Fool.co.uk - Investments

Last Tuesday I made a journey from London to one of the poorest and downtrodden areas in the UK. Yes, I am talking about Henley (HYNLZ.PK - news) on Thames. I travelled light, only a pocket of loose change and no credit cards, and I avoided dark alleyways. Luckily I made the trip to Lo-Q's head office in Carmensfella's (the legendary bulletin board poster) personal helicopter. 

For those who don't know Lo-Q (LSE: LOQ), here's a ten second overview:

• Lo-Q is the world's leading supplier of dynamic virtual queuing systems for theme parks and leisure venues around the world;
• it's listed on AIM, with 15m shares in issue; and
• the current share price is 65p, so its market cap is £10m.

Virtual queuing equals the same wait as a normal queue but without the need to stand in line. This is good news for theme park owners because this gives punters the opportunity to buy 'reasonably priced' food and drink while waiting for their turn to experience the ride. Note (Stockholm: NOTE.ST - news) , and this is a fascinating fact (honest), virtual queuing does entail some queuing, usually not more than five minutes, this is to build up the anticipation. 

A trick that Lo-Q has missed is not trademarking the term 'virtual queuing'. However, in Leonard Sim, its largest shareholder and founder, Lo-Q has one of the world's, if not THE world's, expert in queuing. So if you are ever stuck in a lift with Leonard, and are lost for a subject to talk about, just ask him about queuing and the time will fly by.

Fondle a Q-bot

First impressions were good -- a jolly receptionist, an assistant with the widest smiles, and straightaway a chance to fondle a Q-bot. Each and every attendee (there was an excellent turn out) was given a Q-bot to 'play with'. This had an unfortunate consequence as everyone immediately logged on for rides, as a result various Q-bots happily beeped and vibrated during the AGM.

Lo-Q has an entrepreneurial aura about it. The films of amusement parks shown during the meeting were amateurish, many apologies for the quality were given, but they had a quirky charm. Afterwards, I thought home movies are all well and good but I would like companies that I invest in to spend a bit more on presentations to prospective clients.

Hand to hand combat

The AGM lasted about two and a half hours, which is about the length of Bruce Springsteen's concert at Glastonbury. The formal part of the meeting took about 10 minutes, the amateurish films about the same time period, and it was then time for Q&A. 

Someone mentioned after the AGM that they thought some of the questions were a tad fierce: I must have a thick skin because I thought they were good humoured. My philosophy is that you can question whether someone is stonewalling if one has a smile on one's face.

Comments that I noted down:

• market expectations for 2009 operating profit of £2.1m (only Lo-Q's broker, Arbuthnot Securities, produces a forecast);
• tax losses outstanding of £1.9m; and
• the fact that Six Flags, Lo-Q's largest customer, is now in Chapter 11 bankruptcy protection worries private investors. 

The directors found this last point difficult to understand -- they suggested that if we want something to worry about we should worry about swine flu creating mass panic in the States, thereby reducing the appetite for visiting amusement parks during the holidays. 

I'm not sure what the percentage of Lo-Q's sales relate only to Six Flags, but let us say it is between 50% and 100%. Slide 9 of a recent presentation given a few days before the AGM states that revenue from Six Flags is $20m annually. Given Lo-Q's turnover in 2008 was £13.5m, and bearing in mind it is likely to be a case of apples and oranges (the $20m is probably gross), we are talking a big percentage of Lo-Q's revenues.

The body language of the directors indicated that they were not having sleepless nights about the fact that Six Flags filed for Chapter 11. One comment a director made as an aside was that they would be a lot more worried if Six Flags had filed for Chapter 11 a couple of years ago, when the US property market was booming. In other words, in today's market it is likely that the best way for creditors to obtain money from Six Flags is to keep running the amusement parks rather than flattening them and selling them as residential lots.

Jeff McManus, Lo-Q's chairman, said during the AGM Q&A that he and the rest of the directors were nervous about giving too much away, because Lo-Q does generates many posts on the bulletin boards. So here's an interesting question for a business student looking for a topic -- can too much publicity on the bulletin boards be a bad thing? The answer is probably yes for a small cap where a small, single trade can move the share price by up to 10%. 

Facts and figures for 2008

Lo-Q's results for 2008 were impressive:

• revenue up £13.5m (2007: £7.8m);
• profit before tax of £1.85m (2007: £0.55m);
• diluted earnings per share: 12.0p (2007: 3.5p);
• strong cash position: £2.6m in cash (2007: £0.6m); 
• no debt; and
• park customers up from 8 sites to 11 sites, with 15 park customers post-year end.

Looking ahead: "2009 has started with all aspects of the Company performing well and with both medium and long term future outlooks that appear really exciting".

For those who believe that amusement parks are here to stay (I am told that water parks are the next big thing) and like the sound of a company valued at £10m with over £2m in cash and projected to make profits of over £2m this year, Lo-Q is certainly worthy of closer inspection.

Discussion board poster AliceInWonder1 is a serial AGM attendee and is keen to encourage other private investors to take a more 'hands on' approach with their holdings. He owns shares in Lo-Q. He has also been asked to point that Carmensfella does not have a helicopter -- he flies a Q-series Lear Jet turboprop.