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

[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

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.