Do as I say…
…not as I did last week
THE TEMPTATION was just too great last week. Perhaps it was the somewhat boring – rather unpredictable – trends of large companies’ share prices that led me to buy shares in two small companies. Set Point (JSE code SPO), with a market capitalisation of just more than R300m, and especially Amecor (code AER), with a market value of only R79m, are exactly the kind of small-cap shares I always warn prospective investors not to get involved in. However, their financial figures indicate it’s perhaps not such a serious error to occasionally buy such shares.
In its overview of Set Point, IFR (writing for PSG-Online) says the company is a supplier of analytic and related technological equipment used in, for example, the vehicle manufacturing, petrochemical and mining industries. In the IFR financial survey for the six months to February, when increases of 3% and 5% in turnover and profit were recorded respectively, the company reported the general decline in commodity prices also hit them hard. Nevertheless, Set Point earned a profit of 6,4c/share for the six months. Cash flow was reasonable and an interim dividend of 2c/share was declared. In April, when the interim profit was declared, the shares were still trading at 65c.
Last week I bought a few Set Point shares at 85c each on the strength of its financial results for the full financial year to 30 August 2009, which will soon be issued. The key data is as follows: profit for the full financial year could be 15c/share and the total dividend for the year won’t be less than 5c/share. At least 3c/share of that will be declared now and be payable before year- end. That puts the share on an attractive PE of 5,6 and an annual dividend yield of 6% or 7%, depending on whether the dividend of 5c/share will be increased to 6c.
Set Point is currently achieving a fine return of nearly 40%/year on equity. In fact, in its analysis, IFR gives it a quality rating, which takes into consideration all sorts of things, from cash flow to gross profit margin, of 100%.
However, the most important motivation for my buying the share was chairman Chris Seabrooke’s regular personal buying of the share over the past few months. He’s even paid as much as 80c/share. Seabrooke simply buys the shares on the JSE with ordinary money. There aren’t any clever tricks, like those of so many other directors who speculate in their companies’ shares on the Safex futures market. Set Point is small but it may perhaps offer simple, old-time value.
Amecor’s activities may perhaps benefit from South Africa’s craze about security; no, it’s probably an essential with 2010 looming. This small company is apparently a leader in the field of security equipment, such as radios, monitoring systems for guards and so on. The panic button in your house may perhaps come from Amecor.