Good morning. Running a bit late this morning, but it looks like a fairly quiet day for company news.
Amino Technologies (LON:AMO) have issued a positive trading update. They are a maker of set-top boxes for TV over the internet. It's a difficult company to value, as the earnings are somewhat unpredictable. However they have a balance sheet stuffed full of cash, and have begun paying out decent dividends, so on balance I've been inclined to view it favourably.
Their update covers the six month period to 31 May 2013, and says that profits are "significantly ahead of the prior year", although that's not saying much because the prior year comparative is only £0.2m.
The cash balance is strikingly higher at £18.2m (prior period £13.9m), so this seems to be a pretty efficient cash machine. Some of that is down to one-offs, relating to duty rebates. I like companies that generate embarrassingly large amounts of cash, and don't really know what to do with it. The market cap is £45m, so the cash is material to the overall valuation.
Overall I feel much more comfortable with the FTSE 100 at 6,420 than I did with it pushing close to 7,000. Although as mentioned before, the nominal level of the FTSE is meaningless, since it does not factor in general inflation, which running at 2-3% p.a. compounds into a pretty sizable number. I ran a quick spreadsheet recently which showed that inflation since the market peak in 1999 of close to 7,000 translates into almost 10,000 in today's money.
So we are not actually anywhere near a historic high in real terms.
It's like my Grandpa predicting sagely in the 1970's that one day petrol would cost £5 a gallon. I was under 10 years old at the time, but even then I had grasped enough basic economics to dismiss such a prediction as not even approaching wisdom, but actually being a statement of the obvious - of course petrol would eventually cost £5 a gallon. Some time later it will be £100 a gallon, and a few decades later it will be £1,000 a gallon. Inflation makes that inevitable.
Petrol is only expensive or cheap when compared with people's available income. Same with the Indices - they are cheap or expensive, or somewhere in between, based on valuation measures…
