A Pyad Share, Give Or Take

Stephen Bland looks at a microcap value play.

I'll take a look at the bad news first. With a capitalisation of about £4m Holders Technology (LSE: HDT) is a very small cap and I don't particularly like them this small for several reasons which add to the risks. Quoted on AIM, the spread when I checked was 93-98, a large difference but to be expected for a company this small. That chunky spread is one of the increased risks.

Here are the full value details:

One director controls the company in effect, though not arithmetically, with his holding of about 49% of the shares. Some value players object to director control but personally I don't necessarily see it as a bad thing. There have been some great plays with shares in this situation. However I've filed it under bad news.

There are no analysts' forecasts for this share which is why all my data above is historical. This is not unusual with very small caps and is another risk attached to such shares.

Most of the company's turnover is earned abroad, principally in Europe though they are establishing a presence in China.

Okay, so what's the good stuff?

In the absence of external forecasts the directorspeak offers a clue to the near future and this is part of the good news. In the interim accounts to 31/05/06, it was stated that:

"We believe that the sound performance in the first half of the current year leaves us well placed to achieve a satisfactory result for the year as a whole."

There was also a recovery across the group. Half-year fully diluted earnings came in at 5.61p per share compared to 2.52p for the same period last year on the accounts basis.

Eps on the same basis for the previous full year to 30/11/05 was 8.38p, though the normalised figure, excluding isolated items concerned principally with restructuring the business, was a much higher 13.4p. Confusing, all these various versions of eps eh? Damned accountants.

Dividends for the last three years have been held at 4.75p which was covered on last year's eps, taking the more conservative accounts figure, a reasonable 1.76 times. This gives a half decent yield of 4.8%.

The shares trade below tangible book so let's see what exactly is in there. Net tangible assets (NTA) totalled £4.5m at 31/05/06. There is very little in fixed assets, so NTA is composed almost wholly of net current assets of £4.4m.

Debtors are £4.2m whilst stock, cash and current liabilities, including bank debt, account in total for the £0.2m difference. Debtors are the largest asset by a very wide margin here. In fact debtors alone exceed the whole market cap of the company as does net current assets. This is a Ben Graham style value situation for those familiar with his views. Something that is hardly ever to be found these days.

Debtors are not the ideal asset for value players, but it could be worse, such as plant and machinery or stock, whose figure is actually £2.6m, which is similar to earlier periods. Debtors though are up sharply, and the directorspeak refers to the reason for this as the growth in turnover in the half year. Sure enough, that latter figure was £9.0m compared with £7.2m for the half year to 30/11/05 and £14.7m for the year to 30/11/05.

I call this a pyad give or take, because in the last couple of financial years the company had net cash at its annual balance sheet date, whilst the other three legs of the strategy, being P/E, yield and trading below tangible book, are all present. Plus eps appears to be increasing.

However on net cash, in the half year to 31/05/06 things just edged the wrong way, very marginally, with a net debt figure of £34,000. Nothing really, but at the full year of 30/11/05 they had net cash of around £400,000. The explanation for the cash outflow was the increase in debtors to which I refer above.

It's not my ideal type of value play but some investors may find Holders interesting.

Oh I nearly forgot because it's the least important factor. The company supplies materials for printed circuit boards, whatever they are.

> Visit the main value investing page, and the value shares discussion board.