Wednesday, April 11, 2007


I bought shares in this company a few weeks ago. The mid-price is 130, but I could only buy shares at 150. Today saw their results come out.

Positive points

- P/E ration based on diluted post-tax earnings per share of 11, using the mid price of 130 pence

- Directors buys in February

- strong profit growth of 44% - noticeably profit grew faster than revenue which grew by 30%. This was despite adverse currency movements.

- continuing growth: “Order intake in January and February 2007 is some 32% ahead of the same period in 2006.”

- improvement in operating margins from 25% to 28%

- no debt

- good cash flow – the company has over 538,000 pounds in cash – a slight increase over the start of the year, despite paying over 500,000 pounds in dividends and 160,000 pounds relocating their offices.

- positive outlook: “
The outlook for the retained executive search market remains positive throughout the world, and the Board believes that the outcome for the year as a whole will
be very satisfactory.”

- recurring income makes up nearly 40% of revenue

- strong director ownership accounts for well over half of the company’s value

Negative points

- newly floated companies, so no years of earnings history to analyse

- although there was an interim dividend, there was no final dividend: “We indicated at the time of the flotation that there would be no final divided in respect of 2006, and accordingly none is proposed. I can however confirm that we expect to pay a dividend in October 2007, following the announcement of the interim results, and a final dividend in May 2008, based on the year's outcome and a dividend cover of some 2 times earnings.”

- operates in a competitive market

- tiny company with a market cap of only 7.02 million

- continuing currency risks. About 18% of revenue comes from America, and personally I have no faith in the dollar.

- needs to constantly improve its software – and if they cock this up presumably they will lose any competitive edge

- highly illiquid

Conclusion – Given the size, liquidity (it’s not a company you could get out of fast) and product, this is a high risk company. I think on balance the numbers and the odds justify a small investment. I wouldn’t bet the farm on it, though!

Wednesday, April 04, 2007

S and U

Dori Media continue to do incredibly well. I'm tempted to sell as the share price rises to nearly triple what I originally paid for it. Not all my shares have done so well - shares in TG21 (TGP) have more than halved since I bought them last year.

My most recent addition has been shares in S and U (Ticker symbol SUS), which I came across using Digital Looks stock screener.

Positive points:

Historical p/e of not much more than 10 – their competitor Cattles is on a p/e of 14.6, and provident financial is on 15.2. Cattles and provident have had growth, whereas S and U had a slight contraction in profits – but that took place in their first half, with growth experienced in the first half.

Dividend yield with a history of dividend rises. There is a commitment to continuing this “Excellent dividend payment every year since 1988 is our proud achievement and we hope to continue this trend.”

Large director ownership, meaning the two main directors main income will be from their dividends. D.M. Coombs owns about 2.8 million shares (value of almost 16 million or almost a quarter of the value of the company) and AMV Coombs owns 540,000 shares (value 3 million).

In addition to this, there are no dilutive shares.

Experienced directors have been managing the company since the 1970’s. They are cost aware – I like this statement “We maintain our frugal approach to unnecessary overheads, which have fallen around 8% since last year at Head Office level.”

Recent director buy – KR Smith bought 3,000 with a value of 16,000.

Good margins - I work them out at around 25%.

Expansion – with the number of representatives up over 20% hopefully there will be growth.The management certainly think so:

"The positive developments during the year further reinforce our strong home collected credit business and we look forward to continued controlled growth during 2007."

Negative points:

Liabilities, though well covered, stand at 35 million.

Interest rates – the group is obviously vulnerable to changes in interest rates, although the group took out a five year hedge on 20 million of the groups borrowings in 2005.

Growth – although the company now appears optimistic, the company has not experience steady growth in the last two years.

Increase in net cash doesn’t appear to be great (there was a net cash increase for the year of 715 thousand,) but this seems to be due to expansion – which will obviously require large initial outlays of money. In their interim results they stated that their outlays of cash should lay the ground for solid profits in the future.

Car finance dependent on car sales – but currently their car finance is doing well despite “difficult conditions”. Profits are up despite used car sales being down by 6%.

Sub-prime lending – I’m no expert on the risks here. At least SNU don’t seem to be in the mortgage arena. In their core business of home credit they have 30+ years of experience, although their car finance business was set up in only 1999.

Appears ready for take-overs – I prefer organic growth myself.

They are certified by Investors in people – when these guys came to a university I was working at, we renamed them investors in paper. It's not a very important point though.

Conclusion – Personally, I see this as a long term Buffet style hold. An easy to understand business run by owner managers at a fair price and with a good dividend to boot.

As ever, DYOR!

Disclosure – I own shares in SUS.

Sunday, March 18, 2007

Dori Media Group - up-date

As I write Dori Media Group are at 142 pence, almost double what I paid for them in September. I also topped up several weeks ago, making another 30%. It's tempting to take the money and run, but as they seem to be on a price-to-earnings ratio of around ten, it continues to fit my definition of a growth/value share.

I topped up again a couple of weeks ago, at nearly double what I originally paid, but I'm not the only one who has topped up - there was yet another director buy three days ago. I wouldn't mind buying more shares again, but it's now become about 15% of my total portfolio - and if disaster struck, it would hurt. Still, it's small companies like this which can really grow over the long-term, and in my opinion the long term potential outweighs the risk, with director buys and a low p/e ratio providing a great margin of safety.

Thursday, September 14, 2006

First steps in investing

When I returned to the U.K. after several years of travelling, I was keen to buy some stock and shares. However, to start with I had very little income and I didn’t want to risk savings in something I knew nothing about.

I had a meeting with my uncle who was a financial advisor and he advised pounds cost averaging with a share tracker. Share trackers are normally very cheap, and as safe as shares can get. By putting money in every month, you avoid the risk of getting in when the market is at a high point. While you could lose money in the short run, you should make money in the long run. Over the last 80 years, an investment in shares has beaten savings over a five year period 80% of the time. At the same time, as share prices were so low historically at that time, I felt confident about transferring small amounts of money from my savings.

I was lucky – by getting in at the very bottom of the bear market I made a very good return on my money. But what I also did was start a virtual portfolio on Yahoo!finance. This is a great way to try out strategies and ideas without risking a single penny.

I wanted to invest real money, especially when I made some incredible returns on my fantasy portfolio. (Returns I’ve never matched in real life, unfortunately). So I opened an account with a super-cheap stockbroker. At Halifax Sharebuilder you could buy shares for £1.50. In return you could only buy at certain times, but what it meant was that you could buy small amounts of shares just to see what happened to them – great for trying out strategies.

I also found that I kept on buying shares in companies that I had a lot of confidence in. I kept on reviewing them and finding that the fundamentals were still good. I learned from my mistakes – you make a lot more when you begin – and slowly built up confidence in my ability.

So if you are eager to start investing, don’t jump in and risk all your savings! Take your time, open a virtual portfolio, and buy small amounts of shares with the cheapest stockbroker you can find.

Sunday, September 10, 2006

Small Companies and Small Investors

In my previous article I discussed whether it was possible to beat the market or not. While I concluded it was possible, that does not mean that we will beat the market. However, small companies are one area where the small investor has a chance. Here’s why:

1. Poor coverage

Big companies have dozens of brokers coving them, tipsters tipping them and analysts analysing them. They are analysed half to death and there is little chance of some hidden value going unnoticed. The chance of finding a bargain is therefore much harder. However, some small companies have no analysts. While this increases risk – you may miss something important – and increases the need for digging around for information, it also increases the possibility of a bargain.

2. Volume

Big investors need to buy big quantities. If you have a billion dollars plus fund it is no good buying three thousand pounds worth of shares in a 5 million cap company. So, a lot of the professional competition has been removed, leaving the way clear for small investors like you and me.

3. Earnings growth potential

As Jim Slater has observed, "Elephants don't gallop - but fleas can jump to over two hundred times their own height". Small companies can grow their profits very rapidly – although, they can also fold a lot more rapidly too.

Small companies are more risky, of course. But the maximum you can lose (unless you do silly things like spread betting) is the amount you put in. The maximum you can gain can be huge!

Saturday, September 09, 2006

The Psychology of Investing: why intelligence is not the most important factor in investing in shares.

Buffet, amongst others, consistently argues that intelligence is not the most important factor in being a successful investor. He often points to the example of Isaac Newton, who lost a fortune in the South Sea Bubble.

Isaac had indeed seen the lack of logic behind the South Sea Bubble. Having already made 7000 pounds (a fortune in those days), he pulled out, only to jump back in when prices kept rising. (The story of the South Sea bubble, with its similarities to the internet crash, can be read here .) There are also many highly intelligent and well trained investors and traders who have succeeded in losing large amounts of money. Perhaps that is why academics have come up with perfect market theory – to explain why so many of their students haven’t beaten the market!

"I can calculate the movement of the stars, but not the madness of men," mourned Issac Newton after the loss of his money. I believe Isaac made two basic mistakes here, which are often repeated by modern investors.

1. He bought because he was excited by rising prices. Yet is illogical to buy something because it is rising in price. The whole concept of buying and selling is to buy when prices are low and sell when they are high. Yet the majority of small investors buy when prices are high (often after several years of a bull market) and sell when they are low.

2. He tried to anticipate the moods of investors, rather than rely on the intrinsic value of the investment.

Investors with sound psychology will not be excited by the rising prices of stocks but coolly assess their value – and buy when that value substantially exceeds the stock.

Investors with sound psychology will not panic when prices fall, but see it for what it is – sale time for stocks!

See also: There’s a bear market? Hooray!

Friday, September 08, 2006

Can you beat the market?

This question is hotly debated by everyone from academics to small private investors like myself.

However, I believe that what people are really talking about is either:

- Can the market be beaten (when luck is taken out of the equation)?


- Can I beat the market?

These are two very different questions. I believe the answer to the first is a resounding yes, and the second a tentative maybe.

The whole debate revolves around perfect market theory, which argues that when information is communicated instantaneously, and investors make rational decisions, stocks are priced perfectly. Any decrease or increase in share price is a result of news that cannot be predicted.

Of course, anyone who has done any research into the internet bubble of the late 1990’s knows that investors, at times, are anything but rational. This was a time when firms which had never made a profit were priced at billions. This “irrational” exuberance has been repeated many times though history, and some of the most intelligent of people have lost their money in them. Isaac Newton himself lost a fortune in the South Sea Bubble and ever after forbade people from mentioning the South Sea in his presence.

Illogical pricing suggests that at least some of the time there may be opportunities for savvy investors to take advantage of irrational advice. Some have, but these investors have often been written off as lucky.

Warren Buffet, probably the most successful investor in the world, has addressed this question himself. He pointed out that it was illogical to put the success of individual investors down to luck alone when many of the most successful investors came from the same background, i.e. the Graham and Dodd school of thought. Indeed, many had worked for Benjamin Graham’s company. They had interpreted his ideas in many different ways, but essentially it came down to one thing – buying companies for less than they were worth, or “one dollar coins for sixty cents.”

Given the consistent success of investors like Warren Buffet, Bill Mann, Peter Lynch and others, I would argue that it is possible to beat the market. But whether it is possible for you and me to beat the market is another question. A lot of it is down to psychology – can we resist the temptation to join in irrational exuberance? Can we make consistent and disciplined decisions based on a sound investment strategy?

Well, I’m in the process of finding out. And whether or not I beat the market, I’m having a lot more fun than keeping my money in the bank.

Dori Media Group

Dori Media (Ticker symbol: DMG.L, website: is an Israeli company producing Telenovela. When I worked in Indonesia (one of the countries Dori is involved in) I was very impressed by how obsessed Indonesians were with Telenovela, despite culture differences between what they were watching and their own culture. I am impressed with Dori Media too, as are the directors, who have been buying up shares in the company. Between August 15th and August 18th the directors bought 18,000 shares priced between 69 and 72 pence. Looking back through their news on their website, director buying is a recurring theme.

Earnings per share in the interim results are at nine cents per share, up from 1 cent per share the previous year. Doubling this would give a price to earnings ratio of 7.5. In previous years Dori Media has had slightly stronger earnings in the first half, so I have assumed a prospective price to earnings ratio of 10.

The managers are optimistic in their statements as well, citing rapid international growth, including a breakthrough into Europe. Their increasingly international sourcing of revenue decreases risks from their Middle East base, too. Increasingly, the company is moving into the more lucrative side of the business – owning Telenovela channels (as opposed to just producing Telenovela). There has been major investment in the last six months, which should lead to further growth.

On the negative side, Dori Media has very low liquidity. It might be difficult to sell them in a hurry. I can live with that – I only have about three percent of my money in them, and am happy to leave it there for a long time. A lot of profits seem to have come from one program, Rebelde Way. Could over dependence on one programme make profits vulnerable in the medium term? The company does not pay a dividend yet, and has said it will not do so until the end of 2007. A downturn in the economy affecting advertising could also lead to a decrease in revenues. However, I think this is a good company and I’m happy to hold on for the long term, assuming no disasters.

With a (conservative) prospective price to earnings ratio of 10, assuming this share would be fairly valued at a price to earnings ratio of 20, I think this share could double in the next six months. The low rating should give it a significant margin of safety. I bought this at 72 pence and it’s currently at 69 pence. Of course, it could all go balls up! I’m not topping up (at least not yet), as I believe in putting small amounts of money only into small companies.
Any thoughts/opinions/further information will be much appreciated. If you are interested in the share, remember to do your own research and make your own decision.