will in time). The down side is that the costs of those income streams are showing in the company's expenses. This leaves scope for results, when they do come, to surprise on the upside. Maybe why forecasts have been lifted? Perhaps also the market is wary of being too optimistic with this company, having got it wrong in the past, and is now overly compensating and being too pessimistic?

It's a case of waiting and seeing! None of us can say any more than that. I am as confident as I can be that there is no downside risk from where we are, come final results day. This will not stop impatient traders from selling out if the SP does not move upwards soon, but that's traders! That's their choice, and probably their loss. If we hit eps of 7.5p to 8.5p next year, the SP should be sitting at a minimum of 150p. at that time and place.

I'm happy to sit here for 12 to 18 months (unless any negative news breaks to change the story). After all, it's a 50 - 60% return to the upside and little risk downside.

Glad you liked the update. If you contact GCI, they will send you a complimentary issue to try before you buy. Well worth a look.

Update from Growth Company Investor - comes as a monthly pdf. An excellent publication, edited by David Thornton. Well worth a subscription, Google it! Hope they don't mind the plug / copying their update.

"Equals is the new name for FairFX, the need to re-brand reflecting its transition from a foreign exchange specialist into a provider of a broad range of banking services. We tipped the shares at 59p in June 2017 and the stock hit 150p a year ago but has since slumped. Profit forecasts published in 2018 for the current year and next have turned out to be far too optimistic; but assuming the numbers are now soundly based, the shares look good value again on a 2020 p/e of 10.7x. We spoke to CEO Ian Stafford-Taylor after the interims who said he was comfortable with forecasts and that revenue is on track.

"It is probably wrong to focus too much on near term profitability because the company is still building out its product range and focusing on growing its SME customer base. Banking services for the SME sector offer notoriously poor value and incumbents rely heavily on inertia to keep customers. Equals’ expenses software service is a free feature which allows employers to manage spending on corporate cards and provides an effective gateway into new customers. New services have been added including international payments and a brokered loan product. £14m was raised in August at 110p which provides scope for further bolt-on acquisitions. "

Seems to imply eps forecasts of 8.4p for 2020 - this is higher than other forecasts I have recently seen of 7p for 2020. Halifax Share Dealing now showing forecasts of 6p for 2019 and 8p for 2020. If management are happy with these, then the shares offer much better value than I expressed in my previous post. I am sure that a confident patience in holding here will give the rewards I am looking for (and other holders for that matter too).

SNN

See RNS - Mr Weller bought in the market yesterday, £100,000 worth at 145p.

A long overdue 'request' from PIs on the BBs. This is a significant and therefore arguably meaningful purchase. The market will take a closer look at this stock now, which bodes well for the share price and a definite change in the direction of travel.

Upwards, however slowly, but surely is welcomed by all.

SNN

Sorry, you say profits in 2021. Hopefully, yes! But that's a long wait, and still carries uncertainty.

Quote from the half year figures you refer to - "The EBITDA loss to 30 June 2019 was £2.7m, being a material reduction on the £5.3m EBITDA loss in H2 2018. The Board anticipates incremental improvement with EBITDA loss in H2 2019 expected to be significantly lower and continued progression in FY 2020 as the historic contract book continues to expire."

In plain English, this means an EBITDA loss in 2019 (full year) and a smaller loss in 2020 (continued progression). Official market forecasts have been guided to the market by the company.

"While these initiatives will take time to deliver an acceleration in growth, the Board is confident in the long-term outlook for the Group." The phrase is take time. The company does not say any where that profits are expected in 2020. Read it all through again, very, very carefully.

SNN

I have picked up profit forecasts from Halifax Share-dealing website - 2019 a loss of £5m and negative eps of 30p and for 2020 it is a loss of £1.2m and negative eps of 7p. Profit is not expected until 2021, the results for which will come in 2022. That's a long time to wait for a typical private investor. My guess is that the PIs are slowly selling and reinvesting funds elsewhere. This is causing a slow decline in SP, which inevitably, eventually, emotionally triggers other PIs to sell - a self fulfilling prophecy.

The company has guided that 2019 revenue will be about £105m and that 2020 Revenue will be flat - "The Group expects revenue of approximately £105m for the full year to 31 December 2019 … Revenues in FY 2020 are anticipated to be broadly flat due to the Board taking time to reset certain sales processes". Though 2020 will be a better gross margin, overheads will be higher (mainly sales dept.), hence, another loss for 2020, though should be lower than 2019.

Cash levels are bound to fall in line with losses, however, the company has more than enough cash to see it through the next two years into profitability. The customer retention rate is going to take a hammering as low / loss making contract customers are unlikely to renew on the new much higher prices. The company has forewarned on this - "Retention levels in the near term will be impacted as the Group actively manages out legacy low margin contracts as they wash through the book." This will all show in the next set of accounts - is it in the share price yet? I don't think it is, but people are slowly working it out and (perhaps) selling out.

It is far, far too early for me to buy into this stock at the moment. Assurance is need that the company has tuned around and is able to cut a profit. I will look again in 6 and 12 months time. The share price may be lower or higher. That is irrelevant. What matters is preservation of invested capital and a greater certainty over that preservation.

One to leave on the watch list.

SNN

Sorry, that should be Growth Company Investor. Website here - https://www.growthcompany.co.uk/subscribe/

I subscribe and it comes as a monthly pdf publication. Note only the first paragraph and forecasts were from GCI, last two paragraphs were me being the scribe. The article goes through the company history, explains what it does and what the future prospects are likely to be. It suggests the decommissioning costs are like an interest free loan which the company pays back at the end. In effect the likes of Marathon pay Rockrose to take on the asset because they don't want the distraction of doing the decommissioning work. Risks are that end costs turn out to be much higher than planned and obviously any large drop in oil prices. Though I'm sure all on here are well clued up on this - you have all been invested long before I was.

Further extract - "the reason why it was able to buy them for a modest up front price from owners who did not want the distraction of dealing with this complex issue. In Marathon’s case that price was $95m; but after adjusting for the working capital and cash balances that came with the entity, the net cost was a negative $255m. In effect, RockRose was paid by Marathon to take on the decommissioning liabilities. Alternatively, the liabilities can be thought of as a form of zero coupon debt financing where the principal needs to be repaid after the fields are exhausted. So an important leg of the investment case rests on the company’s ability to manage those future costs. A key element of value creation here will be success in extending the productive life of the fields, which both increases the cash flow accumulated from them and defers the onset of decommissioning. Evidence that ultimate decommissioning costs could be less than originally assumed will also increase estimates of the present value of the assets. Production is forecast to rise through 2021, peaking at 28,000 boepd, and then begin to decline. However there are various production and development projects that should produce a flatter profile as the company squeezes the maximum out of its acquired assets. Current forecasts see cash rising to $850m by 2023 plus $100m of restricted cash related to decommissioning. "

In quotes this time to make it clear what is them and what is me!

Regards, SNN

From recent issue of Growth Company Digest -

Cash is forecast to build rapidly, from $365m at the current year end to $950m in 2023 (including $103m restricted cash). Under ‘decommissioning security agreements’ RockRose has to set aside cash or other surety to build up a fund to cover these costs. The current headline post-tax decommissioning estimate is $706m, which equates to $586m when discounted at a modest 2% rate (given that these costs are many years in the future). Only $180m of the total is expected to be spent by 2025 and as mentioned, field life extensions and decommissioning cost savings add to the company’s value.

Forecasts 2019 2020 2021
Revenue ($m) 442 514 587
Profit ($m) 144 223 215
Eps (pence) 748 1142 1100

Eps is forecast to be over £10 per share going forwards. The company will either significantly increase dividends or retain the cash for further acquisitions, which at this rate should be sizable in comparison to the current portfolio. Even valuing the company at 'unrestricted' cash, we should be seeing a share price increase of £10 per share per year! (Unless I'm missing something? - comments welcome, please)

Some short term selling pressure continues from the like of Cavendish Asset Management, one of the original backers, who are having to reduce their holdings to rebalance their own portfolios - basically they now have 'too much' in here. This should allow a little more time for new investors to get in here at bargain prices! Though listed at 50p, a price of £20.00 should not put you off!!!!!!!!! (it hasn't me) Looking for £30.00 in 12 months time.

SNN

Wow, 54,000 just bought at 87p and 20,000 bought earlier, also at 87p. Seems at least two people agree with me!

Should bring some comfort to holders here.

Top line growth turnover continues good at 18% into H2 and with revenue growth at over 20%. However, admin overheads are now rising faster than previously expected and faster than revenue growth, therefore bottom line profits are only growing at around 15%. Forecast full year eps is now 5.1p to 5.4p. (Two years ago following the acquisition of CardOne, this year’s forecasts were close to 9p.) Hence, the substantial fall in share price over the last 12 months.

7.5m shares were issued via warrants to Crystal Amber in March 2019 and the company has recently had a placing of 13m more shares - not good for the eps calculation, but presumably a further acquisition is coming soon. Recent addition of Hermex should add value (Revenue of 1.8m and 0.6m profit per RNS)

Going forwards the company needs scale to get the desired efficiencies, which means continued acquisitions as well as organic growth. Competition for customers in this space is high and price / margin based. Equals will be one of the medium term winners, though likely a takeover target once firmly established (5 years on?).

With eps growth in the 15% area, hot money looking for a quick buck has inevitably left to look elsewhere. Nonetheless, this sort of growth should command a PER of 20 and a consistent 15% ish year on year share price growth. My previous expectations are now out of the window and will be happy for 200p in 4 – 5 years time.

A firm hold / top up for me in a LTH portfolio, but no fast money here. And a nice buying opportunity for new investors, with little to no downside risk at below 90p, now the trader’s hot cash has moved on.

SNN

Tardis, Hi,
Are you in essence saying that the company’s term ‘cash generative’ is loosely equivalent to EBITDA. That is to say, day to day the company is profitable, before some exceptional costs are deducted.

If I understand the question correctly, the answer is an unassuming "yes".

Regards, SNN

Tardis, Hi,

If there are any accountants out there, could you explain how the company reports $19m of positive cash generation for the period but an EPS loss of $0.05c? Genuine question.

Not easy to explain, but I'll give it a go. First go to the cash flow statement in the accounts. Here you will see a reconciliation from the Loss for the period of 4,709 through to Cash in from operating activities of 19,688. There are the usual movements in working capital (debtors & creditors) and the tax adjustment (tax in the P&L account is an accrual to be paid later so it comes out and is replaced by tax actually paid in cash, which would have been accrued in previous periods). Also the usual non cash items from the P&L come out - depreciation, amortisation and share based payments.

EBITA is a similar figure to the 19,688 because working capital movements have been almost negligible, though not obvious from the balance sheet, because of the acquisition accounting for R1. Adjusted EPS is yet another measure of profit and takes many forms, depending on what is added back - amortisation of acquired intangibles, share based payments and one off acquisition costs gives the highest adjusted eps of 12c (the headline figure), though 3.48c is given below the P&L account (this is only after adding back amortisation).

Not easy to see I must admit. At first glance the eps figures look dreadful and even as if there are inconsistencies throughout the report - maybe why the shares opened down so much yesterday, and possibly why the company is seen to be undervalued. I can assure you that these adjustments are normal, all stock market companies report in this way. Basically, accountants and the stock market calculate profit differently! Accountants don't speak English, the stock market doesn't speak English and neither speak the same language!

The best figure to go off is adjusted eps (though Tremor use DPS, adjusted diluted earnings per share). Forecasts are for this to around double in H2, ie 24c giving 36c for the whole year. Fincap say a little higher, but having just missed forecasts we should be cautious here. As a LTH is is next year that will really matter.

The other question I have is what are the plans for the cash if no buy back or dividends? Interesting times ahead.

SNN

From Investors Chronicle - House broker FinnCap lowered its forecasts, predicting full-year 2019 pre-tax profits and earnings per share of $52.6m and 42.2¢, respectively, which it expects to rise to $69.3m and 49.1¢ in 2020.

These forecasts are more than mine as in previous post. May as well repeat myself -

stt1, You talking to me? Expectations are / were eps of 40 - 44 cents. Now presumably 36 to 40 cents. You do the maths.

Ragnor, thanks for the recognition and I agree whole heartedly re FCF.

May see you over on EQLS once we get interims there.

JAdam - fine. But given the mess on ADVFN on this stock, I don't bother to look. Maybe get the sensible folk over to here. "You talking to me?" Must be the best put down to stt1, though if I say so myself. It's pointless engaging with him, and a shame if any one is actually swayed by him and lose money as a result.

I am not a trader and act on definite results. I could have / should have sold at a higher price and bought back in, but that's not my style, the results never warranted selling out and you cannot time the bottom. Yes, I do have realised losses from time to time (ouch - SXX) but long term I'm getting 15% pa, which doubles my capital about every five years. A scary thought - I'll make half of all my money from investing in the last 5 years of my life, and 3/4 of it in the last 10! Won't be me who spends it!

SNN

stt1, You talking to me?

Expectations are / were eps of 40 - 44 cents. Now presumably 36 to 40 cents. You do the maths.

Must be one of the dumbest opening share price movements I have ever witnessed. Was not bold enough to buy it, in case it fell further! Also dumb! Added now in the 140s and very confident in holding this with little worry.

Should see me recover paper losses and am hopeful of a very healthy profit in time. Now a very large holding in my portfolio, and arguably over invested, but given the massive upside, I am more than comfortable with the risk of being 'over weight' here.

H2 will see the first of the integration cost benefits of $20m, so say $10 for the half, continued growth in the video side of the business, which should drop straight through to the bottom line on 40% GP margin, and the effects of the share buy back will also increase eps by over 10% for H2. So, H2 should be easily twice as much as H1.

EPS in pence should be somewhere approaching 28p - 30p for the full year. A target of 300p in the short term (6 months) is realistic for the market to catch up with, given the issues of the last 12 - 18 months. From then on it should be back on normal valuation grounds (15 to 20 PER and maybe more if video really takes off)

Best wishes to all patient LTHs here, SNN

Very common - my 20,000 buy showing as a sell! The trade was 100p and the quoted spread 98 - 103, mid point 100.5, therefore because I traded at 100p the 'system' allocates my trade as a sell as it is less than the mid point of the spread.

So few people on these boards seem to understand how these anomalies happen! Now folk will look at today's trades and panic! "oooo look, someone's sold 20,000, must know some thing bad. I'll sell too before it drops more" The herd mentality.

Interim results are imminent. In the past I don't think EQLS has given prior notice of the date. I expect them very shortly and certainly by the month end. Based on the previous trading update these interims and any further outlook statement should be exemplary! Given the current share price of only 100p this is a gift on a plate!

20,000 shares bought today (being some of the proceeds from bailing from my SXX disaster).

SNN