.

My short shortlist for short term speculative (but not really risky) bagger stocks (as opposed to ones just due strong rises) came down to BSP and EVS. As I have a holding in BSP and not in EVS I went for something new in EVS and in all effect its not waiting for new news like BSP as the fundamentals on EVS are superb and its greatly undervalued. Although there are many shares with bagger potential, I prefer the ones presently undervalued anyway to start with, either on NAV or profit growth.

I have just got myself 500,000 Envesta shares as I see them being totally undervalued and here is why.

The Trading Statement was very truthful and open ended and it could be read either way. It also looks like a chance for institutions to enlarge their holdings and reduce the amount of small holders (reducing the shareholder base and therefore reducing the cost of keeping the shareholder base was an aim of Kevin Jauncey going back in time I read and this may be an accidental chance for it to happen further)

From the trading statement as far as figures go we know that results end of this month will be roughly;

Turnover will be around/above 22 million (2004 12.4 million (up > 78%)
Gross Profit around 4.5 million (2004 2.2 million (up > 105%)
Profit Before Tax around/above 1.1 million (2004 Loss 248K) Turnaround.
Earnings Per Share 0.34p. (2004 -0.12p) Turnaround.

The latest update was from Corporate Synergy on the 2nd September 2005 and this being 2005 actual PBT 1.1 million and EPS 0.34p and 2006 forecast being PBT 2.0 million and EPS 0.66p from revenue of 32 million. I think that after results Seymour Pierce will upgrade 2006 forecast to 0.7p EPS and potentially will put 2007 EPS forecast at around 1p.

As we are at year end results we are on 2006 forecast already, this means Envesta is trading at current year PER of 3.55 and prospective 2007 PER of 2.3, that is so low and Envesta should be trading now on at least 10 times 2007 pr PER which means the price should now be 10p (x10 allows for uncertainty on acquisition/fund raising later as Envesta is presently debt free).

The Trading Statement is written in a way where positives and negative could be taken from it owing to its open way so here are my opinions on it;

Trading

Revenue and PBT were in line with market expectations. Revenue increased by over 75% on last year, whilst absolute gross profit was more than double that of last year. This growth, along with significant investment in the new product areas, has however put a strain on our working capital and we will look to address this
early in the new financial year.

The working capital problem is caused by GROWTH in the main. They were not prepared for such high levels of growth and this has, along with the necessary investment in CCR and the system, put strain on to the working capital. Excessive growth ahead of expectation is excellent news for shareholders even if you get a short term hiccup on working cap.

Existing Managed Wholesale Business

The Managed wholesale business continues to operate in a very important part of the UK International market-place. Our current commissioned research shows that the market for International telecoms via a pre-paid calling card remains significant at 495 million per annum(1). While this is an important part of the
UK market it has always been and continues to be a volatile sector. Envesta competes in this market by continually seeking new niche opportunities. Our strategy is not to grow this business further, but use it as a foundation from which to move deeper into retail products thus removing our reliance on
this single market.

This statement taken with growth of CCR means that CCR is perhaps having an immediate impact in reducing the market for calling cards, a transfer in Envestas favour away from lower margin calling cards to higher margin retail solutions (CCR). They also justify this move away by making note that calling cards has always been a volatile market and so by using their retail product in CCR they are in effect ensuring future earnings will be easier to predict and not be prejudiced to being in a volatile sector. This is a clear statement of intent to go away from volatile to more predictable, which will make Envesta more attractive to institutions.


Profit Before Tax is the Profit Before Tax, the increase in capital expenditure will only effect the Net Asset Value and nothing else as it comes from Cash Outflow. The question to be asking is has this been expensed or capitalised ? If they have expensed it then that will be great news for shareholders as it comes out prior to PBT levels and these are still to be around 1.1 million. They could potentially be saying that although they are making a good profit some of this has been used in the expansion, they are still retaining separately the money allocated for acquisition. The same for the Formjet shares as this is Net Asset Value relative only and the price on the books will be the closing price on the last day of the reporting period, not its present value, as the value may well change again before the next reporting period.

The reference to strain on the working capital is only there I think to counter the earlier statements of an acquisition, as the Legal and General money was raised for acquisition but has been likely used to some extent in expansion/managing creditors and debtors due to the GROWTH they have encountered. This expenditure/allocation to cater for growth has made them unable to make the referenced acquisition so they have explained their situation, it would have read better if they said the massive growth we have found has meant we are unable to enter into any acquisition at the present time as we have had to use some money from this years profit to cater for this wonderful growth. Trading is still strong and early in the new financial year our cash generation will then allow the acquisition to go ahead.

They have CCR set up and have made significant investment in the network, they will take action to reduce the strain on the working capital, this could be simply reduction in effort on the wholesale sector as the profits and revenue from CCR come in, why has no one thought they would simply cut development/marketing expenditure in the wholesale sector as a way of addressing the strain on the working capital ? Or simply a short term bank loan ? If the GROWTH has caused this working cap strain problem then perhaps the remedial action is to merely push debtors for prompt payment and get extension on the credit lines (as the wonderful growth has simply made the pre growth balance of creditors to debtors now unbalanced) This will allow them to quickly top up their cash levels and then make the planned acquisition in the 2nd half of the new financial year (or late first half, before end of December). The interim statement said that CCR would be strongly profitable in the 2005/2006 financial year (and we are already in it), so a second half acquisition would be likely as profits and cash grow.

This time next year we might be talking about 2008 prospective EPS and that it might be 1.2p or 1.5p and how 15 times prospective EPS forecast will take Envesta up to 18p.

The remedial action was to be taken early in the new financial year, well that started on the 1st of July and we are now nearly at the middle of the first half of the new financial year, so has the action been taken already ? Was the action merely to use some of the acquisition pile of cash to cover the short term strain ?

I firmly believe that many people are taking this totally the wrong way and the present price level offers a great opportunity to get in, so there was my 500K buy and that was the reason why.

Simply I think people have reacted totally the wrong way to a trading statement that simply comes down to saying GROWTH has been better than was expected, revenue is massively up and profit growth is strong.

The bull points are that PSR and PEG are tiny values and that means it offers wonderful price growth potential.

I may be wrong but my position and expectations are clear.

(Even worst case and lets say they issue 50 million shares which would be a dilution of around 20%, dilute that into a prospective EPS of 1p for 06/07 and then times that by 15 as no cash problems and excellent growth, and what do you get ? and by Corporate Synergys 2nd Sept forecast EPS for this new financial year which started 1st July 2005 being 0.7p, I do not think they are expecting any dilution)

I think it was just a totally misunderstood trading statement ripped to pieces by certain parties that will now allow the shareholder base to be made smaller by institutions snapping up a shed load of shares cheap before the results.

If people panic when the Chairman says at the end of the trading statement;

Kevin Jauncey, Executive Chairman commented, 'I am delighted that the results this year showed a strong return to profitability. In line with the strategy, we continue to hold a number of acquisition discussions, which we hope to bring to fruition in the next period. In the meantime we are well progressed in our plans
to incorporate additional VoIP capability as a vital piece in the jigsaw.'

then they are very much not understanding the real message conveyed in that statement.

I may be wrong but I have put my money in.

PapalPower,
Thankyou for posting such a balanced view with no EMOTION,
I do hope you are correct in what you say for all holders of evs,i am one of the many that bought in at 5p,500,000,and sitting on a huge loss,but i take the view you cant win it if you aint in it,

Past experience has always proven in my case that in time these and all shares i have purchased have more than doubled,shares such as ,aht,kmr,rgu,so i am HOLDING,HOLDING because i do think longterm these will come good.

Thanks again and good luck to you

capetown I looked at this as someone wanting to buy in so was critical and can see no clear downside. Going back through it I am surprised that so many sold out on what could be taken as a very positive trading statement. If the company says GROWTH has been massive and its caused a little hiccup on working cap, its not a major problem and they have told you growth is massive. Thats good.

I also looked at trading on the Corporate Synergy new forecast on the 2nd of Sept, it shows the most buying since early August, so they said good things.

Papal,
Just out of interest,at what price would you sell?

capetown it will depend on the results and new broker forecasts, if they are good and forecasts high I would hold for over 10p. If things are not as hot as I think they are then I do not know. It will not go up in a straight line if things are good and would have numerous support levels on people selling and new people coming in.

Thanks,
I would be happy to see it at 7.5,and i like you would still hold depending on fundamentals staying intact,there was a time when i would sell at breakeven as i too got caught up inh the over reaction to its ts.

Results are due around the 27th of Sept, so not many trading days left to the clarity of the results statement and outlook.

Apart from yourself capetown and me its quiet on here, which is a good sign maybe in oversold stocks.

Moving up a little today capetown and some buying pressure.

Good to see buyers coming back PapalPower,and good to see the spread narrow!.

Holding thumbs

Seem to remember it took no time at all for the sp to move from 2.35 ......6pence last time around,lets have a repeat but on fundamentals as oppossed to speculation.

Up we go nice and SLOW!

Hey Papal well done on getting your 500k,you are up now.lets see this do an ashtead,which has very quietly gone through the ROOF

Looking stronger and stronger capetown.

I hope people wait for the new Seymour Pierce update after results as if we get a 2007 EPS forecast of near 1p then these are worth 10p no problem as the pr PEG is so low, even 15 times new pr PER would be ok.

Lets hope those results are as positive as I think they will be.

10% up today capetown and if the results are good it should have another 300% in it.

Hi All,

Just got in, the 75,000 and 37,883 are mine.

Looks like the potential for at least a 100% profit is good :)

Cheers,
PM

paul welcome aboard. On fundamentals its one of the best plays there is around.

I`ve joined you as well Papal, that little old 19,900 are mine .Wish it was the total amount in pounds but hey little acorns do grow into big trees,so hope this little acorn does .
DB66

DB66 this one looks good for some very large rises. I am not joking but IF results are good and the new Seymour Pierce forecast is a further upgrade this should be anywhere between 8p and 10p.

Wish i had joined yesterday Papal but hesitated,its normally a good sign to see Paul in a stock so fingers crossed.
DB66