AMO - Ambertech

[Lizard]

Here's one small-cap the market seems to be consistently ticking up of late.

Distributor of high-tech gear for both retail and commercial sale. Historical P/E of 11 at current price of 87cps. Yield 5.7% plus franking. Was a recovery year after a bad post-listing dip in 2006. Still potential to recover further, but difficult to estimate the extent to which this is likely. Positive outlook for growth at AGM and should be helped by more buoyant Australian domestic economy and exchange rates. General management growth targets are fairly unambitious though, with medium term target of 5-10%pa revenue growth.

I'm ambivalent on this one - though they were quite cheap earlier in the year and gave me a small, profitable trade. But thought maybe they deserved a thread since they're one of the few stocks I'm watching that's in green. At a wild guess, 07/08 NPAT will come in around $3.2m, putting them on a forward P/E of 9 - might be why the market is being kind to them, especially given minimal debt levels.

[STRAT]

Hi Liz, AMO is ignoring the panic today :D

[contrarianinvestor]

This one got my attention. Valuation looks excellent on P/E of just 9. It seems like the broader market is overlooking this niche company.

[Lizard]

Someone seems to step up to accumulate every now and then - unlike some of the other cheap small caps which seem to have no interest at all. I still think they need to prove themselves - earnings have been a little bumpy and unpredictable and their stated long-term growth projections are hardly going to set the world alight. Perhaps they are just super-conservative.

Another stock you might like to look at which is cheap and holding up well in this market is PSH. I haven't got around to starting a thread on it here.

[contrarianinvestor]

Directors and management has a large stake in Ambertech. They are probably just conservative with projections. It won't benefit them if they overpromise and underdeliver. They have a very unique market position in the professional broadcast equipment market with decent profit margins. It's profitablibity that matters to me. Growth can actually destroy shareholder value if management invest large sums of capital at low rates of return - Look at Centro's spectacular growth before they collapsed.

I've recently looked at PSH too - thanks.

[contrarianinvestor]

I've noticed AMO increased their interim dividend from 2c to 4c this year. That is a good sign.

[Lizard]

Have been digging through some of the old illiquid companies whose results I didn't quite get around to checking in August and thought I'd put this one back on watch.

Currently trading at 50cps. After meeting NPAT target in 2008 ($3.2m) it came in at just $1.8m in 2009 (inclusive of $330k forex loss). Unfortunately, one of the downsides to AMO is that management guidance is very vague until just before accounts come out! Every year, they talk about a target for medium term growth of 5-10%pa (and they also used to say EBIT ratio of 8-10%, but they seem to have dropped that one this year, after never actually achieving it.).

On the positive side, they have increased revenue each of the last 3 years. They are also currently quite cheap on most metrics, even using last years disappointing result.

PE = 8.5
Pr/NTA = 0.88 (mostly liquid assets)
P/S = 0.21
Low debt
3.5cps dividend (7.0% yield, plus franking)

Looking forward, they may have some advantage from high AUD/NZD, given that they are importing in weaker currencies. Their annual report is also positive, with early results for 2010 said to be "encouraging" and forecasts for further improvement in margins and profits. Working off trends and past data, this suggests profit could be anywhere from about $2.5m to $3.9m NPAT (forward P/E of 3.9 to 6.1). Agm is due on 25 November, so may provide more guidance.

[Lizard]

Working off trends and past data, this suggests profit could be anywhere from about $2.5m to $3.9m NPAT (forward P/E of 3.9 to 6.1).

AGM presentation now out. Unlike last year, they actually provided some firm profit guidance, indicating first half will come in at $1.8-$2.2m NPAT - around twice the $996k booked in prior year. Looks well on track for the full year range I'd estimated of $2.5-$3.9m.

Has attracted a few buyers, but still pretty thin on depth. Last sale at 52.5cps, and wearing a tricksy 10% spread.

[Lizard]

A few sellers about happy for a brief respite in the illiquidity.

I still think it's a bargain here. But perhaps some of the concerns around competition and salaries published earlier this week unsettled a few:

Salary Rises at Ambertech Despite 43% Profit Decline (http://www.smarthouse.com.au/Automation/Industry/A2N4G6A5)

Still, unless they miss target at HY, or forecast a second half loss, it's hard to see this being lower at end of February than it is now.

[Lizard]

Announced a $9m contract with Victorian Police of which $5m is within 12 months. Got to be worth at least 1cps in the hand.

Nothing is going to get buyers jumping the spread today though.

[Lizard]

AGM presentation now out. Unlike last year, they actually provided some firm profit guidance, indicating first half will come in at $1.8-$2.2m NPAT - around twice the $996k booked in prior year. Looks well on track for the full year range I'd estimated of $2.5-$3.9m.

Has attracted a few buyers, but still pretty thin on depth. Last sale at 52.5cps, and wearing a tricksy 10% spread.

Result out last night and came in pretty much as forecast. No obvious fish hooks except that cashflow didn't match profit due to inventory creep. Looking back, it seems inventory has often been higher at the end of first half, so perhaps seasonal factors involved. (The fact they haven't activated the DRP for the $1m in dividends suggests cashflow probably better post-Christmas?)

Value metrics are now pretty much unbeatable - particular if second-half is assumed to match first half (and there's no obvious reason why it wouldn't at this point). First half dividend of 3.5cps puts the rolling 12-month yield at 11% plus franking - likely to be higher.

Makes it on my (very short) list of Graham-Newman "Working Capital Bargains" where Current Assets less Total Liabilities are greater than market cap. Only the third one I've ever come across (and the last two worked well).

And before someone says "the chart is going nowhere", I'd just suggest that it probably will after the next 1m shares have been traded - given HNG selling for non-AMO related reasons as covered here:

http://www.sharetrader.co.nz/showpost.php?p=287264&postcount=11

For anyone thinking of buying, I'd suggest you don't bid above 50cps - HNG currently seems willing to sell down to any bids at that level. It is perhaps also desirable to wait until the next 500k shares have gone through the market before buying, so as not to have to wait in the trade too long for the overhang to clear - at current rates it could still take another 3-6 months for HNG to exit, although I suspect this result/dividend will hurry things along a bit.

[macduffy]

Thanks for the post, Liz. An interesting small company!

As you say, it's not often that you find a co. with net current assets exceeding market cap. In fact, Inventories are about equal to mc!

It's the growth of Inventories that gives me cause for pause - that and the illiquidity of the stock as evidenced by the time it's taking for the sell down by a large holder. I'm not sure how subject to obsolescence AMO's stocks are but I must admit to a certain bias against tech stocks o/a my own ignorance of things technical!

I'd also be looking for more surplus operating cash flow. Recent trading ( and the previous year's result) have been helped considerably by the strong AUD which may or may not continue.

Not dismissing AMO by any means but I need to dig a little deeper into the business when time allows.

:)

[Lizard]

Well there we go - looks like someone just cleaned out pretty much all that remained of the HNG holding at 50cps. It's possible they have up to 100k left, but most likely not.

Should have removed the lead weights off the feet of this stock.

[percy]

lizard
keep it up.AMO and TEN both on the move!!!!

[macduffy]

Yes, well done, Liz!

The power to move markets!

;)

Nice to have!

:)

[Lizard]

The power to move markets!

;)

Nice to have!

:)

Haha :D ... if only!

[Lizard]

Looks like the shine wore off - guidance for FY out today suggests they won't even scrape together a second-half profit due to a fall-off in revenues.

Perhaps they distribute to Clive Peeters.

[percy]

Looks like the shine wore off - guidance for FY out today suggests they won't even scrape together a second-half profit due to a fall-off in revenues.

Perhaps they distribute to Clive Peeters.

What surprised me is just how quickly the maket changed.There will be a great deal of companies in the same leaky boat.

[thereslifeafter87]

Another low p/NTA play, potential earnings recovery story.

They were unprofitable in the second half, and are facing some ACCC issues - but it doesn't look to be serious. These issues caused the sell-down.

It now looks reasonably attractive based on low P/NTA and historical profitability.

[Lizard]

TLA87, you may be interested in the "Net-net bet" thread (http://www.sharetrader.co.nz/showthread.php?7813-The-Net-Net-Bet&daysprune=45)... though a few don't really fit the bill now.

AMO is not top of my list for now - they were pretty slow to report the negatives coming through in second half last year. However, they trade with a margin of safety as you have noted. My problem at this point would be that first half 11 seems unlikely to beat 1H10, although there are some comments regarding commercial project spend this half that are encouraging. I am well convinced that at some point in the next 2 years, they will be trading above 50cps and perhaps as high as $1. However, even at 36cps, I'm not certain it's worth the sit-in.

[Lizard]

AMO agm today was not terribly compelling. Forecasting $1.0 - $1.4m NPBT for the half year, so will be well down on pcp and really going to have to wait for an indication on FY before I'd want to buy again. But worth watching, as they have the potential for a safe recovery play one day.

Though when the time comes, it may not be worth the risk if they fail to keep the market well-informed and perform as erratically as has happened in the past.

[Lizard]

Some shareholder activism emerging here, with an attempt by a major shareholder to remove/replace several board members. Given the performance of AMO, this can probably only be a good thing.

Current share price of 20cps/market cap $6.6m on sales of $54.5m and equity of $13.2m, so there is plenty of room for improvement. Will watch with interest.

[percy]

AMO Trading well,modest ratios,and paying a good divie.Positive out look.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02775739-2A1506596

[percy]

AMO gets a mention ;
https://stockhead.cmail19.com/t/d-l-exjtdd-yupddjlly-m/

[percy]

In a weak market AMO's share price looks very strong,in fact it looks to me as though it is in "break out" mode.