Under the Radar Report
Are you missing BIG opportunities?

In our next issue we have an exclusive interview with the big fish in the small cap pond - Dr Simon Marais whose investment vehicle Allan Gray manages $2.5 billion.

It was an illuminating conversation in which Dr Marais spoke of his investment philosophy and offered useful insights for individual investors. I must say, I learned a great deal.

The interest rate cut will keep Telstra’s shares hovering at a record high valuation, but here is the news: it’s the tier two and tier three telco firms that will generate share price growth.

Our interview with Geoff Wilson will appear in our next issue, but as usual it provided a great deal of (investment colour).

Right now, for example he is selling Carsales and buying Fairfax.

“In the short-term we believe Fairfax will do well. We’ve done a study of companies that have put up a pay wall in the US and how they have performed. Normally there is a short-term re-rating. Fairfax is improving its focus on its digital assets, and this is part of that.”

On the other hand, with Carsales, it's trading at 25 times on peak cycle earnings (car sales were bigger than ever before last year).

More to come in the issue.

Richard Hemming

We don’t just say buy and goodbye! After major news we update our tips, the summary of which is on our Research Tips Tracker, which subscribers can download. Subscribers also get access to our quantitative rankings system, which gives an idea of whether there is share price and earnings momentum in a stock, and how much risk (or share price volatility) there is. That comes out each Wednesday.

Also, it’s important to look at our model portfolio, which is run by a professional fund manager, and at the activities of our new speculator, Ivo Budelman. These show that you don’t always get ideas right, but you need to minimise your losses and let your winners run. Risk is a very individual thing, but seeing how a portfolio is run gives you an idea of the level of risk that you are comfortable with.

Our portfolio manager’s return in the past year has been 13 per cent, which is based on investing a portion in an index related fund, and also buying and selling Small Caps, and lastly, holding cash.

The share market over the long term returns about 10.5 per cent. Small caps give you ability to outperform this.

Melbourne IT (MLB) hit one out of the ball park yesterday selling its Digital Brand Services business for $152m. It has now returned 77.5% for subscribers who purchased on our recommendation in December 2011.

It's DSB business protects the internet brand names of some of the world's biggest companies and generates big consulting revenues.

The sale gives the business a multiple of 16 times operational earnings, which is a much better result than expected and catapulted Melbourne IT's stock up 16%. 

The question is, what to do now? Some argue Melbourne IT's crown jewels have been sold.

We are in discussions with Melbourne IT and are busy crunching the numbers. It will form part of our Technology special which comes out this time next week, and should not be missed.

Plus, today we have released a SPECIAL REPORT exclusive to paid subscribers. This will be a full review and research update on over 60 small cap companies. Join Now if you haven't already to get this and much more.

Richard.

The response to our Special Series on opportunities in the Speculative Small Caps of this world has been fantastic. We are coming out with our next instalment in our next issue on Thursday 21 March. In the mean time, subscribers have a special treat to look forward to: our quarterly Research Rundown, which keeps you up-to-date on Radar's thoughts on all our 64 research tips (and counting).

Thank you for all the generous messages we are getting from subscribers. We feel privileged to be your one-stop-shop for everything Small (Cap).

Best wishes

Team Radar
ps. Please feel free to contact us at any time on radar@undertheradarreport.com.au
or 02 9331 1999.

The high for Under the Radar has definitely been Speciality Fashion. This is one that issued a profit upgrade prior to its result and kept on delivering on the announcement. This is in big contrast to the dire profit results of Billabong and the favourite of many a professional investor: Breville.

It just goes to show, never write a whole sector, namely retail, off.

Speaking of troubled sectors. Mining services has come in for a bit of a shallacking with the big gun Boart Longyear having problems. Others in the sector to underperform were drilling specialist Sedgman and consumables specialist Imdex.

Speaking to some fund managers and it's clear the Radar tip ISS is being taken more and more seriously. Watch this space. Its result was impressive because it showed that it is surviving loss of a major contract Schlumberger. We showed in our last issue why we think this company can benefit from this.

Radar is noticing that the speculative excitement is moving rapidly into the copper mining minnows. Earlier this month I noticed Inca Minerals quadrupling in two weeks after it came out with data that could only be described as preliminary, indicating it might be onto a giant copper deposit in Peru.

Gold does have more romance about it, but as industrial metals go, there aren’t any that are more essential than copper, which is used for building construction, power generation and transmission, electronic product manufacturing, and the production of industrial machinery and transportation vehicles.

Just as important, copper is getting very hard to find.

One company we will be talking more about in our Spec Series, which kicks off Thursday next week, is Tiger Resources (TGS), a copper producer in the Democratic Republic of the Congo (DRC). Leaving aside the inherent sovereignty risk, this company now has funding for its expansion ($80m via a South African bank) and is set to produce copper at 70 cents a pound, which it will sell for about $3.60 a pound. 

Its Kipoi mine is expected to be one of the 15 highest-grade mines in the world with at least 50,000 tonnes a year copper production.

There is abundant exploration potential to boot with this company, but there is no doubting the risk you take on when you put your money into a company whose operations are in the DRC.

At 35 cents, it’s definitely a good punt, in Radar’s view.

Best wishes,