Keeping from Bad Deflation and Debtors

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Monday 9th February 2015

© Mike Hodges

Market Snapshot: Hoping 4 Good Inflation

PLUS:  Price Sensitive Previews           BRH- UKRP

One Company… One Recommendation               Wednesday 11th

…..Last Week…..

……… in a positive mood supported by OK newsflow  the FTSE 100 gained 1.56% to 6,853 and the FTSE 250 increased 2.35%. The Aim All Share was 1.48% better with the FTSE Small Cap at 4,469 improving 1.1%. The PMIs on Constructions at 59.1 and Services 57.2 both showed better than expected growth. Retail Sales Prices reduced by 1.3% while the BOE Interest Rate Decision Meeting has returned to being a non-event as unchanged was unanimous. US growth continues and was illustrated by the 2.2% improvement in wages which tilts the balance of the probably of an interest rate rise to sooner rather than later. China’s central bank cut banks’ reserve requirement ratio to help lift economic growth amid a slowdown. It was the first such cut since May 2012.



…….. This Week….

….. the BOE Inflation Report is on Thursday  where  the oil price and energy costs could see it fall 0.5% then on its way to  zero with deflation only a whisker away. A debate on good or bad inflation is starting which depending on which type will reset fiscal expectations. On Thursday the US report Retail Sales if it’s heating-up it will be a concern.  Eurozone GDP will be reported on Friday with humdrum growth of 0.3% expected. Greece is at the toe to toe stage of negations and may have to threaten to exit the euro. China’s debt growth is an increasing concern even more so as the figures are hazy. A flat week seems likely stirred by volatility.




Pause for Thought


“Credit crisis, raising inequality and the relentless march of technology makes investors around the world nervous” .


Economic Nobel Laureate, Robert Shiller



BRH                 Anticipating SME recovery

UKR                 Profitable, a 728% discount assets…. But in Ukraine



ALU                 6 Year Personal Best

Braveheart Investment Group (LSE:BRH)

13p (14-15p)

Mkt Cap: £4m

Next Results: Finals to March


Trading at around NAV and narrowly loss making Braveheart’s fortunes could improve.  It provides mezzanine financial products and services to SMEs (Small Caps). This includes loans up to £1m, managing themed funds and equity such as EIS and SEIS to SME. The Investors base consists of high-net-worth individuals, public-sector organisations, family offices and other institutions.


The strategic emphasis is on building the contracted fund management business which accounts for a large percentage of revenue and development opportunities are being pursed. A recent initiative is with the London Co-investment Fund (LCIF) which has £25m to invest in London-based, seed-stage companies in the science, digital and technology sectors. Braveheart will use its subsidiary Crowdcube to source deals and co-fund them via this crowdfunding website and investments have been made.  This is believed to be the first time public funds have co-invested alongside a crowd website and further area based opportunities are being sort.


The portfolio of assets under management  is around £121m and is reported to be improving.  This is attracting further opportunities to build the balance sheet by acquiring assets to be developed and (eventually) sold at a profit. The finals to March 2015 should show improvement from the interims where a loss of £88k was reported on turnover of £992k.


There is total equity of just over £4m with the last funding at 11p when £130k was raised in August; we estimate net cash should be around £0.4m. Directors where buying share at 14.5p in September.

Trading Strategy

Braveheart are a leveraged play on an improvement in the small cap market. The rating seems too modest given the opportunity and that the free float is only around 30%.


6.25p (6-6.5p)

Mkt Ca: £2.9m

Next Results: Finals annc April


The rating given to this Ukrainian producer and distributor of dairy products, by the risk adverse perhaps cynical AIM market is such that the Company recently decided to duel list on the Ukrainian stock market.


The December year-end trading update, reminded the market of Ukrainian ‘instability’ but despite that, sales are likely to improve by more than 8%.

Interim turnover to June   improved to £17.2 m. Gearing is 36% and interest is covered 2.8x. The Group’s cash levels and bank facilities, with a little help from the European Bank for Reconstruction & Development are sufficient to meet current debt obligations in the short and medium term. Operationally the company are optimistic and that the strategy is moving in the right direction.


Overall the Company expects a sizeable year-on-year increase in EBITDA and operating profit for the full year 2014. The operating cash-flow is expected to be substantially improved BUT unfortunately, the significant Ukrainian currency (hryvna) devaluation will lead to the Group reporting a loss for 2014. The Group’s net assets are approximately £10.7m are massively higher than the £2.9m market cap. Directors where buying shares at 7.5p a few months ago.

Trading Strategy

The recovery is based on asset, profitable trading and directors buying shares. Longer term if the Aim market does not recognise the value they could seek to move to the Ukrainian stockmarket. The free float is less than 22% with a nominal value of the shares of 10p.


OMG! Original Price 7.5p (25.11.14)






Alumasc (LSE:ALU)

127.5p (128p-133p)

Mkt Cap: £43.2m

Next Results: Finals  to June


On the announcement the share price rose by around 11% as the Interims were their best for 6 years. An 8% increase in revenue to £45.2m lead to a 24% increase in profits to £3m and a 27% increase in EPS to 6.6p. The dividend was increased by 14% to 2.5p a share. The building products division performed particularly strongly driven mainly by the Roofing and Walling businesses. Where actions taken over recent years to strengthen management, sales resources, and introduce new products while expanding the geographical helped produced the increase which was further aided by an improving UK market.

The Rainwater, Drainage and House Building Products businesses continued to show strong momentum growing revenues by a further 17%. As part of the strategic appraisal; non-core businesses are being disposed of; one such is  Alumasc Precision Components (APC) which no longer fits. Discussions continue for the sale of APC with a number of potential trade buyers and the net book value is £6.5 million.


Gearing of around 50% will be paid down with disposals although the cashflow produced was lower than the previous year.

Trading Strategy

The share with a P/E of 9x and yielding 4.2% represent reasonable value but a pension deficit may reduce all but the keenest of predators.

 Last OMG! Price 116.5p

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