ONE BAGGERS OR MORE FOR 2004?

Happy New Year everybody, may it be happy and healthy and if it’s a wealthy one too then that’s a bonus.

It has been a prosperous year for many and various sectors have done well from tech to food stocks, bio’s, even what seemed unlikely house-builders have done well over the year despite their obituary having been written prematurely for the last three year.

But 2004 might not be so easy. Unlike 2003 we are not moving from such an oversold position at the start of the year so it’s likely to be the shrewd stock pickers that make the money. Knowledge and shrewdness will pay this year I expect.

With this in mind I thought I would start this thread – stocks that have a very good chance of doubling by Dec 31, 2004.

The RULES are:

The stock has to have an under-valuation that suggests it could double or more in 12 months.

NON INFORMED ONE LINE RAMPERS NEED NOT APPLY. This thread is aimed at good reasoned argument as to why a stock could double in 12 months. Because ‘techs are in demand’ or ‘it has momentum’ won’t do. This thread wants to know ‘why’ it’s a tech in demand compared to the competition and ‘why’ it has momentum and ‘why’ it is undervalued.

The stocks need to have a relatively moderately low degree of risk comparable with most 'average growth' stocks.

Please keep the details as brief as possible but provide all the necessary reasoning as to why a stock could double by year end.

Once you’ve posted your stock please try to continue the discussion on the respective stock thread elsewhere on ADVFN in order to keep this thread from getting too long.

State the price to buy and the date so we can check back over the year to see who's on course.

I’ll kick you off with these. Happy investing through 2004.



Victoria Carpets (VCP).

It seems to me the fears of a rise in interest rates are overdone – the Bank of England want to cool things, not kill them. Retail sales have slowed, but it seems to be clothing and small items that have been hit, where the internet competes more intensely too. Internet sales may be up 30% this year. Houses continue to sell, prices are rising at a sensible rate, not runaway. Read what Carpetright, SCS Upholstery and Topps Tiles are saying – we’re not slitting our wrists just yet!

Supplier of quality carpets to independent carpet retailers and John Lewis, VCP recently announced interims with sales up 34%, like for like sales up 24%, eps up 71% together with a statement saying: “Ultimately, we remain confident that we will see a continued growth in both turnover and profitability throughout the Group”. Paying a divi all at the final results of around 12-15p (3%+). They expect growth across the board including Ireland and Australia.

Net assets of £24.4m and a market cap of £27.4m it trades a little over NAV.

Current broker consensus is for 40.9p eps this year but with 22p eps in H1 and H2 being the much stronger half, most on the VCP thread expect 50p eps or more. As ever, small cap forecasts can be well out which makes them interesting and potentially very undervalued.

4 Broker ‘buys’, 1 ‘hold’, 1 ‘no recommendation’.

On a PE below 10 for this year and below the average of 10.4 for the sector, despite 70% eps growth despite the sector growth averaging way lower in the teens. If they hit 50p eps as my research suggest the PE is below 8. Eps of 70p is likely to be on the cards for next year then making the forward PE 5.7. I would expect the forward PE to be above 12 for this growth with 15+ more realistic. Come year end 70p eps on a PE of 12 would be 840p a share – a one bagger by July AGM perhaps, certainly by year end I’d have thought. Personally I think these could trade on a forecast PE in advance of 16 like Topps Tiles (45% eps growth) or forecast PE of 13.5 for Carpetright (50% eps growth) when you consider VCP is growing at 70%+.

The chart may look like its gone a long way recently but these were miles oversold imo – on an eps basis there’s scope for loads more growth in the share price. The PEG based on this year is around 0.1 – amazing.

Year end results June 17 – very much a one bagger in the making this year imo.

Price to buy Dec 28th = 398p



Mayborn (MBY).

Where there’s muck there’s brass. Mayborn are known for MAWS baby products and Tommie Tippie nappies. The exciting thing about this company is their move to production in China. Just like Hornby, Mayborn are benefiting from reduced fixed costs in the UK and lower production costs in China. They also benefit from the fall in the Dollar as they buy in Dollars and sell in pounds in the main. This boosted H1 profits by over £600K. Mayborn have constantly upgraded their expectations to the point that on Dec 9th they said results would be materially ahead of the recently revised up expectation of September to 17p. I think they will achieve 20p+ eps this year to be ‘materially ahead’ of that 17p. The company has been buying back its own shares – this will increase the eps by 10% next year. Even if you ignore the benefits of the lower dollar and gains of £1.2m for the year, Mayborn still grew earnings by 100% in H1.

MBY did 12p eps last year. With 8.7p eps in H1 this year and around 12p in H2 would make the 20p eps for the year. 12p in H2 on the current growth rate should mean at least 14p eps in H1 and 16p in H2 next year with the new product Steri-Bottle kicking in and greater margins from the rest of the range. That’s 30p eps next year by my reckoning plus an extra 10% for the share buy-backs = 33p eps for 2004 and scope to the upside. So at 225p a share the forward PE would be around 6.8 come the March results. Can a stock growing earnings 60-70% pa over two years and a very good earnings record continue to trade on a forward PE of 6.8 or less? I’d say a PE of 15+ would be fair value for such growth ignoring dollar benefits – 495p by the year end, if not before, looks possible – one bagger plus potentially.

Year end results due March 11.

Price to buy, Dec 28th = 225p



Landround (LDR).

Landround is the new kid on the block providing Buy & Fly, their equivalent of Air Miles. They also provide business promos like in the Daily Mail, free flights for evey reader etc. A very well run business and showing extreme growth, from 4.47p eps in 2001, 10.88p eps in 2002 to the recent 150% increase in eps to 27.1p. With 29.95p eps forecast this year and likely to be upgraded as the year goes on the maximum PE is 13 for all that growth, that’s half the rating of the sector and the actual eps could be a lot higher. Upgrades could see this stock soar as they continue to deliver and announce new deals and strong earnings growth well above the current expectations could be on the cards, as it was last year. I expect earnings to come in well ahead of current forecasts.

Buy and Fly points can be earned at Domino’s Pizza, RAC, OK Magazine, Central Tyres, Hard Rock Café plus others, and the list is growing.


The AGM at the end of Jan may prove pivotal. There’s a 7p divi for those holding when it goes ex divi on Jan 7th. The potential for this company is as huge as Air Miles.

One bagger possibility.

Price to buy, Dec 28th = 410p


HemScott (HEM).

The supplier of business and financial information and provider of corporate investor relations websites.

I like to look at earnings momentum, especially in stocks that are in an improving sector. Look at the eps momentum of this company:

I think the broker estimates are too pessimistic.

H1 last year - loss of 4.1p adjusted
H2 last year - loss of 2.6p adjusted
H1 this year, loss of 1.5p adjusted

With the way the market has picked up in the last 6 months I wouldn't be surprised to see near break even in H2 going by the above trend.

If that trend continued you'd see around 1.5p eps in H1 next year and 2.5p eps in H2 making 4p for the year. This would mean a PE around 10 or so at 40p a share and some pretty horny growth from perhaps near break even this year. With the slow down now rebounding equities could be in strong demand this year – this is the first global recovery which will include China, The former Soviet Union and the likes of India in a big way together with Japan also in recovery – it could be a huge global upswing this year. If equities follow in the wake then the demand for company/investment data may make HEM a one bagger or even more.

The company also has £6.3m in cash nearly half the current market cap.

Year end results due Feb 22.

Price to buy, Dec 28th = 42p



Datamonitor (DTM).

On a similar theme to HEM. I think this could potentially be a one bagger in even faster time. Datamonitor provide business information. These have been on a big cost cutting drive over the past year – reducing costs by £4m.

Investech say this: “Datamonitor is highly operationally geared - meaning it has high fixed costs – so any upturn in its industry is immediately reflected in profits.”

Well I think this is starting to happen and as yet investors may not have realised how much.

H1 2002 – Sales £15.3m, loss per share (4.89p)
H2 2002 – Sales £15.9m, loss per share (4.73p)

H1 2003 – Sales £16.9m earnings per share 0.7p

So in H1, £1m worth of extra sales have created an increase in earnings of 5.43p over H2 last year. The potentially exciting bit is that the company says results will significantly beat market expectations which are currently 3.04p eps. They also say that in the 9 months so far this year sales are £26.6m. This means Q3 sales are £9.7m. If they repeat this in Q4 then H2 sales will be £19.4m – a £2.5m jump on H1 sales. If £1m increase in sales created 5.43p eps increase, £2.5m could create a lot more. This makes me think the 3.04p eps estimate for this year may be well too low having achieved 0.7p in H1.

The last director buy was Mike Murphy in October buying 15K shares at 115p to increase his stake by nearly 70%, which he initially bought at 93p in early Oct.

Should they come in with 5p eps for the year that would be a 14.6p eps improvement over last year. That could mean 10p eps or more for next year on that sort of momentum, possibly a lot more. With the share price at 127p the forward PE would be around 12.5 and the earnings growth well in excess of 100%.

The company seems to be committed to paying a dividend next year too.

To add a little spice they have £16m in cash at the half year, up from £13m.

2 broker buys, 1 broker strong buy.

Year end results are due Feb 24.

A potential one bagger or more this year imo.

Price to buy, Dec 28th = 127p



Hornby (HRN).

This company has the strongest most reliable earnings growth on the LSE over 5 years

Eps growth for the past 5 years:

1999 - 10.18p eps
2000 - 12.74p eps (+ 25%)
2001 - 23.2p eps ( + 83%)
2002 – 32.5p eps ( + 40%)
2003 – 51.8p eps ( + 60%)
2004 - + 35% in H1 against a very strong H1 last year – set to do 40%+ eps growth for the year @ 75p or more for the full year.

Next year I expect over 100p a share eps from this stock.

The compound earnings growth over the past 4 years has been 50% pa. Sales growth is soaring too.

With just 70p eps this year, a conservative estimate probably, the PE is 15.7 for this year. Next year they are set to do 100p+ eps putting them on a forward PE of 11. Many stocks with solid earnings growth over several years trade on PE’s of 20+ like TPT, MER. TEP, DCA, MJW – Hornby’s compound growth is stronger than all of these and half the PE.

Paying a 3% dividend this year which was just increased 33% at the interim, a bold sign of confidence in the trend continuing.

At year end they will have something like £12m cash on the balance sheet – over 130p a share. Strip the cash out and the PE for this year is more like 13, and a forward PE of 9.

This stock should be trading on double this rating - 50% compound increases your money by 125% in 2 years and by 650% in 5 years, not including the dividends.

They still have great products coming on line stronger than ever in 2004 including Live Steam, MotoGP and Scalextric Digital. Having just entered the Small Cap Index stronger institutional demand should drive the price higher too.


Still capable of doubling again over 12 months imo.

Price to buy, Dec 28th = 1155p



Clarkson (CKN).

Growing earnings at over 100%. Shipping is going great guns with counties all around the world taking part in the recovery. China has enormous demand for steel. Former Soviet Union, Japan and India all getting up steam too. Goods now designed in the west, made in the far east and shipped to the west – lots of dry bulk shipping.

Expected by holders to do well over the 44p current broker forecasts, 44p eps would make the PE 10 for this year and way lower next year. But 50p eps or more could be on the cards this year which might mean the forward PE is as low as 6.5, perhaps less.

Compared to Braemer Seacope (BMS) the growth record over 5 years and the growth this year slaughters them. Yet CKN is on a PE way, way lower than BMS.

Good yield and the company have said results could be materially ahead.

A very well run business, much better diversified than in the past and highly geared to the recovery. If the growth here is as strong as I suspect, and these were to trade on a similar PE to BMS then these would go to £9+. A decent possibility if the recovery remains on track.


Price to buy, Dec 28th = 460p

That’s my current seven favourites to double in 2004. Will look back at the prices over the year to see how we are doing

Right, now over to you!

Happy investing in 2004

CR