1st Aug: Trader Tim’s Penny Stock Post – #RGD #FBT #AGQ #CNIC

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Trader Tim’s Penny Stock Post analyses key RNS releases every morning. Not all releases can be covered, priority will be based on liquidity, significance and demand. To receive Trader Tim’s Penny Stock Post direct to your email box at 10am each morning, click here.
Good morning!

Today marks the inaugural post of Trader Tim’s Penny Stock Post, a daily briefing on the key RNS releases from your favourite penny stocks. It has been clear that the posts gaining the most traction on the site are posts focusing on RNS analysis. The aim of the blog has always been to deliver value to readers and investors. Therefore, going forwards, every morning I will be writing about RNS releases focusing specifically on penny stocks (mcap up to ~£50m).

I will still be providing updates on my own trading, charitable donations and general thought, which I will save for this preamble.

We say goodbye to July, which resulted in a £1,116.45 profit after I closed my positions in Asiamet and Berkeley Energia. Both great companies, which I still hold in my ISA. I try not to hold positions longer than a month if possible. As a result, that takes the overall profit that the blog has achieved to £7,842.

More importantly, a profitable month means a charitable donation. As always, 10% of trading profits go to charity. Today marks the start of National Road Victim Month, which honours those that have lost their lives or have been seriously injured in road incidents. In support of this, I have donated June’s trading proceeds of £232.51 (including gift aid) to Roadpeace. Roadpeace are a fantastic charity! They dedicate time to support victims from road collisions as well as proactively working tirelessly to reduce the number of incidents that happen on our roads. This is a great cause and you can donate here to support them.


Real Good Food

Market Cap: £24.9m
Price: 35.5p
Spread: 8.08%

The Real Good Food Company is a food manufacturing and distribution company. Until recently, the company has been saddled with large amounts of debt, however, the selling of Napier Brown for £44m has significantly reduced this issue. The company have released their Final Results for the Year Ending 31 March 2016.

At the end of April, the firm said it was on track to report underlying profits in line with market forecasts – £104m sales and £5.3m in underlying profits. The company missed this by quite a bit reporting underlying profits £1.6m and sales also slightly down to £100.4m.

They’re not terrible figures, but they’re nothing to write home about. The main positive is the reduction of debt, which the company has done well to reduce from £30.1 million down to £5.1 million through the offload of Napier Brown.

A business running at such a low operating margin – typically ~2.2% over the past 5 years – the bottom line can get squeezed very quickly.

“The food industry faces challenging times with diversifying sales channels, increasing legislative burdens, the growth in the minimum wage and ever-demanding consumers.”

These are not new problems, most evolving businesses are wrestling with these types of conundrums. I don’t really buy that it is these concerns that have affected profits over the past 12 months. The company is in a transitional period and I think the business is struggling to play catch here.

The struggles for the company of late have been with the food ingredients business, which made a loss of £2m and saw revenues fall from £27m to £22.7 – nearly 20%!

 Revenues were significantly down year on year due to unprecedented commodity price deflation particularly in sugar and dairy.  Both these markets experienced record low levels of prices; sugar was impacted not only by weak world prices but also in Europe ahead of the ending of quotas in 2017,  while dairy, where quotas have already ended, was affected by the Russian export ban. 

The premium baking business is perhaps the one area for potential in my view. This section of the business grew sales by 4% YoY and “with the growth rate quickening to 12% in the second half of the year”. It’s refined its product offering and this appears to be yielding returns.

The company gave a read on how it had done to date in the present financial year.

“Trading in the first three months of the new financial year has been satisfactory with recent order intake positive, and with the investments we are making, I am confident that we will deliver growth across all three divisions.”

The business has some currency exposure, which to be fair, they detail quite nicely.

“The effect of a €0.05 strengthening of the euro versus sterling exchange rate at the balance sheet date on our overall euro net position carried at that date would, all other variables being held constant, have resulted in a decrease in pre-tax profits of £22k.”

“The impact of a 10¢ strengthening of the US dollar against sterling at the balance sheet date on our trade receivables carried at that date would, all other variables being held constant, have resulted in an increase in pre-tax profits of £41k.”

My thoughts are this is a better company than it was. It has offloaded a lot of its debt and can move on. I don’t see the growth opportunities here though, it strikes me as a business that is playing catch up. With such low margins, the company has little it can do to resist a commodity or currency squeeze. It’s not terrible, but there are better growth opportunities out there. Given the recent rise in the share price in anticipation of these results, I expect that this stock will open in the red today.


Forbidden Technologies

Market Cap: £13.4m
Price: 8.375p
Spread: 8.82%

The cloud video platform owner has announced “that it has today agreed a deal with an iconic sports, music and entertainment venue in New York”. However, they do caveat that the deal on its own will account for less than 10% revenue, which historically has been ~£700,000. Therefore, the deal is worth no more than approximately £70,000 I would think and a lot more would be need to subsidise the £3.6m and £2.5m losses made in the last couple of years. Nevertheless, it does show intent and proof of concept of the company’s direction.

The CEO said:

“Signing this iconic venue is another step towards our aspirations in sports and in the US. This platform sale also has further potential for growth as we continue to grow our relationship with the client and the individual events that they support.”

Arian Silver Corporation

Market Cap: £1.84m
Price: 1.0p
Spread: 10.5%

This company is a silver miner based in Mexico, I actually spoke to them at the most recent Momentous event and thought they were interesting. I’m keen on silver companies. I think commodities are hitting the bottom of the cycle and longer term we will see a very definite uptrend.

The company announced the sale of its asset, a 75 hectare Calicanto Project in the State of Zacatecas, to Minera Oro Silver for $400,000. A significant amount of cash for the company with a market cap of £1.8m.

Jim Williams, Chief Executive Officer of Arian Silver commented, “The sale of Calicanto is consistent with our wider strategy of maximising value from our portfolio of assets, in order to strengthen the Company’s balance sheet, to better enable it to acquire near-term producing assets”.


CentralNic

Market Cap: £43.15m
Price: 45.0p
Spread: 4.55%

CentralNic deals in the sale of domain names (website addresses). The company has announced an exclusive contract with San Francisco firm BRS Media, who hold the rights to .FM, to distribute these domains.

The market for domains is becoming saturated with companies and individuals struggling to get their required .com domain. There are a number of increasingly domains that are diverging from the .com domain. For example, .co, .uk and .fm. The .fm domain has been used by country music star Carrie Underwood (carrieunderwood.fm). It has also been adopted by high-profile podcast sites and radio channels. China’s popular online radio aggregator also uses Qingting.fm highlighting the global trend in domain diversification.

IFPI’s Global Music Report 2016 said online streaming and music industries achieved digital revenues of US$6.7 billion in 2015.

CentralNic CEO Ben Crawford said, “.FM and its affiliated domain extensions are good examples of how to succeed as ‘dotIndustry’ domains, with their longstanding adoption by companies who have redefined their industry, such as Last.fm”.


That’s all for today. If there are companies that you want me to cover in coming days or have significant news due imminently then let me know. My aim is to deliver value to readers, so I want to ensure I’m doing this as much as I can.

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