Dear all,

After studying market trends I have come to the conclusion, rightly or wrongly, that last years worst losers are often the winners of this year and the next.

Some of you may realise this is why I went into mining sector from October 1999 after the BRE-X sell off from March 1997, I am hoping I can repeat this in TMT stocks, as indeed 2001/2002 has been for me in Insurance Stocks at Lloyd's post WTC and September 11th 2001 (average ILV rise 55.54% per yesterday's close 12 ILVs 01.10.2001-14.12.2002).

My conclusion is based on a typical bull or bear phase lasting up to 34 trading months to 68 trading months (actually trading periods of 21 days, actual periods of 28 days or moon cycles IMHO).

Although bearish on equities generally, ie expecting a double dip recession, with bottoms in place at around 31.80 months on FTSE (close on 34 moon cycles) on 24th September 2002, from high on FTSE of 6950.60 on 30th December 1999, plus further low I expect either at 55 moon cycles or at 68 moon cycles, I am still bullish short term, say to March 2003, then again to June 2003 on Telecoms.

The reason is simple, I really do not think certain stocks can go down any further indeed the sector has been rising dramatically on the least sniff of a bull market, and when telecoms rise they rise fast (refer TWT 1.10p to 4.75p in three days recently)IMHO.

I therefore had a look at the sector to try and find the stock which to me seemed the most undervalued, most bombed out with the strongest fundamentals on cash asset backing, lowest gearing, and lowest cost per pound of revenue, plus a market capitalisation below my US$50m (&pound31.25m-&pound33.33m)threshold with the greatest upside potential risk/reward ratio IMHO.

The latest interims to 30th September 2002 released on 21st November 2002 stated certain elements I very much liked including:-

Cash &pound10,155,000 per 30.09.2002 I calculated 0.364p per share over 2,789,070,648 shares in issue at reference date.

Gross profit up 40.3% on same period last year to &pound9,389,000, I assumed this continued full year implied x 2 =&pound18,778,000

Debt seemed to have been reduced from &pound22m per ADVFN data, implying net gearing 55.59% to just &pound436,000.

My maths said can this be right is RED really only costing at 0.60p offer say &pound16,734,000, ie &pound7,015,000 net cash &pound10,155,000 plus debt &pound436,000 for a business with a &pound76m to &pound86m estimated annual turnover?

Less than 10p in the pound?

Press release data included as follows:-

"INTERIM RESULTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2002

Redstone, the national communications services provider, announces its financial
results for the six months ended 30 September 2002.


FINANCIAL HIGHLIGHTS


Further progress on margins and cash from continuing operations:

O Gross profit up 40.3% on same period last year to &pound9.389 million. Gross
profit now represents 25.5% of revenues, up from 16.6%, and also up from
23.0% in the 6 months to 31 March 2002.

O Operating loss before goodwill amortisation and impairments reduced by
77.5% to &pound1.998 million from &pound8.876 million.

O EBITDA loss reduced by 81.7% to &pound0.990 million from &pound5.418 million.

O Revenue increased marginally compared with the 6 month period to 31 March
2002, which, as set out in the Annual Report, was down from the period to
30 September 2001 reflecting management's focus on margin enhancement.

O Operating costs excluding goodwill amortisation and impairments reduced
by 27.0% to &pound11.567 million from &pound15.849 million at 30 September 2001.

O Cash balances at 30 September of &pound10.155 million.

O Borrowings at 30 September of &pound0.436 million.


OPERATIONAL HIGHLIGHTS

O Increased sales and marketing headcount, during the period, to 102 as at
30 September 2002.
O Order intake improved during the period, with key contract wins notably
in IP telephony systems.
O Awarded Cisco "GOLD" accreditation status.
O Continued reorganisation to improve customer service and efficiency
whilst reducing cost.
O BT Wholesale partnership completed."

The all important charts, after a somewhat over enthusiastic rise last week when RED went up 79.78% day 1 0.445p to 0.80p (high 0.835p), and a further 38.75% day 2 high to 1.11p, before not unsurprisingly profit taking or short selling, RED has today completed a hammer bottom intraday reversal from 0.49p mid to 0.56p mid, which I count as a bullish signal:-



Longer term charts show I think March 2000 high per ADVFN at around &pound10.10/&pound10.20, somewhat irrelevant I understand only approx 86m shares out then even so market cap was &pound868.60m to &pound877.20m, now there are around 2,789,070,648 shares out per 30.09.2002 RNS 21.11.2002 I calculate this market cap would represent 31.14p to 31.45p over no in issue above.

Still a fair risk reward ratio IMHO at 0.60p

I am not sure of a fair short term target, but 1.12p is US$50m, after which I would expect institutional attention. My gut feeling is telecoms can trade to 2.50 to 3.00 times annual turnover, if so 2.50x &pound76m to &pound86m equates to &pound190m to &pound215m to 3 x equates to &pound228m to &pound258m.

Whichever way I looked at it I thought RED was worth 6.80p to 9.25p over the above number of shares in issue.This still represented in excess of a 10 to 1 to 15 to 1 risk reward play to me, although doubtless I will trade the volatility on the way.

All IMHO, NAG, DYOR etc, etc

Comments bull bear welcome, I am long.

Best regards

Ash

Stocktrader,

You need to look at the uncontended unlimited MoneyAM Level 2 just got my week's free trial!

Robber,

No not really L2 showing WINS bid 0.50p, supported by EVO at 0.48p, Offer EVO 0.58p.

Bluntly it appears EVO have taken an active role on NMS 500,000 both sides, but really would prefer they reduced their spread from 0.10p, noting trades well inside spread I feel liquidity of reducing to 0.025p or below either side would aid liquidity.

Gut feeling it would be possible to buy at 0.565p and sell at 0.515p, possibly within these thresholds, interested to see whether bids of 0.53p/offers of 0.55p work in fact.

It is the fundamentals of RED that will drive the shareprice IMHO.

Cheers

Ash

Ash, that not really gone anywhere near answering the question. Surely if the convergence and the RSI level were signals to buy a few days ago logic would suggest that the opposite indicators would be signals to SELL.

Robber,

I can not see the point in selling a stock with a spread like RED valued at 15,030,000 market cap with 10,155,000 cash per 30.09.2002 with a turnover of 75m to 85m.

Quite frankly I am surprised price has not closed trading range 0.54p/1.11p mid.

I expected more trading on this stock and bigger breaks upwards.

I guess it will take time for EVO BG to position their clients cheaply before the push.

Cheers

Ash

Poochy's trading game tables suggest you could be in my team, along with Socks. Please tell me you're not going to invest your full 50k in RED!! Otherwise I may have to start a new thread, putting myself up for adoption.....

Ashley, you are still missing the point. Im trying to suggest that it may not be good for your wealth to choose to only use TA signals when they suit you. In the case of RED you seen to have based your initial investment decision firmly on your detailed analyis of the Company FUNDAMENTALS. Thats fine and I hope that it works out as a good trade for you over the long term.

What I dont understand however is why you bother posting highly selective (and questionable) TA justifications for buying the stock after the event. Im sure that using this as a subtle attempt at ramping would be far beneath you so can only assume that you really believe in the value of your technical analysis and, as its somewhat unconventional I was interested in how you arrived at such buy signals as an attempted RSI rise beyond 50%.

Finally, I have heard TA summarised as an analysis of a shares price where that price is a GOOD reflection of what the masses (i.e buyers and sellers) have been doing in the market.
I long ago gave up any attempt at short term TA on shares with
1; very low trading volume,
2; very wide spreads,
3; an artificial and manipulated market (i.e MM controlled),
4; stocks with prices measured in fractions of a penny
as in my experience all of these factors can produce wide price swings (or no price movement at all) which will tend to throw up many spurious TA signals.
RED is subject to all four of these factors and as such I would suggest is unsuitable as a candidate for serious TA, your falling back on Fundy analysis any time your use of TA is quesitoned is probably a good move but I really would abandon the selective use of short term TA for this stock as I think we all agree its pretty meaningless.

Robber,

You have got to appreciate that without selective limit orders into the spread RED is not really a traders share.

I take your point about TA, bluntly once you are long, IMHO you just need to sit it out until the broker promotes the stock to the institutions.

Fundamental value is really all you can work on bearing in mind the chart signals can freak you out of a share with a big spread.

Quite frankly RED could move up or down on 25m-50m shares traded significantly, I am waiting for a break on 100m to 150m volume as happenned in December.

Cheers

Ash

Robber,

On that note someone just picked up a parcel of 764k at 0.56p 0.02p over mid.

Cheers

Ash

Morning all,

TWT on the up hope RED follows.

Nice day on FTSE this am.

Up 3.70%

Pleased with the way it has gone oddly enough KBCS going on the offer at 0.57p has narrowed spread, I see trades well inside in the 0.54p/0.56p area.

Rise mid does not look much but spread reduction is a big help.

Pleased to see trades squeezing the effective spread at 0.54p to 0.56p, either side of effective 0.545p mid.

At last a spread traders can deal with.

What you reckon on Regal Oil Ash ?

DIL,

Sorry I have not really studied it in any detail, will look at tell you my thoughts.

At least FTSE I think may turn tomorrow.

Cheers

Ash

Think RED is late out of bed this am (;-))

All it needs to do initially is break 0.56p IMHO

L 2 on RED looking more promising with EVO and WINS on bid at 0.52p, only KBCS left on offer at 0.57p

Seems to be possible to sell at 0.53p/buy at 0.55p

Interesting coverage of Telecoms Sector on pages 28 to 32 of today's Shares Magazine by the very attractive Michelle Baltazar (is she hitched I ask?)luckily Redstone is referred to as an "Interesting Recovery Opportunity"

Anyway read the edition and views of RED's position as one of two positive EBITDA positive current cash telecoms plays mentioned under alternative carriers section welcome.

If for no other reason check out Michelle on page 22 (;-))

Cheers

Ash

Telewest moving up and RED Bollinger Bands tightening at last.
MACD Zero cross on cards I think.

RED being messed around with again on pitiful volume >400k)

2,100,000 sell at 0.45p and RED is down 11% on no news.

Seems well overdone to me, with no bad news from the company and a very strong EBITDA/Cash NAV per share plus more positive sentiment towards the share recently, well at least buyers coming in at 0.50p.

Bloody silly IMHO

What happened to Ash? Are you having as personality crisis? What does he think?