7:59 cut – FA., MER, G4M

FireAngel (FA.) – AGM Statement

It isn’t only the ticker of this company that is colourful – they have recently suffered multiple manufacturing issues, cancellation of a distribution contract and legal action (edit: more accurately: a contractual dispute). This has precipitated management change and a March rescue fund raising.

Today they provide an update on trading during the majority of their first half, indicating that “overall” it is currently slightly ahead of budget after strong growth in UK trade revenue. Shareholders may be concerned about profitability given that trade has traditionally been lower margin than retail, with the strong growth of higher-margin interconnected alarms still from a low base. Conspicuously absent is any comment on Germany where sales have been volatile in the past with many hoping for a rebound driven by their replacement cycle.

Although they mention a focus on continuing “operational improvements and margin enhancement”, there is no explicit mention of progress at the Flex manufacturing facility that has suffered from ramp-up delays, and, more recently, high costs.

Perhaps some will be relieved by the lack of bad news from this accident-prone company. Personally, after having spent a considerable amount of time over the past couple of days reviewing FireAngel’s history I am underwhelmed by the short-term investment case. I will be putting the questions implied above and others to the board in person at the AGM. If you have any questions you would like me to ask then please leave them in comments below.

I have small position.

Mears Group (MER) – H1 Trading Update

Mears provide support services to the Housing and Care sectors in the UK. Notably they recently signed a contract with FireAngel to provide connected alarms. They carry some debt and suffered significant cash outflow over the past two years, but are in the process of derisking their business model. They look an interesting prospect in themselves. No position.

Gear4mustic (G4M) – FY Results

Paul Scott will doubtless cover this later here, but perhaps my opinion will be different. Many investors will be pleased with revenue growth of 48%. I am pleased by their restatement of the need, and their confidence in their ability, to improve margins while maintaining strong revenue growth. However, I do not share their confidence at this stage.

A return to 2017 operating margins of 4.7% and ROCE of 20% would put them on a PE of 10 with acceptable quality metrics. If they can do this and continue to grow at even a third of their recent rate then the shares look good value. I have a minimal holding that I might be tempted to sell in order to tidy up my portfolio.

2 thoughts on “7:59 cut – FA., MER, G4M

  1. I have just come back from the FireAngel AGM. Here is my brief report. I will try to answer any questions.
    * There was me, one other private investor, and a lawyer representing BRK Brands / Newall.
    * It was confirmed that when the trading statement referred to “trading” slightly ahead of budget, that referred to both revenue and profits.
    * Although I notice that First Alert branded alarms have a new distributor who are selling them online, and BRK branded alarms have a website, they say they have not “lost” market share to these products, with UK retail market share steady at 70%.
    * Recent German slowdown has been exacerbated by their main (no longer sole) distributor building stock ahead of shift to Flex and then failing to win some of the contracts they hope. I interpret this to mean growth will come from a) end of stock overhang b) with luck, main distributor winning contracts, c) additional distributors winning in slightly different markets d) replacement cycle.
    * Selling through VARs is in its infancy.
    * In the UK, the volume potential comes from displacing Aico / Ei in trade with superior products.
    * Margins should improve due to a combination of higher margin products and lower costs from Flex – there seemed to be some de-emphasising of the later.
    * Most retail sales are still in store where they are virtually exclusive e.g. in B&Q. The board did not seem to be aware that B&Q offer Clavius and other brands online for next day collection. Of course the UK retail market is just a small part of their business.

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