Market Update Time

A long time ago I set myself a goal of summing up weekly market movements and events. As with all things secondary, real life takes precedence. New job, family commitments and a lack of spare time didn't help matters. Now I'm keen to pick up blogging where I left off. I should add I've not been completely absent from the market during this time, you can view my posting history on the LSE bulletin board and continue to track daily posts if you're interested. There are some great characters and knowledgeable investors over there. From today I will be pouring more effort into maintaining this blog, first lets' assess the stock picks suggested last year.


Advanced Computer Software (ASW)
In December 2013 I wrote a piece explaining the merits of tech-play Advanced Computer Software, another consultant and provider of efficient business software. Advanced Computer Software poised for further gains - that turned out to be a conservative statement. In the year to date (since publishing the article) shares are up 27% trading at 120p. There have been opportunities to trade in and out during the period, in particular the dip in mid April before shares surged to their 52 week high in late May.

ASW Share Price Movements
Dec 2013 - Sep 14

The surge was buying in anticipation of excellent Final Results which were issued a few days later. Since then shares have bounced around the 116-120 range. ASW now command a market capitalisation of £567.68m today little changed from earlier this year. So why are shares continuing to perform around this level?

Well growth has been impressive to date, but concerns over continued similar performance are weighing on shares. Over the past five years ASW have averaged compound annual growth of 46% revenue, 45% adjusted EBITDA and 53% cash generation.

Since then we have received the Half Year update this week. The figures are less impressive this time around but consistently positive nonetheless, with forecasts suggesting continued growth but at a reduced rate. As Vin Murria, Chief Executive puts it they now have "a very strong platform for long term sustainable growth".

As the figures and Murria's comment suggest the initial buzz surrounding the CSH takeover is over and they now have a platform from which to continue growth. The initial exciting period is over but that does not mean the company have peaked.
 
Needless to say ASW continues to impress in its operations and the reducing net debt position will only increase confidence in the stock. My view here is a continued hold. A lack of contract wins this quarter won't impact recurring revenue streams but limits growth potential so beware of overzealous broker targets. If you are able to pick up shares below 116p take the opportunity and likewise reduce some of your holdings above 124p. This will be a slow burner but one which will appreciate over the coming years.

 Amara Mining (AMA)
I first tipped Amara back on 8th November 2013 following the announcement of a cash for stock swap with Amlib in a piece titled Amara Mining - Speculative Deal Increases Cash Reserves - that didn't prove to be the cheapest time to buy however as shares fell from 14.25p to 11.5p just one month later. The Q3 update threw in a few surprises that the market didn't appreciate which had people selling shares for below 12p! But early in the December, the trend reversed, pushing the stock up in anticipation of the Yaoure Resource Update. Incredibly this provided little upside on the day of announcement.

Shares rose to 16.5p by early January before falling again in the lead up to Q4 results. There was a little movement during February but the important events occurred in the following month, with the Preliminary Economic Assessment (PEA) released on the 12th March shares jumped back to 16.5p on the day and continued to rise for the next 4 trading sessions peaking at 19.13p! Following this breakout the shares have traded above 15.5p ever since.

Amara Mining Share Price Movements
Nov 2013 - Sep 2014

The share price continued to rise in May and as expected Amara's operational results were much improved in the Q114 update. This was the first time I can remember Amara actually retaining share value in the lead up to quarterly results. On the day of the AGM the share price rose sharply and by the 12th June the asking price was over 20p per share. This may have been due to the decision made to cancel the reporting issuer status in Canada. Ingalls & Snyder LLC purchased a cool 1.3m shares on the 20th June which no doubt sparked new interest in the share sending it higher in the days after.

July was a superb month with the share price climbing to 23.88 before briefly falling on fears the Ebola Virus might impact Amara's operations. On the 6th August the company issued a statement concerning the Ebola risk alongside general drilling results.

"The Company's operations in West Africa remain unaffected by the Ebola virus.  There have been no confirmed cases in Côte d'Ivoire and Burkina Faso and John McGloin visited Yaoure last week along with other senior management.  There are travel restrictions and enhanced hygiene requirements in place in Sierra Leone, however at present this does not affect the Company's strategy for Baomahun as the project is in an evaluative phase."

Shares rallied, although it is worth noting that the company announced its production operations would cease the same day. The closing of Kalsaka was not due to take effect until later this year so came as some surprise. Given the risks associated with neighbouring states and the volatility in the gold price, the market seemed pleased that Amara brought forward the cessation, opting to instead retain cash. Little wonder as we later heard that Kalsaka total cash costs, including royalties, in Q2 2014 were US$1,455 per ounce, a loss of US$2.4 million over the period.

Focus is now being directed to Yaoure, the largest gold deposit in Côte d'Ivoire, with a 6.3 million ounce Mineral Resource. However production is still some way off and that's not accounting for any delays. Already we've heard that International cocoa exporters have restricted staff movements in the country, such is the growing fear of Ebola. This follows the closing of its borders with Guinea and Liberia. In the meantime cash depletion should be at a lower rate but may still cause a headache for shareholders.

It should be noted that following the deal with Amlib we are now after all disposing of exploration licences and the Drilling Contractors. Cash conservation and little desire to invest in new projects seems to be common right now amongst many of AIM's junior miners and who can blame them with gold being manipulated down to current levels.

"Amara has taken the decision to enter into an agreement to dispose of its assets in Liberia, which include three exploration licences (Cestos, Kle Kle and Zwedru), and Amlib Drilling Services Liberia. Exploration activity at Yaoure and Baomahun is expected to generate stronger value for shareholders and thus Amara is focusing its cash and management attention on these projects."

Amara is up 44% since my initial buy in of 14.25 and my plan now is to sell into any support above 23-24p. I expect we will retest 15-16p at some point next year as our cash position falls - this is a buying opportunity if you're in it for the long haul. The second mineral resource update is due in December 2014 and shares will likely rise in anticipation. After that Yaoure won't be producing until late 2015, the market knows it... even then cash-burn will continue until operations can be optimised. Baomahun is on hold but remains a viable future mine. The gold price is less of a concern right now. There is time to trade the swings before this becomes a producer once more.

The company has published the following results and slides on their website today:

Yaoure Drilling Results
Yaoure Central Zone Section
Yaoure CMA Zone Sections
Yaoure borehole plan
 

Disclosure: I hold shares in ASW and AMA. My blog posts are a means of tracking performance and not a recommendation to buy/sell. Please always do your own research.

have no business relationship with any company whose stock is mentioned in this article. - See more at: http://www.shareprophets.advfn.com/views/7846/vin-murria-delivers-with-another-strong-showing-by-advanced-computer-software#sthash.Mas4O7u0.dpuf

Advanced Computer Software poised for further gains

It is not often I focus on technology plays and even rarer that I tip one to friends and family. But this Aim-listed stock has outperformed it’s sector and the wider markets and shows no signs of slowing. I am talking about Advanced Computer Software (ASW:AIM).

I was first introduced to ASW back in May when I received a tip from Shares Magazines. As a contrarian and a sceptic I immediately dismissed the subjective claims of “a fantastic track record”, “genuine growth prospects” and “an abundance of cash” as well as the deal-maker “shares could hit 120p before the year is out”… early in the first paragraph. It struck me as having already risen strongly early in the year from around the 68p range in January 2013 to 95p just two months later. Since then they have been stuck in the 80-90p range rarely moving above or below until recently breaking out in late November. Having held on I’m finally in profit and will try and explain why I will continue to hold ASW.

The business plan is centred around helping organisations strip out unnecessary costs in order to increase efficiency. It’s flexible means of applying these packages to customers allows a quick payback, often in weeks and months rather than years. All businesses are susceptible to weaknesses at times in human resources, payroll, document management and procurement and this where ASW comes in.

Vin Murria, the chief executive of Advanced Computer Software has been running the company for over 5 years now, turning it from a microcap with approximately £6 million revenue into a mid-cap making a record £99 million in the first half of this year. Back in May when I was looking into ASW they were making around £120 million per annum. Valued today at £460m (97p) they hold approximately £40m in cash.  

If you’re new to the story then read on with this summary to date. ASW raised £44 million from investors back in February 2013 at 80p partly explaining the gradual retrace back down from a 95p peak to around the 80p level, however this has twice acted as support since. Soon after the company announced what the funds would be used for, placing an offer to buy Computer Software Holdings (CSH) in a £110 million deal.

According to SharesMagazine, buying the legal back office solutions specialist was “an intriguing move” since Vin Murria had been part of the team behind CSH before it was sold to private equity in 2007. Was the chief executive keen to acquire the company for a purely business purpose or was there a sentimental element to it? Well it’s hard to argue against the business case, CSH made earnings before interest, tax, depreciation and amortisation (EBITDA) of £15 million on £62 million of sales in 2012, 85% of which was recurring business from around 12,000 customers.

“This means the enlarged Advanced Computer will be able to cross-sell a host of business analytics, data management, mobile delivery tools across its healthcare, business solutions and managed services divisions to some 20,000 clients.”

Of importance in December 2012 the £7.25 million acquisition of Serco Learning opened the door to the new education market and may prove a platform for further related buys in the future. Apparently, Advanced Computer Software has already spotted £2.5 million of duplicate costs that can be stripped out of the combined business, although this looks like an underestimate.

Compare the company back in May when Shares Magazine wrote;

“Advanced Computer has net debt of £65 million; £40 million shy of its new banking facilities. With EBITDA margins of over 20% and a cash flow yield in excess of 6% expected by analysts for the year to February 2014, expect the borrowings to be paid down fast. This puts the company on an enterprise value (EV) of about £440 million and implies a current year EV/EBITDA multiple of 10. The price/earnings (PE) ratio is 13.6, about a 30% discount to the UK software sector.”

In September 2013 ASW released it’s Half Year trading update and its share price reacted favourably closing over 10% up for the week. Net debt is down to less than £51 million. EBITDA margins of 25% don’t tell the full story as in fact the EBITDA has more than doubled in the year to date to £16.9m in the first half (H1 2012: £7.4m). The price/earnings ratio is now 13.5 even after the recent rise and presumes a conservative estimate for second half earnings.

“Advanced 365 Managed Services has continued to benefit from cross-selling to the Group's large, high quality customer base where the division's unique proposition has minimised the impact from continued price pressure from customers as Cloud offerings become established. Advanced 365 Managed Services' service and delivery models were comprehensively reviewed in the first half year to optimise scalability, which enabled the division to secure its largest managed services contract to date, just after the period end – the sum of £14.5 million over a 5 year period.”

Underlying trading continues to beat forecasts with organic growth up strong across all divisions. The market has begun to react to recent results but will have to adjust for increasing profits from 2015 onwards. According to the Half Year update, 38% of the August 2013 contract value will be recognised by February 2014 so we should expect further positive developments in line with expectations. ASW will realise 42% of the contract value in FY15 and the balance from FY16 onwards.

“Material profits growth, rapid debt reduction, more cost savings and a maiden dividend could all prompt further share price appreciation.”

Future growth is expected to come from a variety of customers but the NHS is a priority. There has been a surge of interest in workforce mobilisation across health and social care mainly due to the healthcare demands of an ageing population.  The London Community and Mental Health procurement project reaches a key stage in the next six to nine months with 68 contracts in community and social care expected to come up between 2014 and 2016. ASW is already working with two NHS trusts, Medway Community Health Trust and Kent Community Health Trust and are well placed to gain further contract wins during this period.

The focus on mobile products iNurse and iConnect is also key with more than 31,000 users signed at the half year, up by 6,000 since the year end. The Group's Adastra 111 solution has been very well received by the market and is now the preferred supplier to NHS 111 providers, servicing over 85% of NHS 111 delivery in England. Growth will be slower now that ASW has 85% of the market but this is repeat business and unlikely to change in the short term. Following the acquisition of CSH, ASW now provides over 5,000 private sector law firms with legal and back office software and services and is the fastest growing solution in the market. Cross-selling of the wider Advanced portfolio of products is expected to underpin further growth in the near term.

Further growth opportunities will come from Group products and services in both the public and private sectors, driven by the continuing need for efficiency, cost savings, workforce mobilisation and regulatory compliance. Healthcare demands are only likely to go one way, with increasing growth in the community and social care sectors and the continued demand for effective mobile applications. The company has shown its capable of absorbing smaller businesses and is looking for “further potential acquisitions to consolidate Advanced's position within its markets” which will enable it to push it’s effective cross-selling strategy.

The case for ASW remains strong but I would advise caution in choosing a point for entry. We are in uncharted territory right now, things could get rather rough. But if you can appreciate where this company is headed you will probably agree that they look comparatively cheap on a sector and p/e basis. I think a share price of £1.06 valuing the company at £500m will be achievable come the next set of results in March 2014. 
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