Quindell went on to sell the bulk of its insurance business to Slater Gordon (and there’s ongoing litigation over that), and reshaped the rest of its business as Watchstone Group (LSE WTG). How has it been faring since? Well, the share price has crashed for starters.

Watchstone has been recording losses for the past few years, but they’re coming down. The year to December 2017 has brought in underlying revenues of £44.9m (from £42.7m in 2016), with a loss after tax of just £2.6m (from a hefty £69.1m a year previously). 

That’s moving in the right direction, but it has to be tempered by a rising operating loss of £7.4m, up from £4.5m.

On the liquidity front, Watchstone looks stable enough, with cash and term deposits totalling £62.8m, and net assets of £66.1m, representing 144p per share — and with the shares at 99p as I write, they’re trading at a significant discount to that.

New chief executive Stefan Borson said: “The Group losses are now stemmed and the central team efficiently run,” but his statement also covered legacy issues from the old days. The SFO investigation is still continuing, and the case by Slater & Gordon is being defended — with Mr Borson saying that “Slater & Gordon’s allegations of deceit and the associated breach of warranty claim are wholly without merit.“

The company’s pt Health and ingenie divisions seem to be in leaner shape and could well be set for renewed growth, but there are still significant legacy uncertainties for investors to deal with.

Wealthy oil future?

My second recovery-based growth candidate today is UK Oil & Gas Investments (LSE: UKOG), a major partner in the Horse Hill oil development at the Weald Basin in Surrey — once hopefully labelled the Gatwick Gusher.

The UKOG share price soared to 11p during the height of the optimism, but since then we’ve seen a slump as low as Friday’s 1.5p as confidence in the hoped-for billions of barrels of oil has waned. The stuff might be there, and there might be very large quantities of it, but the geology of the region seems to be making it very hard to get hold of.

The company’s full-year report at the end of March was full of the exciting possibilities, with the Broadford Bridge-1 well currently its key hope. But though regular updates keep confirming the existence of the black stuff and oil flows keep being reported, many investors are starting to fear for its commercial viability.

The big problem for me is that until we see commercial quantities of oil being pumped, it’s really anybody’s guess whether there are untold riches to be had, or whether an investment would be nothing more than throwing money down a hole.

Those who understand the risks better than I do might see an attractive growth opportunity here, and I’ve been bullish in the past, but the increasing uncertainties combined with my technical ignorance are enough to keep me away now.

The post Could this tiny growth stock and the UKOG share price both double in 2018? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But I’d been following Sirius for some time, regretting not getting in after the shares soared to 45p in July 2016. And my long experience of early growth candidates that are years away from profitability has taught me that early good news often tends to cause price spikes which then fall right back down again.

So it was with Sirius, and I subsequently bought at 18p after that irrational rise had collapsed 

What would make me sell?

I do expect to see the share price rocking up and down again many times before the company reports its first profit — and full production is not expected until 2027. So am I tempted to try to ride the roller coaster, sell when the price gets high and buy back in again when it drops?

My answer is no, because, tempting though it is, my experience tells me that I really am very poor at timing things like this — and the great majority of investors are no better than me.

But I definitely do want to sell my Sirius shares at some point, for the reason that the company would have come good, would be shipping vast quantities of top-quality polyhalite potash for fertiliser around the world, and its share price would have multi-bagged. 

Now, I know that might sound obvious, but getting there can take a steely nerve and an ability to ignore short-term emotion. In fact, just as I expect to see irrational share price rises in the coming years, so I also expect to see irrational falls. The key here is not to be spooked either way, but it does bring me to the other reason I would sell.

Horribly wrong?

My second reason comes straight from Warren Buffett, and I’d sell if I decided my original analysis was wrong, if I became convinced the company did not have the potential I’d initially thought. In the same way that Mr Buffett dropped Tesco like a hot thing when he came to understand its underlying problems, so I like to think I’ll be able to spot core problems should they come up at Sirius.

Will I be able to? I’m reasonably confident I will, as a number of times in my investing life I’ve been able to re-examine my original understanding, decide I was completely wrong, and come clean about it publicly.

My most recent example was the insurance-to-kitchen-sink mess that was Quindell, now renamed to Watchstone Group, when I was taken in by my analysis of the firm’s early promise. But when wiser heads than mine dug into the accounts, exposed their true reality, and made it clear I was wrong, I was happy to hold my hands up to my early mistake and reverse my opinion 100%.

Great potential

I really don’t expect that to happen with Sirius, partly because the company’s management appears to be of the highest quality and has been very open with us about its progress so far and its potential. So roll on the multi-bagger I’m hoping for, and the very best reason for selling.

The post 2 big reasons I’d sell Sirius Minerals plc appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Alan Oscroft owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Frantic Friday

Sepura’s shares were near to 200p in the spring. They opened on Friday at 15p. However, the price began to rise sharply in the afternoon and ended the day at 18.5p.

At 17:14 came an announcement that Sepura is “in preliminary talks with Hytera Communications … regarding a possible offer for the entire issued and to be issued share capital of the company.” The announcement continued: “Hytera has confirmed to the Board of Sepura that any offer, if made, is likely to be solely in cash. There can be no certainty that any offer will be made, nor as to the terms of any such offer.”

The problem for investors looking to profit from this situation is that Sepura’s current financials and trading can only be guessed at — its half-year results are due in two weeks. So, valuing the business is nigh on impossible. Buying blind, after the rise on Friday and at a likely higher opening price today, simply in the hope that Hytera will make an offer and that the offer will be at an even higher price, seems an unattractive proposition to me.

I’m tempted

Watchstone (LSE: WTG) is a special situation that continues to tempt me. This company is the renamed rump of scandalous Quindell, which saved itself from insolvency by selling nearly all its assets to Slater & Gordon (S&G).

At Watchstone’s last balance sheet date (30 June) net assets were £130.6m (284p a share). I believe the balance sheet is now clean and that book value fairly reflects the worth of the company. The shares are trading at 187p.

Why the big discount? Well, £50m (109p a share) of assets — booked under trade and other receivables — is cash in an escrow account relating to the S&G deal. This is due to be released to Watchstone on 29 November. However, in September, S&G announced an intention to bring a claim against Watchstone.

Watchstone believes there are no grounds for a claim, and I share that view. I reckon the £50m is safe. I also reckon that potential compensation claims by ex-Quindell shareholders (currently amounting to less than £10m) can be discounted and that former Quindell directors will bear the brunt of any financial penalties resulting from a Serious Fraud Office investigation into past events at the company.

Deutsche Bank back in

I’ve taken a view on Watchstone based on experience, history and precedent. But as I said, I haven’t quite been tempted yet to back my judgement with hard cash. However, some people have.

Another late announcement on Friday — at 17:27 — revealed that Deutsche Bank now owns 7.54% of Watchstone’s shares. Deutsche initially sold down its stake after the S&G claim was announced. So, it has bought back in (and a few more shares than before). US hedge fund Beach Point Capital has also recently increased its stake a little, from 11.96% to 12.04%.

I don’t expect Friday’s Deutsche holding news to put a rocket under Watchstone’s shares , but it does bolster my confidence that there’s value here.

The post Did you miss Friday’s after-hours news that may put a rocket under Sepura plc and Watchstone Group plc? appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Avanti has won a two-year deal worth “up to €10.7m” to provide broadband in rural Africa. This could add up to $6m per year to Avanti’s revenue. However, given that the company’s operations generated a cash loss of $45.9m during the first half of this year, I’m not sure this contract win is big enough to be worth celebrating.

Indeed, today’s update suggests to me that Avanti has serious financial problems. The group’s cash balance has fallen from $162m at the end of December 2015 to just $57m.

Avanti announced today that to address “near-term liquidity needs” it will use $32.25m of new three-year bonds to make the October interest payment on its existing bonds, instead of using cash. So far, 60% of the firm’s bondholders have agreed to this measure. In my view they would only do so if they though that forcing Avanti to pay in cash would lead to a default or prevent the firm from operating normally.

Lossmaking Avanti says it’s now working on “a long-term funding solution”. Shareholders are hoping for a takeover offer, but in my view this is unlikely before a refinancing deal is agreed.

Investors looking for a bargain shouldn’t be tempted by the shares’ discount to book value. This is based on Avanti’s interim accounts, since when cash has fallen dramatically. Taking into account today’s announcement, I suspect that Avanti’s next accounts will show that the value of the firm’s assets is almost completely wiped out by its borrowings.

What’s more, any refinancing solution may well involve giving bondholders a big slice of equity in Avanti. In my view, Avanti’s financial distress means that the shares are a strong sell. I’d certainly use today’s gains as a selling opportunity.

This firm has lots of cash

Watchstone Group (LSE: WTG) — the company formerly known as Quindell — reported its interim results today. Underlying revenue rose by 10.7% to £31.9m, while the group’s underlying EBITDA loss was reduced from £13.8m to £6.9m.

The group’s cash balance at the end of August was £89.3m, or about 191p per share. Watchstone also has a further £50m of cash in escrow that relates to the sale of its professional services business to Australian firm Slater & Gordon. Watchstone hopes this will be released at the end of the warranty period in November. If it’s released, then Watchstone plans another £1 per share return to shareholders.

That’s the good news.

The bad news is that the firm’s cash balance is gradually being eroded by the poor performance of its operating businesses. Today’s results show that Watchstone’s four businesses are all either lossmaking or only marginally profitable. Growth appears uncertain too.

Watchstone’s share price is being supported by the firm’s large cash balance. But what this tells me is that the market thinks the group’s underlying businesses aren’t worth much. Watchstone is also the subject of a Quindell-era Serious Fraud Office investigation, which could lead to cash penalties.

In my view, Watchstone shares carry a lot of risk. I think there are far better growth opportunities elsewhere in today’s market.

The post 2 investment disasters to avoid after today’s news appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Health and safety technology group Halma (LSE: HLMA) released its annual results today. The shares are trading a little down, and at 934p the FTSE 250 firm is valued at £3.5bn.

Halma posted record numbers. Revenue of £808m was 11% up on last year, and ahead of a consensus forecast of £800m, while earnings advanced 10% to 34.26p, versus an analyst consensus of 33.8p. The board lifted the annual dividend by 7%, extending the company’s impressive payout history to 37 consecutive years of increases of 5% or more.

Chief executive Andrew Williams said: “The resilience and diversity of our markets, long-term growth drivers and business model give us confidence that we can continue to grow in today’s varied market conditions”.

Non-cyclical, with good cash generation and a robust balance sheet, Halma is highly attractive to investors. The company trades on 27.3 times trailing earnings, compared with 17.2 for the FTSE 250 as a whole, while the dividend yield of 1.4% is half that of the mid-cap market.

The valuation appears a little high, but with annual earnings set to continue advancing at around 10%, Halma is a solid hold in my opinion.

Special situation

There was also news today from AIM-listed Watchstone (LSE: WTG), the renamed and remaining rump of the notorious Quindell, which sold most of its assets to Australian firm Slater & Gordon over a year ago.

Watchstone’s new board has cleared up most of the past mess. Today’s news of a payment of $2.75m to settle litigation relating to an old acquisition concludes one of a few outstanding matters.

The shares are trading at 207p, valuing the company at around £95m. Watchstone has cash of about £85m, management is “confident” of receiving a further £50m from an escrow account (relating to the Slater & Gordon deal) and I reckon the viable businesses among its remaining operations can be valued at around £55m. So, by my calculations, the company is worth double its current market value.

I reckon the old Quindell directors will bear the brunt of a Serious Fraud Office investigation, while compensation claims from some ex-shareholders — currently amounting to less than £10m — may or may not come to anything. I believe the difference between my calculation of the company’s intrinsic value and the market value gives a sufficiently wide margin of safety to make the shares a buy.

Good long-term prospects

Fines and compensation claims were a reality for FTSE 100 giant  BP (LSE: BP) following the Gulf of Mexico oil spill in 2010. But as those issues began to be resolved, along came the great collapse in the price of oil from over $100 a barrel to less than $30 to give investors another major headache. Oil has rallied from the lows, reaching over $50 last week, but sentiment remains fragile, and traders jittery.

I take a long-term with the big oil companies, and ask myself: Is it better to buy their shares when oil is trading at over $100 and everybody is happy to buy, or is it better to buy when oil is $30, $40, $50 and many investors have been scared off?

I believe BP has good long-term prospects. A dividend yield north of 7% may not be the safest in the market, but I reckon the shares, depressed at 365p, are a good buy if you’re looking to invest for years and decades, rather than weeks and months.

The post Should you buy, sell or hold BP plc, Halma plc and Watchstone Group plc? appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Having cleared its debt by selling its national business for £90m last year, KCOM now plans to invest heavily in its local infrastructure. The firm believes this will support future growth and cut operating costs significantly.

These improvements won’t come cheap. Capital expenditure is expected to be more than £40m per year in 2017 and 2018. To keep shareholders happy, KCOM has promised a minimum annual dividend of 6p per share during this period. That’s a 5.5% yield at today’s price.

The company’s capex, pension and dividend commitments for the next two years now total nearly £150m. That’s four times next year’s forecast profits. This programme of spending will also have to be managed by a new pair of hands, as the firm’s chief financial officer announced his departure today.

In my view, KCOM shares look fully priced on a 2017 forecast P/E of 15. I think there’s better value elsewhere.

Steer clear

Watchstone Group (LSE: WTG), formerly known as Quindell, published its 2015 results this morning, revealing a staggering £178m pre-tax loss. Much of this related to £113.5m of non-cash impairments relating to acquisitions during the Quindell period. I’ll gloss over this and focus on the performance of the firm’s continuing business. Is there any value here?

The group generated an operating loss of £22.2m on revenues of £58.3m from its ongoing businesses. These activities generated an operating cash outflow of £67m, which suggests to me that a substantial amount of growth will be required just for Watchstone to break even.

The firm’s £103.2m cash balance means that it can support losses for a certain period of time. However, Watchstone’s house broker is forecasting a loss of 36.8p per share for 2016. The group also confirmed this morning that it’s facing a Serious Fraud Office investigation relating to past accounting practices at the firm.

In my view Watchstone shares are a clear sell at current prices. The chance of further losses seems high to me.

A speculative buy?

Shares in Kurdistan oiler Genel Energy (LSE: GENL) fell by 7% this morning after the firm admitted that the Kurdistan Regional Government (KRG) had only paid half of Genel’s invoices for April 2016 oil sales.

For the last few months, the KRG has managed to make payment in full each month. Investors were hoping that this pattern would continue, but with the KRG’s finances under severe pressure from the low oil price and IS conflict, a shortfall in payments was always a big risk.

A second problem is that Genel’s oil reserves aren’t as big as we previously thought. The firm announced a major reserve downgrade for the Taq Taq field in February, following production declines seen in 2015.

Low oil prices and falling production mean that Genel isn’t expected to return to profit until 2017. Although the firm still has a strong balance sheet and could benefit from takeover activity in the region, I’m not convinced the risks are worthwhile at the moment. At best, this is a very speculative buy.

The post Are KCom Group plc, Genel Energy plc and Watchstone Group plc a buy after today’s news? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended KCOM Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Watchstone

Watchstone — formerly called Quindell — was left with a rag-bag of loss-making businesses after selling most of its assets to Australian firm Slater & Gordon last year. The deal saved Watchstone from blowing up for lack of cash, but has been disastrous for the Aussie group whose share price has collapse from $8.00 to just $0.28.

Watchstone has already offloaded some of its retained businesses — an insulation business in January and a telecoms software business in February — and an announcement today of a management incentive scheme appears to envisage the remainder of the businesses ultimately being disposed of in one way or another. Cash bonuses for directors “will only be triggered upon value-crystallising events (including, inter alia, a takeover of the Group or disposals of individual divisions) in excess of base values”.

Watchstone is still the subject of a Serious Fraud Office (SFO) investigation into events of the Quindell era and faces potential legal action from disgruntled shareholders. However, with a cash balance of £95m at the last reckoning (equivalent to its current market capitalisation), former directors likely to bear the brunt of any penalties arising from the SFO investigation, and with a letter of claim from disgruntled shareholders only currently standing at up to £9.4m, Watchstone no longer appears to be the ticking time-bomb it once was.

Tungsten

Troubled e-invoicing firm Tungsten today announced the departure from the board of founder Edi Truell. Although Tungsten “serves 56% of the Fortune 500 and 67% of the FTSE 100”, and processed transactions worth over $187bn last year, it’s not making any profit.

Add-ons are where the profit is in e-invoicing. However, the company said in December that while its analytics product had been demonstrated or trialled by more than 50% of its customers, and while feedback had been generally positive, “at the initial pricing levels quoted none agreed to purchase the product”.

Alongside today’s announcement of the departure of Edi Truell, the company said it had received various proposals from him to combine Tungsten with other assets in which he has an interest. The board found these various proposals to be “universally without merit for shareholders”.

Whether Tungsten has a business that will ever be profitable remains to be seen. There are no immediate cash concerns, so there’s a long fuse on this ticking time-bomb, but many ifs and buts as to whether it can be defused.

Igas

Igas’s results for the nine months ended 31 December, released last week, showed that the company was only able to deliver net cash from operations of £1m. That was at an average price of $58.9 a barrel, but the current oil price is now around $40.

Moreover, Igas is weighed down with debt, the results showing cash of £29m, but £85m of secured bonds maturing March 2018, and £18m of unsecured bonds maturing December 2018. The company said that based on its current forecasts it is projected to breach certain of its bond covenants in the second half of 2016.

Asset sales, a dilutive equity raising or persuading bondholders to modify or temporarily waive the covenants are options the board could pursue. However, the secured bonds are trading at just 46 cents in the dollar, which tells you that equity holders are in the extremely precarious position of sitting on a ticking time-bomb.

In my view, there is limited upside for Watchstone, while the downside risk is so substantial at Tungsten and Igas that I believe selling would be the most prudent move.

The post Are Watchstone Group PLC, Tungsten Corp PLC And IGAS Energy PLC Ticking Time-Bombs? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Specifically, Earthport was able to maintain gross margins at 75% and has increased transaction volumes by more than 70% from the first half of the prior year. And with scope to expand into Asia and the Middle East, Earthport continues to offer a relatively bright long term outlook.

Looking ahead, Earthport is expected to remain a loss-making entity in the current year and following today’s major share price fall, it may be prudent to wait for further news on its restructuring before buying a slice of the business. That’s especially the case since the market remains nervous following recent index falls, with investors likely to seek out less risky stocks at the present time.

Operating within the same sector as Earthport is Watchstone (LSE: WTG). The company formerly known as Quindell continues to undergo its own restructuring, but interestingly it appears as though it is set on retaining the conglomerate-style structure of its past. Certainly, a number of businesses are being deemed ‘non-core’ and are being disposed of, while others are being merged. However, Watchstone is still comprised of six main businesses according to its website, with them ranging in operations from health care to energy services.

Such a structure may offer a degree of stability on paper since the different divisions may not be highly correlated in terms of their financial performance. However, a conglomerate structure can also lead to inefficiencies and it has therefore become less popular today than it once was. With a number of other tech/finance/health care businesses offering good value for money and bright futures, there appear to be better options than Watchstone elsewhere.

One company which does appear to be worth buying right now is Micro Focus (LSE: MCRO). It has outperformed the FTSE 100 by 43% in the last year and with its bottom line expected to rise by 7% in the next year, Micro Focus remains a relatively consistent and reliable growth play. Furthermore, it trades on a price to earnings growth (PEG) ratio of just 1.9 and this indicates that there is scope for further capital gains moving forward.

In addition, Micro Focus could become a sound income play, too. It may only yield 2.4% at the present time, but it is expected to increase dividends per share by 9% in the next financial year. With dividends being covered 2.5 times by profit, there is the prospect of further rises in shareholder payouts which could cause investor sentiment to improve in the coming years.

The post Will Earthport plc, Watchstone Group PLC & Micro Focus International plc Beat A Volatile Market This Year? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Both companies had a terrible 2015. But can they recover this year?

Rolls-Royce

It wasn’t long ago that Rolls-Royce was the darling of the FTSE 100. The share price rocketed higher and higher, reaching a peak of 1271p in late 2013. But after a series of profit warnings, the stock has been in freefall, currently standing at 559p. It’s an astonishing fall from grace.

At first sight, Rolls-Royce seems a company with a bright future, being an aero engine manufacturer at a time when fuel prices are falling and global travel is booming.

But look a little closer and you’ll see the reasons behind the tumbling valuation. Alongside civilian aero engines, Rolls-Royce has a huge defence business, which has suffered badly as defence budgets around the world have been cut.

And Rolls-Royce also has a substantial business supplying turbines to the oil and gas industry. This was fine when record commodity prices meant this industry was storming ahead. But, now that the oil price is a third of what it was two years ago, expanding in this area no longer looks so clever.

That’s why this once strongly profitable firm is now lossmaking.

How can it be turned round? Well, it will need to focus on civilian air travel and to move away from defence and the oil and gas industry. But this will inevitably be a slow and difficult process. I see no turnaround in 2016. This is still one to avoid.

Watchstone Group

Watchstone Group is what was formerly known as Quindell – a legal services company. Like Rolls-Royce, it was a stock market darling a couple of years ago, only to fall to earth in spectacular fashion after it was laid low by an accounting scandal.

Small companies can be fragile. Whereas blue chips have the size and scale to withstand shocks, scandals can virtually finish off small-caps. This is what happened with Quindell.

I still believe that Quindell was, at its heart, a promising and fast-growing company with good prospects. But rumours of accounting impropriety meant that this firm was shorted to oblivion. In the end, the company board decided to sell legal services, which made up the bulk of the business, to law firm Slater & Gordon.

This meant that long-suffering shareholders at last have some of their money back. But just what are the investing merits of the Watchstone shares you now hold?

Well, this company is basically like Quindell in those early days: a small-cap with high hopes of making its way in the insurance and car sectors. However, it’s still lossmaking, and I would consider it too early to buy into what is currently a bit of an unknown.

The post Can Rolls-Royce Holding plc And Watchstone Group plc Be Turned Round In 2016? appeared first on The Twelfth Magpie.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The sale is in-line with Watchstone’s strategy of simplifying its business model as it seeks to turn its fortunes around following a challenging period under its previous name, Quindell. While today’s asset disposals will cause a loss on the sales of £4.2m, they should help to streamline the company’s operations as it seeks to become a technology-focused holding company over the medium to long term.

Looking ahead, Watchstone is expected to remain in the red during the next two financial years. For example, its pretax loss is forecast to be £31m this year and then is due to narrow to £16m next year. While this would be an improvement and Watchstone is making progress in turning its business around, it may be prudent to wait for further developments regarding the delivery of a black bottom line before buying a slice of the business.

Similarly, online advertising company Blinkx (LSE: BLNX) is also expected to remain in the red during the next two years. It is enduring a very challenging period, with its restructuring taking longer than previously expected and causing investor sentiment to remain relatively weak. In fact, Blinkx’s share price has fallen by 38% in the last three months alone.

Despite this, Blinkx is making progress as it bids to return to profitability. For example, it has forged relationships with a number of key demand partners, as well as increasing its core revenues by 37% in the first half of the current year. It is also in the process of exiting non-core business areas and has combined a number of key divisions under the Rhythm One banner.

However, with Blinkx reporting a widened loss even after adjusting for exceptional restructuring costs in its half year results, it appears to be a stock to watch, rather than buy, at the present time. While a merger with a sector peer may be in the pipeline, a number of other stocks appear to offer better risk/reward ratios than Blinkx right now.

One such example is GKN (LSE: GKN), with the aerospace and automotive company trading on a price to earnings (P/E) ratio of just 10.6. Certainly, its near-term growth prospects are somewhat lacklustre, with GKN being forecast to post a rise in earnings of just 3% this year, but its long term potential remains highly appealing.

That’s because the automotive sector is likely to deliver excellent growth in the coming years as demand for cars from the emerging world increases. Certainly, the industry is viewed as rather unappealing by many investors at the present time due to doubts surrounding Chinese economic growth, but with rising incomes in China, India and the wider developing world, demand for automotive parts is due to rise.

Similarly, improved economic growth in the developed world should allow military spending to pick up. Austerity appears to be holding back GKN’s aerospace division and, with the US economy returning to full health, global defence spend could begin to creep upwards. This plus a robust civil aerospace performance, mean that GKN’s future as an investment seems to be highly encouraging.

The post Should You Buy Watchstone Group PLC, GKN plc And Blinkx Plc? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.