Market Conditions, Fonix Mobile Webinar and Aston Martin

The stock market seems to have calmed down now that we have some political stability in the country, it seems we might not run out of gas this winter after all and may be able to keep the lights on. But small cap companies are still very depressed with stock market investors preferring to put any spare cash into big or mid-sized oil/gas companies. Big miners are still holding up reasonably well because of the high dividends they are paying despite the gloom over the prospects for consumption in China.

I am not trying to buck the trend and have even bought some BP, Shell and Rio Tinto shares recently. I feel that all those new speculators in small cap company shares that joined in during the boom times have departed the market and are not likely to return soon. Once bitten, twice shy may be their motto.

I reduced my holdings in smaller companies as their share prices declined but I still hold some of them. One such is Fonix Mobile (FNX) who gave a presentation of their annual results on the Investor Meet Company platform today. I’ll briefly summarise what they do:

The company specialises in carrier billing systems, i.e. charging fees to your mobile phone as an alternative to credit card payments (75% of revenue), and in text messaging services (22% of revenue). They are experts in core verticals such as media, charity donations and online gaming but any transactions of less than £40 qualify so can be used also for such things as car parking payments.

What do I like about this company? The positives are:

  • Steady growth in revenues and profits in the last 4 years (they listed on AIM in October 2020).
  • High return on capital.
  • Pay a decent dividend.
  • High recurring revenue and high customer retention.
  • Focus on internally generated growth not acquisitions.
  • Limited foreign adventures.

They do have an international development strategy but that’s mainly focused on Ireland at present with some activity via partners in Germany and Austria. They are also evaluating other markets but they suggest they have room to grow in their existing markets. They are mainly investing in product development and sales/marketing. They only have 40 staff at present with about 15 in product development.

The management presented well and a recording is available of course.  Note though that the shares are tightly held and there is limited trading in the shares with a bid/offer spread of over 2.5%.

There are other companies in the carrier billing market, e.g. Bango and Boku, but the focus on certain verticals in the UK clearly has enabled them to build a solid niche.

I see Aston Martin (AML) published another poor set of results this morning – a year to date loss of £511 million and debt rising to £833 million although claimed revenue was up. The company blamed “supply chain challenges and logistics disruptions”. It still looks a complete basket case to me and I suggest only car aficionados should consider investing in it. When the anticipated recession really bites will folks be buying “ultra-luxury” cars as they call them? My only slight interest is that after holding it for 9 years my Jaguar XF will soon need replacing – a big bill today for some maintenance work on it. Let me have your suggestions for new petrol or hybrid luxury vehicles, or perhaps I will be able to pick up a low-cost Aston Martin when they near bankruptcy?

Roger Lawson (Twitter:  )

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Comments on Abcam Results Webinar and Fonix Mobile

It’s nine months since I last commented on Abcam (ABC) but I still hold some of the shares so I watched the results webinar today. This covered the results for both the 12 and 18 month periods ending December 2021 as they moved the company’s year end – for no good reason that I could see.

The reported profit was up at 7.1m in the 12 month period which is a substantial improvement and revenue was up by 17% but the company preferred to talk about adjusted profits which were given as 60.4m “adjusted operating profit”. Adjustments comprise everything the company wants to ignore and even extends to “systems and process improvement costs” and “integration and reorganisation costs”.

In summary the results were not brilliant in essence for what is supposed to be a growth company in a hot sector (biotech).

I have commented negatively in the past about the slow and expensive implementation of a new ERP system and on this it is stated that “roll-out of the final states of the ERP renewal programme continued”. In other words, it’s still on-going.

The webinar comments from the CEO effectively said the company had been building for the future in the last couple of years. I hope that is the case. The strategy in many regards makes sense but a lot of costs are being incurred which have been capitalised. The share price has not moved far in the last three years but the company has been impacted by the Covid epidemic.

One question put by an analyst was for more explanation of the comment in the announcement that “The Board continues to review options to increase share liquidity and intends to consult with shareholders on these options in due course. Is this an indication of a placing particularly to attract more US shareholders? I suggest it might be. But the analyst did not get an answer to his question.

Another company that reported results this morning was Fonix Mobile (FNX). There was a good profile of this business published in Small Company Sharewatch last week. I can do no better than repeat some of the comments by Paul Scott of Stockopedia on the results:

“I’m impressed with these numbers. Fonix floated on AIM in Oct 2020, and amazingly for a fairly recent float, it has not collapsed after a profit warning, nor run out of money!

I remember having a video call with the CEO around the time it floated, and thinking what an impressive business this is – dominating a niche of payments/votes for reality and charity TV shows (e.g. X-Factor, Children In Need), Fonix has the infrastructure for taking those payments/votes, and the customers tend to be very sticky, coming back year after year – on the basis of if it ain’t broke, don’t fix it.

That results in a cash generative business, with high margins, which is able to pay out decent divis, with a yield of c.4%”.

It is a relatively small business but looked reasonable value to me although the costs of the AIM flotation were high and directors were selling as part of it but I did read the prospectus so did purchase a few shares. The interim results are excellent.

This is the kind of business I like – good return on capital, high recurring revenue and positive cash flow. The prospects look good.

But like any e-payment business its accounts can be difficult to follow and there is a regulatory risk for the business if the FCA decided to tighten its rules.

Roger Lawson (Twitter:  )

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