Monday 2 February 2015

AIMing to Please (Portfolio Buy)


I am generally sitting on the market sidelines at the moment, watching cash trickle in. As I had a bit of loose change available in one of my ISA accounts, I decided, in a moment of boredom, to have a little flutter on AIM (the London-based Alternative Investment Market for smaller companies).

I don't usually bother with small companies, as they can be flaky and unpredictable. Also AIM shares have not been eligible for ISA investors until recently. I look on this purchase as a 'bit of fun' to relieve the boredom of owning an increasing proportion of income-producing ETFs.

ETFs are, to be honest, difficult to get excited about: they are so diversified that they become a news blur. Nothing much seems to happen, other than gradual changes in the price (and yield) - a bit like an oil tanker sailing along. (Not to say that an oil tanker can't occasionally run into trouble). At least with individual dividend shares you get a bit of excitement - dividend declarations, acquisitions, annual reports, etc.

So, when I am bored I sometimes look at the Google Finance Stock Screener. Setting the P/E ratio with a max of around 20 and the Dividend Yield between around 4% and 15% gives a crude slice of potential high-yield heaven. I'm looking for something with a sustainable business model and cash-flow - one that can hopefully maintain its dividend.The next step is to look at the company's website and annual reports in order to get a feel for the business and the management style.

In this case my eyes fell upon Grafenia (LSE:GRA) - a boutique printing outfit based in Manchester. Google Finance's description of the company was mainly gobblegook:

"Grafenia Plc provides printing services. The Company provides printing services through the Company’s franchised and online channels, W3P, a software as a service (SssS) offering for printers and graphic professionals, and TemplateCloud, a SaaS-basd offering, vending template graphic design and stock photography in an online editable format. The Company operates in United Kingdom, Ireland, Europe and others. The W3P platform is also offered internationally through master license. The Company's TemplateCloud offers online editable design content, crowdsourced from freelance graphic designers and complementary stock photography."

Yielding over 8%, this company is either heading for disaster or is undervalued by the market for some reason. The more I looked at the latest November 2014 Interim Report, the more it seemed like the latter. OK, it is small but it has a nice cash position (around £1m) and cash flow was good in the half-year. The dividend was increased (although it had been reduced in the past). Times are hard, sales are down - but profits are up and the company is refining the business model in response to changes in the market.

Exciting, isn't it.

Now back to those boring ETFs...

[Purchase price: 17.45p]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. The crowded nature of the print 'hub' business model means they are trying to morph into a software company, no doubt burning through much of the cash in the process, hoping that franchisees will see sufficient value to pay them for the privilege of using the software to sell print for them. A difficult sell when others give most of this for 'free'.
    Check out Richard Beddard's analysis on as he held them but has now given up on them, citing the difference between risk (controllable) and uncertainty (not), with Grafenia falling in the latter category.
    If you want a software company with pricing power look at Sage. I have just had a bill of £1100 in order to preserve the licence as the version I have has been declared 'end of life' after a mere 3 years.

  2. Whoa, I only trade very occasionally but the Google Stock Screener seems like a little gold nugget you shared... thank you very much for this.

  3. results out today. sales down from £19m to £17m as they switch their efforts to selling software Saas.Final div 1p, making 1.5p total, but this has cost £700K out their £850K profit. Looks as if they have spent £2.5m on 2 years on s/w + salesforce costs but still too early to say whether it will get traction as they are simply converting existing franchisees at the moment. Only spent £100k on print equipment which is concerning as efficiency is the name of the game in this, by their own admission, very competitive market. Start of this year, Apr & May were poor, which again is concerning since these are normally good months for most printers following by Jul/Aug being absolutely dead.
    They managed to save £1m on print consumables this year but I think that it is unlikely to be repeated as it might have been from either increasing sales prices which adversely affected sales overall or better buying but with a UK mill (tuletts) and very big merchant (PaperlinX) going into administration in Europe in April, mills are now taking the opportunity to pass through increases to offset the continued decline in paper consumption.
    With a wage bill of c£4.5m, autoenrolment increasing employers cost by 8% by 2018 in the UK, increasing materials, and having taken the r&d tax write off up front, this is a business that could unravel very quickly if their web design offering doesn't prove to be the hit they are betting the house on. You are of course being rewarded for that risk by the 9% yield but if it doesn't work out, it won't just be the dividend you lose.

  4. 6/10/15 - Rafftety (founder) steps down. Sells poorly performing Dutch arm for £6m due to price competition to Dutch company, booking a profit of £4.5m, but in doing so, considerably reducing the size of the business. Software offering take-up slower than hoped. July/Aug poor sales, which are poor months anyway, all sounds very dire indeed.

    Lots of new entrants in the hub print model operating on a european scale.

    Appointed new CEO internally. Really need a business recovery specialist.

    The £4.5m is only equivalent of wage bill so expect it to be absored in working capital.

    If you sell now at 15.5p (down 22% today) you will probably get out clean once dividends are included. Don't wait until results on 9/11/15 as this announcement says it all and I expect Raffety to be unloading stock, despite denial.

  5. correction - the dutch subsidiary turnover is £6m which was bought for 2m Euro in 2010, has just been sold for 2.35m euro. Given the weakness of the euro in that period, there is no profit in sterling terms on that sale. apologies, but it is even worse than I thought.

  6. Anonymous - Thanks and I'm afraid you are right. I've sold out my little holding for a 15% loss. Win some/lose some but I should clearly have done more homework!