Please remember that articles on this site are intended simply as ideas for further research, and absolutely not recommendations or share tips. So I encourage further research, and discussion of this share here.

It has a solid PAS chart, but doesn’t look particularly undervalued on historic performance, but what interests me is the growth potential that seems to be developing here, but has not yet been priced in. Hence in my opinion it could be quite a bargain at 102p mid-price. PAS has confirmed that the financial risk is low. Here is the latest PAS chart that I have available;

Chart courtesy of CIFS Ltd

So, to explain the PAS chart above;

• Blue line: this is the long-term share price
• Green line: this is the most important line, which is the Performance Analysis Score (PAS), or financial strength taking into account the specific algorithms that this system uses – the higher, the better.
• Red line: indicates the solvency threshold – i.e. if the green line touches or goes below this line, then a high risk of insolvency in the next 12 months is indicated. We are selecting only shares where the green line is comfortably above the red line.
• Yellow line – ignore, not relevant for our purposes (it’s the sector average).

Interpretation of this chart – PAS indicates that, on the historical data, Vianet is at little to no risk of insolvency, and is financially sound.

In this situation I initially rejected ViaNet based purely on my review of all the PAS charts, as it only looks fairly priced, not cheap. However, on my review of the more recent financial information, it became clear that ViaNet has growth potential which is not yet priced-in, and hence it achieves our double hurdle system on this website in reverse order – i.e. I liked the fundamentals first, and then confirmed that it has an acceptable PAS chart second. Share ideas here will be presented which achieve the double hurdle in either order.

(the first hurdle is an acceptable or positive PAS chart, the second hurdle is me doing a detailed review of the fundamentals and confirming that the shares represent good value).

I should also add at this point that I have bought some shares in this company in real life, and also have added them to this website’s model portfolio. So, as with almost everyone who writes about shares on the internet, I’m talking my own book.

At 102p/share, and with 27.4m in issue, the mkt cap is £28m

The last trading statement was 30 Oct 2012, which was in line.

The year end is 31 March, and the next set of results will be Interims to 30 Sept 2012, due on or around 4 December 2012.

Last year (to 31 March 2012) Vianet reported adjusted EPS of 9.9p, so the historic PER is just over 10, not massively exciting but reasonable value. However, that year involved trading losses of about £1.4m from divisions (fuel and vending) which have now reached breakeven. So profits going forward will be higher, indeed this year broker forecast is for 13.4p EPS and the year after 16.2p, which means we’re on a current year PER of 7.7, falling to 6.3. That is cheap!

I am most excited about their latest trading update, which seems to be full of bullish signals, e.g. excerpts below;

• The Group’s strategy to reduce costs and drive sales of its newer products has started to deliver the anticipated benefits, resulting in H1 trading being in line with management expectations.
• Trading in the Group’s core beer monitoring business has been strong as a result of several major customer contract extensions which included the installation of iDraughtTM
• iDraughtTM, which now accounts for almost fifteen per cent of the Group’s total installation base, has continued to increase penetration of the on-premise draught beer market, with many major retailers conducting extensive evaluations.
• In addition, the Group is encouraged by the early interest in iDraught^TM from national retail chains resulting from increased investment in the USA
• The Group’s Vending Telemetry business continued to trade at breakeven in H1 however the prospects for H2 are strong.  The improvement arises from further progress in developing significant new sales opportunities with major international companies
• Whilst the Fuel Solutions Division has benefitted from a reduced cost base and new business gains for the market’s only end-to-end solution for forecourt operators, it is anticipated that the division will make a small loss in H1. However trading has improved month-on-month and breakeven was achieved in September 2012, and the Board anticipates that new contracts should result in further improvement in H2.
• Whilst the overall economic environment remains difficult, the future growth prospects across the Group’s Leisure, Vending and Fuel Solutions businesses are very encouraging and management continues to view the future with confidence.  The Board fully expects this progress to result in current year profits growth, and anticipates maintaining the current progressive dividend policy as the Group continues to generate cash from its core business.

(my bolding above)

The stock market does not seem to have noticed that ViaNet has changed from a single product, mature business (providing beer measuring equipment to Pubs), into a technology-driven business that now has 3 areas of operation, namely the traditional leisure business, fuel forecourt reporting &  management systems, and vending machine telematics – with good growth potential in each sector.

So it’s now really a software company which provides clients with web-based systems to help them manage their businesses & achieve cost savings. The new products that excite me are;

iDraught – a much more sophisticated beer measuring system for Pubs, which constantly monitors beer temperature, wasteage, and interestingly also integrates with the till system to ensure every pint pulled is paid for! Imagine how much that will save Pubs in stopping staff handing out free pints to their mates? Early sales of this system look encouraging (it has reached 15% of all their installed systems), and it’s higher margin than their old systems.

Vending machine telematics – ViaNet have developed a system which enables owners to monitor their vending machines remotely, suggesting optimum product mix, refill visits only when they are needed, and contactless card payment, so no need for cash. Which all means much higher margins for the machine operator. This system was utilised successfully at the London Olympics, a great reference site, and the potential is obvious, and huge.

To find out more about their products, check out the excellent corporate video on Vianet’s website here;

http://www.brulines.com/investors/

Other positives include a cracking & sustainable dividend yield of 5.5%, and a very reassuring series of Director share purchases totalling around £317k at around the current share price. This is a very bullish signal in my experience.

I note that Director salaries are reasonable, even low. There was little net debt, only £3.4m at the last reported balance sheet date of 31 March 2012.

Quality of earnings looks high, with 70% of revenues being recurring.

Directors (mainly the CEO) own about 16% of the equity – just right in my view – plenty of skin in the game, but not overly dominant.

Here is the 3-year chart:

There seems to be stock available in the market, and I have been able to buy shares in dribs & drabs around 103p. So perhaps a seller in the background feeding out stock? Certainly the very muted reaction to their in line trading statement recently surprised me. This company just seems off the radar for investors. But on this valuation, it looks appealing to me, with interesting growth products.

As usual, please do your own research, and let me know if I’ve missed anything.

My investing timescale here is 1-2 years initially, but we’ll see how it pans out.

Site etiquette – It would be very much appreciated if subscribers could kindly not reproduce anything written here elsewhere (e.g. bulletin boards), especially not when articles are password protected. But by all means link to articles here, and post short excerpts elsewhere once articles are no longer password protected. Many thanks. I welcome reader comments, please post away below.

Regards, Paul.

Click here to see my datasheet for VNET (click here to view the whole thing in GoogleDocs);

(NB. all facts are figures are believed to be correct, but may contain errors. Therefore please be sure to verify all facts & figures for yourself. I will not accept any responsbility for errors or omissions, or any use you may or may not put this information to)

Posted in Share of the month