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"Bombed Out" portfolio draws a Blancco

Lonmin went from portfolio star to outcast in the blink of an eye. This week's new arrivals are Blancco Technology, Armadale Capital and Utilitywise.

Data sheet
Blancco is a data erasure specialist ... all three portfolio members could benefit from its services

It’s a case of two steps forward, one step back for the “Bombed Out but Bouncing Back” portfolio this week.

That represents an improvement on most weeks, but after last week’s “lights out” performance, it feels a bit disappointing.

READ "Bombed Out but Bouncing Back" portfolio firing on all cylinders for the first time

Last week platinum miner Lonmin was sitting on a 26% gain and it looked like we had finally found the “runaway winner” this portfolio needs to dig it out of a hole.

What a difference a week makes.

On Friday, the shares plunged as the company said it would delay publishing its annual results until after it finished carrying out an operational review.

Delaying publication of the results was not the problem; it was the possible breach of banking covenants that put the wind up markets.

The company managed to get its lenders to postpone testing the covenant on September 30, although talks are ongoing about what will happen further down the line.

READ Lonmin plunges as miner delays full-year accounts while it finishes operational review

The company lost around a third of its value in a single day, and from being one of the best performers so far in the rebooted “Bombed Out” portfolio, it went to being one of the worst.

If nothing else, the experience underlines once again the importance of having a broad spectrum of stocks in a portfolio if one wants to avoid sudden large leaks of capital – or sudden large gains, for that matter.

So, Lonmin headed for the exit door with its tail between its legs, and so did the other two stocks in the portfolio – GAME Network and Management Resource Solutions – but they managed to do so having delivered some much-needed capital appreciation.

Stocks sold

GAME Digital PLC (LON:GMD): Sold 7,750 shares @ 40p each for a profit of £86.

Management Resource Solutions PLC (LON:MRS): Sold 46,000 shares @ 7.25p each for a profit of £315.

Lonmin PLC (LON:LMI): Sold 2,050 shares @ 71.5p for a loss of £296

Those sales meant that the portfolio had £7,880 to invest, and a quick run of the stock filter produced three replacements: Armadale Capital, Blancco Technology and Utilitywise.

Let’s have a look at the trio in a bit more detail. I should explain that these transactions were put through on Tuesday but owing to deadline pressure, I am only writing about them on Thursday.

The new arrivals

Armadale Capital PLC (LON:ACP)

Bought 121,000 shares @ 2.16p at a total cost of £2,616

The shares shot up by more than a third on Tuesday after the release of “excellent drilling results” at the Mahenge Landu graphite project in Tanzania.

Despite that magnificent gain the shares are still at half the level they were as year ago and that’s probably down to the usual reason why mining tiddlers are rejected: the constant need to raise funds to develop their projects.

Add in the fact that the Africa-focused company is operating in the volatile environment that is Tanzania, and you can understand why the shares have been hammered.

It also owns an interest in the Mpokoto gold project in the Democratic Republic of Congo – which I am not sure is a better place than Tanzania in which to operate – and a portfolio of quoted investments.

It is not a stock for widows or orphans, or even the Duchy of Cornwall. Lewis Hamilton should buy a car-load of them, though.

Blancco Technology Group PLC (LON:BLTG).

Bought 3,780 shares @ 69.29p at a total cost of £2,623

The company formerly known as Regenersis is another that popped up on the radar today as a result of a sharp rise in the share price – up 23% - following full-year results.

Its stock in trade is data erasure and the data it would most like to erase is the share price performance over the last six months.

Interims in March were not great and coincided with the departure of the chairman and the chief financial officer.

April’s trading update flagged up a need for additional funding to address a working capital shortfall, which usually goes down about as well as finding out your dog has used your Hush Puppies as an impromptu toilet.

The good news is, the group raised £9.3mln through a share placing in May; the bad news was the new chairman, Rob Woodward, served notice to quit after just two months.

Woodward changed his mind in September shortly after the chief executive, Pat Clawson, fell on his sword after it came to light that £2.9mln of revenues that had been booking in fiscal 2016/17 had to be reversed.

(Last week we featured a video clip from ‘Dallas’ in the “Bombed Out” column; readers might think the board room shenanigans of Blancco are reminiscent of the back-stabbing and double dealing of the 70s soap opera.)

Today’s results showed signs that things are stabilising, and indeed improving in some areas.

The board wisely binned the final dividend, saving some much needed cash, and the group saw a 19% increase in organic growth.

The business is targeting revenue growth for the 2018 financial year between 6% and 16% with an adjusted operating profit margin between 8% and 12%; this range does not include possible one-off non-recurring deals.

This looks like it might possibly be a genuine recovery play, so … fingers crossed.

Utilitywise plc (LON:UTW)

Bought 3,800 shares @ 68.89p at a total cost of £2,618

Utilitywise is a utility cost management consultancy. Full-year results are due out on 21 November but it has already reported it expects to report revenue that is roughly 3% higher than the previous year and pre-tax profits that are down by about 40%.

The fall in underlying profit before tax is primarily because of an adjustment recognised in respect of projected under-consumption of contracts, as announced on 29 June 2017, and the deferral of certain significant renewals contracts, announced on 31 July 2017.

In short, the company announced a change to its accounting policies that would show its performance in a less flattering light.

The company has suspended its dividend payments, which suggests cash is on the tight side.

So, a lot of bad news is already out there, and with the shares down 61% over the last year, the hope is that the bad news is already in the price.

Some encouragement could be drawn from the consensus view among brokers, which is that the stock is a ‘buy’; with a target price 89.1% above the current level.

“Investors will clearly need evidence of profit and importantly cash delivery into FY18 before supporting the shares,” broker Liberum said.

“However, this should signal the end of the financial review of the company by the new management team and give them a base from which to deliver an ambitious strategy for the company,” it added.

The stock is trading on just 7.7 forecast earnings per share, and if my stock screen filter is to be believed the company is actually valued at 90% of its book value (or net asset value).

The “Bombed Out” portfolio is obliged to add the stock to its holdings but unless you are an inveterate gambler, there is no reason why you should follow suit, especially with the results due out in a couple of weeks.

Here’s where we currently stand

 

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

Armadale Capital

121,000

£2,617

2.16p

1.8p

£2,178

-£439

-17%

Blancco Technology

3,780

£2,623

69.4p

68p

£2,570

-£53

-2.0%

Utilitywise

3,800

£2,619

68.89p

65.5p

£2,489

-£129

-5.0%

 

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