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

I never did get that email Ash.

IT,

Send to me again ajames8691@aol.com

You have mail Ash.

Ash , why not sell them and buy RM. ???

;-)

Dil,

Told ya!

Cheers

Ash

LOL !

TAN,

Well we are seeing a nice break out anyway has just pulled back.

Their financial year closed on 31.03.2003 someone knows something I guess.

Any updated news posted on ADVFN on the bid rumours as posted there a month or so ago 38m seems reasonable volume for RED?



Completed 23.60% FR of 0.515/0.635 at 0.61

LOL !

Twice As Nice,

Stop giggling, RED has a daily MACD Zero break plus EMA Convergence of following EMAs today!

LOL !

Twice as Nice,

Buyers seem to be coming in again at around 0.55p mid 0.58p offer, ie buying the first pullback to support.

0.555p represents a 66.66% retracement of yesterday's 0.515p/0.635p or a 50% FR of 0.475p/0.635p.

Looking at chart seems reasonable support at this level but nevertheless disappointed at retracement so soon.

Oh well we need to remove lose holders to move on again I guess.

Telecoms and Telewest for example both up today.

LOL !

Twice As Nice,

18,000,000 trade through at 0.56p at 3.24, I told you there was something going on.

I would argue on wave C completion ie buying first pullback

LOL !

TAN,

Trade yesterday at 3.24 of 18,000,000 at 0.56p, and another 18,000,000 today at 7.16 at 0.56p

In fact just starting a move up on Wave 3

LOL !

TAN,

Break out point on Monday is 0.625p on Wave three, logically a total move of not less than 0.235p wave 1 length which should put us above 0.785p, Wave 3 is never the shortest wave, normally the longest, after that I see a short term price of 0.625p which should become support and start Wave 5.

So the theory goes, all IMHO.

Enjoy your mirth filled W/E

mr ash

shares like this are only bought by the gullible penny share brigade,and as such,will never be taken seriously by the big institutions.

the profits at the last interims were caused by asset sales,not an increase in business activity,and with so many individual 'loose' shareholders,the upside is limited in the extreme.

regards

an old foe.

Bulldozer,

Redstone was bought up to a market cap of some 780,000,000 by large institutions in 2000 or over 10.00 per share, one thing is for sure you do not get there without major institutional support.

It is pretty obvious that RED has a stronger balance sheet now than it did then, has strong cash backing per interims covering some 10,155,000 out of the current market capitalisation 16,000,000 approx, turnover is projected at up to 85,963,000, meaning the cost of the business we are buying is in effect 18.67p in the 1.00 of t/o or I would argue 5,845,000 net cash assuming cash balance unaltered.

There are trades going through now of 10,000,000 to 18,000,000 shares, ie it is probably being traded by institutional holders.

The price is going up, on reasonable OBV, post year end on 31.03.2003 following larger than normal trades.

Gross profits were up 40.30% at half year, full year should have benefit of this turnaround, indeed with Earnings Before Interest, Taxes, Depreciation, and Amortization Loss at only 990,000 at interim stage, I do not see it as impossible RED is on the verge of becoming profitable at full year or near, vastly ahead of most of it's competitors in telecoms sector due concentration on margins.

EBITDA loss reduced by 81.7% to 0.990 million from 5.418 million.

In the end I beg to disagree with you, personally I consider RED is vastly undervalued, indeed would be IMHO at 5 times the current market rating.


Let the price and the market do the talking, I have made a lot of money playing penny shares, RED is not even a penny a share yet.

I think you will find most loose holders are long gone on the drop from over 10.00 to 0.40p, oddly RED has now confirmed a double bottom plus started as expected to slowly but surely recover, although I doubt we will ever see 1000p again, I can see 3p to 5p as an achievable and realistic target, which would only value turnover at 1 to 1.50 times, scarcely ambitious in a sector that tends to value stocks at up to 2.50 to 3.00 times.

With full year results no doubt out fairly soon, we will obviously imminently find out whether my bullishness is warranted on their release.

In the meantime the trend is clearly up.

Cheers

Ash