Small Cap Report (12 Feb) - LOQ, NARS, DSN, PRES,

Tuesday, Feb 12 2013 by

Lo-Q (LON:LOQ) issues solid results for a "52 week and 6 day" financial period ended 4 Nov 2012 (unusual!).

Revenue rose 19% to £29.1m, and profit before tax was up 17% to £3.2m. This translates into basic EPS up 26% to 14.6p (EPS is flattered by a Corporation Tax charge which has fallen from 28.2% last year to 20.0% this year).

The year-end net cash pile of £8.9m has since been spent on the acquisition of an American company in a similar space, virtual queuing systems, called Accesso. That used up £4m of the cash, and incurred £4.0m in debt (which has been refinanced with Lloyds today, as planned), plus an additional payment made in 1.8m new shares. So they are effectively now more-or-less cash neutral.

LOQ has clearly been a success story, as the historic data table below shows;


Interesting to note however that EPS has actually been flat from 2008-2011 at 11-12p. (please note that TTM is "Trailing Twelve Months")

That has jumped to 14.6p for 2012, and is forecast to grow again to 16p in the current year (ending 31 Oct 2013), fuelled by the acquisition of Accesso. There is no dividend.

I like the company, but remain sceptical about the elevated valuation. The market cap is now around £90m, or 3 times sales, at around 450p a share. I cannot see how this represents value at 31 times EPS just reported, and 28 times forecast EPS for the current year. But we are in a bull market, and valuations for growth companies are becoming pretty racy again, so who knows maybe the momentum will keep going here? To my mind a sensible price would be around 300p, or just under 20 times current year forecast EPS.

However, I also know how enthusiastic shareholders are about LOQ, and if you think they are likely to beat forecasts, then the numbers might stack up on a long term view at the current share price?

(Edit: new Edison research note on LOQ just published, click here to view it)


Nationwide Accident Repair Services (LON:NARS) issues a trading update today. They operate a chain of car crash repair workshops across the UK. Results for calendar 2012 are expected to be in line with market forecasts, which is for EPS of 9.9p, so the shares might seem good value at 70p. That's what I thought, until a reader kindly informed me that NARS uses a highly misleading (but legal) treatment of its large pension deficit, which magically turns a material liability into a fictitious asset. I find that outrageous, and complained to the Financial Reporting Council some time ago, asking for it to be investigated, but of course they didn't reply.

NARS reports a fall in the pension deficit to £22.7m, perhaps benefiting from the recent rise (from record lows) in Gilt yields? That is an interesting general point, in that we may now be over the worst for pension deficits, so companies with deficits could now be presenting investment opportunities rather than threats? Worth considering, on a case by case basis. It all depends on how material the pension deficit is to the company's market cap, and more importantly, its cashfows & cash balance.

The most interesting thing about NARS is its dividend yield, which at 5.5p offers a thumping 8% yield, althought the dividend has always looked at risk, given the pension deficit also requiring cashflow to plug the shortfall. I shall revisit this share once the results are issued on 9 April, and will take a view then, but it's the balance sheet that concerns me in the meantime, and how some investors might react when they see the restated accounts in April, showing a much weaker balance sheet than some might have thought. Although it amazes me how many investors don't even bother reading the accounts, or looking at the balance sheet at all.


Pawnbroker Albemarle & Bond Holdings (LON:ABM) reports a 31% fall in interim profits in the 6 months to 31 Dec 2012. I'm not comfortable investing in a business which makes money out of other peoples' misery, so will pass on this one.


Shares in Densitron Technologies (LON:DSN) have been hammered this morning, down 19% to 7.38p on a profits warning. There has been a delay in product deliveries (they develop electronic displays), and legal action over a property lease. The potential costs of the legal action are not stated, so that seems to me an essential piece of information to find out. They state their confidence for 2013, given that order intake in 2012 was up on 2011, so it does look like genuine delays in delivery times being the issue, rather than being used as an excuse for a bad year.

On balance I don't have time to look into the property lease dispute, so this share looks too messy for the time being. It is below my usual £10m market cap lower limit, but I mention Densitron because it came up in an article I wrote over the weekend about value stock screening - so looks like it was cheap for a reason! That said, timing delays to deliveries can just be a short term factor that provide bargain entry points, if everything else stacks up, so this could be an opportunity perhaps? Any views from readers who have looked into Densitron in more detail?


I've always liked small cap specialist engineering group Pressure Technologies (LON:PRES), but the ridiculous bid/offer spread, and lack of liquidity in the shares (the former causes the latter!) have prevented me from buying any. Pity, because their trading update today looks pretty solid. They report a, "positive start to the year" (ending 30 Sep 2013), and state that, "the Board is confident in the outcome for the current financial year".

Here is the highly visual growth & value section of the StockReport from Stockopedia for Pressure Technologies (LON:PRES), which allows you to absorb the key strengths & weaknesses instantly, very handy when looking at lots of shares.

Given that analysts expect EPS of 16.5p this year, and 22.8p next year, that puts the shares (currently 193p) on a forward PER of 11.7 and 8.5, so the valuation looks reasonable for this year, and cheap if they deliver on next year's increased EPS forecasts.

Note that the 9.81 forecast PER shown in this table is weighted depending on how far the company is through its financial year. This makes all companies comparable on this measure - pretty nifty!

Also worth noting the 4.3% forecast dividend yield - as regulars know, I place considerable emphasis on good dividends, as not only do they give you a useful income whilst waiting for the shares to go up, a decent dividend is also itself a reason that new investors seeking income might buy the shares, hence making it more likely that the shares will go up.

A decent dividend yield also supports the share price, making a large downside move less likely, so lots of reasons for value investors to like dividends, especially in an ultra-low interest rate environment. But it's always essential to check how sustainable the dividend is. Any dividend yield over about 5% is potentially at greater risk of being reduced or cancelled.


Although we're now in a bull market, which is taking blue sky and growth companies onto much higher ratings. I don't believe in chasing highly rated shares to more & more stretched valuations, as that's really just a game of pass-the-parcel, hoping you can time your exit before the music stops.

Instead, I think it's better to look for undiscovered early stage growth stories, and jump in before the crowds, but only when market conditions are receptive to growth stories. That's exactly where the markets are now, so I'm shifting my focus slightly towards looking for some more speculative growth stories too, as well as my core value stuff.

So don't be surprised to see one or two more speculative investing ideas crop up here from now on! Although I remain anchored mostly in value. But a few GARP type situations (growth at reasonable price) will definitely crop up here as long as the market remains in bull mode. There might even be the occasional blue sky idea too, although I much prefer GARP as it's lower risk.


OK, that's enough for today. See you at the same time tomorrow.

Regards, Paul.

(of the companies mentioned today, Paul has no positions in any of them)


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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accesso Technology Group, plc is a United Kingdom-based company engaged in the development and application of ticketing, mobile and e-commerce technologies and virtual queuing solutions for the attractions and leisure industry. The Company's solutions include accesso LoQueue, accesso Passport and accesso Siriusware. accesso LoQueue is a queuing solution that includes Qsmart, which enables purchasing the services and managing reservations through smartphone; Qbot, a handheld queuing device that allows guests to reserve their rides, and Qband, a queuing solution designed for water parks. accesso Passport is a ticketing solution that includes OnSite, an OnSite ticketing solution; OnLine, an online ticketing solution, and OnTheGo, a mobile ticketing solution. accesso Siriusware offers ticketing and admission solutions. accesso Siriusware offers modules, such as OnSite Ticketing, OnLine eCommerce, Point-of-Sale and Guest Management. more »

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Nationwide Accident Repair Services Ltd is a United Kingdom-based company, which provides automotive crash repair and accident administration services to the United Kingdom automotive insurance industry. It offers car repair service, through approximately 70 bodyshops. It offers mobile car repairs through its mobile car repair vans with mobile mechanics. Its glass technicians can repair customers' windscreen at their home, at work or at one of the various Nationwide Repair Centers. It also offers Fast Fit+, which provides vehicle servicing and repairs. Fast Fit+ includes Leicester Fast Fit+, which offers Leicester car repair site, and Redruth Fast Fit+, which offers Redruth car maintenance site. It also offers accident management and repair solutions. Its services include private repairs, dents and scratches, tyres, wheel alignment, valets, professional polishes, brake check, winter inspection, and air conditioning regas and refresh. more »

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Densitron Technologies plc is engaged in the design, development and delivery of electronic displays and related electronics and software. The Company’s products include Organic Light-Emitting Diode (OLED), Thin-Film Transistor (TFT), Liquid Crystal Display (LCD) Module and LCD Glass, Touchscreen Displays and E-Paper or E-Ink Displays. The Company is also a designer and manufacturer of display technology. It operates in 35 countries worldwide and has local presence in the United Kingdom, the United States, Japan, Taiwan, France, Finland and Germany along with branch offices in India and the Netherlands. The Company’s geographical segments include Europe (the United Kingdom, France, Nordic and Germany), the United States and Asia (Japan and Taiwan). The Company’s subsidiaries include Densitron Europe Limited, Densitron Corporation of Japan, Densitron Corporation, Densitron France, Densitron Nordic Oy, Densitron Deutschland GmbH, Densitron Display Taiwan Limited and Densitron Land Ltd. more »

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  Is accesso Technology fundamentally strong or weak? Find out More »

6 Comments on this Article show/hide all

Asagi 12th Feb '13 1 of 6

Hi paulypilot.

In the last year, the price of gold has fallen 5%. In the last two years, the price is up just 20%. I say 'just' because a 20% rise in two years cannot be considered boom conditions.

Albemarle & Bond Holdings (LON:ABM) did very well indeed out of the gold boom. This was not profiting from people's misery but giving them a nice bunce for scraps that they had tucked away.

Albemarle & Bond Holdings (LON:ABM) used the gold boom to expand its operations and increase its dividend payments.

Before the credit crunch and gold boom, the company was making 11p per annum (using 2007 figures - not perfect as the credit crunch began in August 2007). Investors will be concerned that earnings could go back to that pre gold-boom level. Even worse, the company could incur significant costs if its store expansion programme has to be put into reverse.

So, it appears that Albemarle & Bond Holdings (LON:ABM) has made hay while the sun has been shining. Nothing wrong with that but anyone analysing the shares will have to wonder how much further earnings could fall.

Asagi (no position)

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Beginner 12th Feb '13 2 of 6

Hi Paul
Regarding Densitron, the court case involves up to £600,000 in unpaid rent, and about £60,000 in unpaid rates. From what I can see the landlord has a relatively strong case, and having refused to enter arbitration, at the very least this will rumble on for a long time. This being the case, it may be best to let this one pass (despite many other positive indicators).

[Just posted above on your blog, but have now sussed Stockopedia registration! D'Oh!!]

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Paul Scott 12th Feb '13 3 of 6

In reply to Beginner, post #2

Hi "Beginner",

I saw you post this on my Blog, and was hoping you'd also post it here, as useful info.
My worry with any legal action is the costs, which can often spiral into huge amounts.
So as you say, might be best to avoid Densitron unless/until the outcome & total costs are known.
They own some land in BlackHeath too, I believe, wonder what that's worth, and if anything is happening with it?

Cheers, Paul.

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Ramridge 12th Feb '13 4 of 6

Hi Paul.
Re. NARS. The pension issue is a big one. I have been looking at NARS's FY 31/12/2011 accounts and their accounting treatment of the pension liability is disgraceful. Buried in Note 15, you find that the unfunded liability stands at £26m. Then by a magic sleight of hand (Paul Daniel would have been proud) they apply something called "unrecognised actuarial losses" = £37m and turn it into an asset of £37m - £26m = £11m. So now we have an asset shown in the balance sheet of £11m. All other pension related bad news is off balance sheet buried in obscure tables. A figure of £37m which is bigger than NARS's market value is put in their footnotes under an obscure heading without any explanation. Talk about the elephant in the room.
I understand that the IAS 19 rules taking effect from jan 2013 will make pension scheme funding deficits more transparent, but also hear that it will have a negative impact on reported earnings for those running large deficits. The sooner NARS management comes clean the better.
Regards, Ram

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Paul Scott 12th Feb '13 5 of 6

In reply to Ramridge, post #4

I know, I wrote a report giving chapter & verse on NARS misleading accounts (linked to in today's report), but here is the link again. It's an outrage! The accounts should never have been published, as they fail the "true & fair" test. Also I don't trust management that would approve such accounts. Common sense should have made them stop and say, "this is wrong". That doesn't happen enough generally in business these days I'm afraid.
cheers, Paul.

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Ramridge 12th Feb '13 6 of 6

In reply to paulypilot, post #5

Paul. Should have followed your link first time. You were there lot earlier than me.
Regards, Ram

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About Paul Scott

Paul Scott

Paul trained as an accountant, then spent 8 years as FD for a ladieswear retail chain.He became a professional small caps investor in 2002 to date.Paul writes a small caps report for on weekday mornings. He joined Fundamental Asset Management Ltd as a research associate in 2014, as part of their Small Cap Value Portfolio team. more »


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