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If you watch my Twitter Feed (remember, if you are not on Twitter, you can see it on the Home Page of either of my Websites) you may have noticed that I bought a small Spreadbet in Sprue Aegis (SPRP) at 322p this morning around 9am ish.
I kept the position small, it’s about 0.75% of my overall Portfolio because I already have a mountain of SPRP in normal shares but I just thought the Trading Update was so good today, it would be rude not to celebrate with another buy !! Let’s be honest, it was the least I could do to support the company and show my appreciation…..clap, clap, clap…
My position is roughly about 3.5% of my Portfolio which is on the high side for an AIM listed small stock, capitalised at about £140m (please see my earlier Blog on “Position Sizing“, Part 2 I think). However, much of this is Profit as I have bought pretty well (luck on my side for a change) and I really think SPRP is a belter, so I am prepared to take slightly higher risk on it than I would normally.
I am very pressed for time - unfortunately at this stage of WheelieDealer there is a huge amount of ‘building’ work to be done and I want to crack on so you peeps get a Stormingly Brill Website etc. - so I will not dwell too much on the Company but I want to really address the Momentum and Valuation side of things. Readers can dig deeper into the company themselves.
SPRP is a distributor of Smoke Alarms and Gas Detection Alarms. Perhaps surprisingly, if you pop into Homebase, B&Q etc. you will see a vast choice of Smoke Alarms under many different brands - such as FireAngel, FirstAlert, Dicom, etc. - but they are all distributed by SPRP !!
A key thing to realise here is that much of what SPRP distributes is actually manufactured by a US company (I think they are US, I may be wrong) called BRK. I previously saw this as one of the Key Risks to an investment in SPRP but a recent deal has reduced this and secured the Rights to sell BRK for many years. Interestingly, BRK tried a cheeky bid back towards the end of 2013 ish at 97p - they clearly knew what potential SPRP had.
SPRP told BRK where to get off and they announced they would press ahead with a move from the ISDX market (formerly, OFEX and PLUS Markets - nothing to do with PLUS the CFD chaps) to AIM. I first became aware of SPRP via a tip in t1ps.com (thanks guys, I owe you lots beers !!) and it looked very good so I bought my first lot at 113p. However, I had a bit of trouble because few Brokers seem to enable trades on ISDX - but lucky for me I had access to a Share.com account and they did the trade. Many of my mates missed out because their brokers would not deal but one Top Trader buddy managed to buy through SVS Securities, although he had to open an account.
Note - if you find a good share on ISDX, and be warned, there is a lot of crud, then it could be a belter like SPRP.
It was pretty obvious to me that SPRP was seriously under the radar because ISDX stocks get almost no coverage in the Financial Media whatsoever - even specialist publications like Investors Chronicle or Shares Mag were not covering it. The difficulty of buying made it obvious that if it moved to AIM, and became more widely available and known, then it had very good odds on moving up sharply. I added more on the way up and it clearly shows the importance of “adding to your winners” as the stock moves up.
The big driver of growth (and the growth is very strong as today’s trading update makes clear) is Regulation coming out of the EU (I generally hate all this EU nonsense but this is one time I am happy for some Regulations !!!). France has already brought in a New Law where all new homes have to have a Smoke Alarm fitted and Germany is expected to do likewise. Other laws like requirements for Tenanted Properties to have Smoke Alarms is a huge boost.
SPRP are also doing trials on the ‘Connected Home’ and remote internet connectivity to its sensors - this could provide growth opportunities in the future.
That’s enough on the background, it’s the Targets you want to read, I know. More information can be got at www.sprueaegis.com
Valuation and Targets
That’s more like it WD, cut the cr*p and give me the numbers………..
Well, first thing to realise is that the Trading Update today says they will “beat expectations” for the Full Year - true heavenly music to a WheelieDealer’s ears……
This means that the Analyst Forecasts from ShareScope are light - they will be revised up, probably 10% ish.
Current numbers for EPS are:
So, if I make some crazy assumptions, let’s say they could be:
I think those are reasonable and maybe conservative.
Therefore, using these numbers, if we apply a p/e of 15 we get target prices of:
However, I think you could argue a p/e of 18 is reasonable for such strong growth, this gives:
BUT, the growth is really strong, so a p/e of 20 would not be utter insanity - however, if it got this high I would probably be trimming….
I need to cut this short so in a nutshell, it’s a fast growing business with a Forecast Divvy yield for 2016 of 3.7% at the 322p I paid and possible Targets between 405p to 540p - and remember 2016 is not that far away. The divvy may get raised and to get such a payout with strong growth is something special. On my Upper Target, we are talking 67% upside on my 322p buy price - worth a shot at in my book.
The company and the share price seem to have real Momentum (the Big Mo !!) and I generally find that after a Stock has issued a “will beat expectations” update, the share price keeps moving up as the News sinks in slowly and all the Mags and Papers start tipping it. In addition, when I placed my Buy at 9am today, Igindex were clearly struggling to get stock as I could only do an Order, not in the Market. So holders know what they have and the price needs to rise a lot to encourage them to part with such a great stock. It would need to rise a lot to get me selling.
Robbie Burns (www.nakedtrader.co.uk) bought recently - always nice to see.
Be Lucky (that’s the new Who song),
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