Other Small cap news...
ViaLogy boosted by continued success of QuantumRD software
ViaLogy boosted by continued success of QuantumRD software
- The technology enables oil explorers to determine whether prospective drilling sites contain oil or not. “ Very significantly, our retrospective analysis showed why previous drilling efforts had produced dry holes for over 20 wells ,” ViaLogy chief executive Robert Dean said.
- Such is the success rate of QuantumRD that one company, Atascosa, is considering giving up its current drilling operation in Escondido well in the US in order to drill at another ViaLogy-designated location.
To discover the best way to pick potentially lucrative penny shares before they hit the news, read my investment strategy here.
The population of a single province is greater than that of any single European country. Look up as you start to cross the road in China and you are likely to be confronted with not just a lone cyclist, but something that looks like the charge of the Light Brigade.
Any business that can conquer just one small corner of China will become a vast enterprise. Take the China Food Company PLC (ticker: CFC) for example.
As with so many penny shares, I stumbled across this fascinating AIM-quoted company quite by chance. As I looked through the company’s annual results, I came across some forecasts from the broker FinnCap.
FinnCap believes that the China Food Company will grow its annual sales by 136%, to £68m, over the next two years.
The broker thinks that in 2011 the China Food Company will make a profit of £9.5m, which equates to earnings of 10.5p for each share.
At today’s share price of 31.5p, the prospective price/earnings ratio is just three times. I don’t think that there is a single share in the FTSE350 on such a derisory rating as this. There certainly isn’t one that appears to offer the sort of growth prospects of China Food...
A date for China Food shareholders to remember
If you happen to be a shareholder in China Food already then the day that you should mark in your diary is May 12. This is when China Food is going to officially open its new 270,000 sq ft factory in Shou Gang city.
The new factory is going to be producing soy sauce. By the sound of it, the output of this one factory alone would be enough to cater for the entire UK population. But in China it is a mere drop in the ocean.
Although it dominates the market in the province of Shandong – population 94 million – the China Food Company is only the ninth-largest producer in China. But it clearly has plans for major growth and its strategy makes a good deal of sense.
The Chinese food business is changing. Not so many years ago housewives bought all of their meat, their fruit and vegetables and rice at the market. But now the supermarkets are taking over.
It is easy to underestimate the pace of change. Already Wal-Mart has a staggering 260 outlets in China, while Tesco has 79. As in any other country, these retailers demand consistent quality, prompt delivery and products that are not going to leave their customers with gastroenteritis. Last year the Chinese government introduced a Food Safety Law, only accelerating a general rise in standards.
Another trend is that towards the growth of a sophisticated urban middle class. In 2005 just one third of those living in China’s huge cities were classified as ‘affluent’. By 2025 that percentage is forecast to be 87.5%.
Forget the old image of Chinese peasants herding ducks through the streets and laundry of dubious quality hanging from upstairs windows. Today, Chinese cities are more like Manhattan. Citizens want a certain quality of life. The old ways are changing. And that applies to food as much as anything else.
China Food Company's share price is hard to fathom
Given this promising background it is a surprise to find the shares of China Food languishing at 31.5p.
I have warned before that Chinese companies quoted on the London Stock Market are not always quite what they seem. But China Food seems to be suffering from the shock of a poor year. It was hit by the recession, particularly suffering as a result of a downturn in farm income (more than half of its sales come from selling animal feed).
Another problem is that the shares of China Food are tightly held by its founders and directors, precluding any serious interest from City investors.
But for a private investor looking for a punt on China’s changing tastes, this certainly looks a saucy candidate. It’s one that I’m adding to my watch list of penny share tips.
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Good investing,
Tom Bulford
For The Penny Sleuth
P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.
