Paragon Entertainment - Analysis

Disclaimer: I have no licence to give financial advice, etc...

Company Information:

• The operating group listed on the AIM in 2011.
• Paragon Entertainment Limited designs, develops and builds visitor attractions, and licenses and distributes related products and services. 
• The unaudited results for the period ending 30th June 2015, showed a return to EBITDA (earnings before interest, tax, depreciation and amortisation) profitability in conjunction with half-year revenues of £4,500,000 (3).
• Mark Pyrah, Chief Executive Officer was quoted in the same set of interim results as saying: "The past year has been a challenge though we are excited about the busy six months ahead with a number of exciting projects.” (3)
• Paragon Entertainment's most recent projects have included (3):

1. The design and build of galleries at the Olympic Museum for the IOC in Lausanne, Switzerland.
2. Design and build of the galleries at The National Museum of Kazakhstan
3. The design and build of Titanic Belfast
4. The thematic build of the Wallace and Gromit ride at Blackpool Pleasure Beach
5. Licensing and distribution installations at Gullivers, Milton Keynes and Art Mall, Ukraine.

Recent Company Developments:

• The company's overdraft has recently been extended for another year (1).

• Directors have recently settled historic tax liabilities with their own funds (2).

• Directors have recently transferred their shares into Self Invested Pension Plans (which offer inheritance and income/capital gains tax benefits) (4).

Expected Short-term Newsflow:

• Updates on the MAJID AL FUTTAIM LEISURE & ENTERTAINMENT LLC deal that covers Saudi Arabia, Egypt, RAK and Dubai (5)

• Updates on the Hamleys Mosco project (6).

• Further news regarding their recently completed project with the National Museum of Kazakhstan in Astana (7).

Fundamental Analysis:

For me, the most important aspect for determining if there is a potential trade has to start with the board of directors. In this case, it's clear that they're optimistic about the future (you don't bother hedging against paying capital gains tax unless you think an asset - their shares in the company - are going to go significantly up in value.

This idea presents itself again through the board of directors choice to pay the tax bill owed to HMRC through their own personal funds, which shows a very progressive attitude with regards to the company that's rarely found elsewhere on the AIM.

With regards to other positive aspects of the company, I like the way that its revenue sources are internally hedged by operating across the Middle East, North Africa, Eastern Europe and the UK. In the event of a global hiccup, Paragon Entertainment shouldn't be hit especially hard.

Furthermore, the company being currently valued at just £3,990,000 (as of the close on 25/09/2015), I suspect that the scale of some of these projects could be large enough to create a situation where the company sees a sudden increase in its operating profits.

This positive outlook in combination with the rumours circulating on ADVFN (8) that the company has recently signed significant deals and that the Nomad broker (Finncap - for anyone who's interested) may force the company to show its hand makes a nice set up for a trade to the long side, in my opinion.

Technical Analysis:

I'm not normally a huge fan of using technical analysis with stocks valued under £100,000,000, because you tend not to get consistent and or high daily volumes to give an accurate base for beginning any form of quantitative analysis. Plus, the naturally wider spreads you tend to find in more illiquid markets means that the net level of importance assigned to every price tick is higher than it would be in more liquid stocks - meaning that if one base move in the price of an asset equates to a high percentage of the current share price overall, then the stock will technically mis-signal more frequently than in cases where the opposite scenario is found; i.e. big single ticks in stock prices cause technical mis-signalling more than smaller price ticks of the same percentage value do.


Nevertheless, the tightening in the Bollinger Bands over the macro time scale in combination with the convergence of the major moving averages makes it look like the stock has created a volatility funnel that it is in the process of breaking out of.


Also, it's notable that there's a clear line of resistance in the 2.5-2.7p area, which if broken would signal a technical breakout that would target the next bands of resistance at 3p, 3.38p and 4p.

Conclusion:


On a balance of probabilities, it looks like the odds are stacked in your favour going long here in the short term (a few weeks). Whether the underlying scenario facing this company would continue to play out equally as positively in the same way over a longer time frame it is hard to say, but I feel that currently I would be likely to miss out on an opportunity by not entering long here (which i did yesterday - 24/09/2015).



Enjoy,

The Masked Stock Trader

Sources:

1. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PEL&ArticleCode=kcd1u5a1&ArticleHeadline=Re_HSBC_Bank_Facility

2. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PEL&ArticleCode=p7zsjxbz&ArticleHeadline=Re_Agreement_with_HMRC

3. http://paragonent.com/documents/Interim_Results_Six_Months_to_30_06_15.pdf

4. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PEL&ArticleCode=liel07d5&ArticleHeadline=DirectorPDMR_Shareholding

5. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PEL&ArticleCode=b5t3w216&ArticleHeadline=Framework_agreement_signed

6. http://paragonent.com/media-centre/corporate-news/hamleys-moscow-named-best-designed-store-of-the-year-at-2015-world-retail-awards

7. http://paragonent.com/documents/PARAGON_NEWSLETTER_SINGLE_PAGES_MAX_3.pdf

8. http://uk.advfn.com/stock-market/london/paragon-ent-PEL/share-chat