Small Cap Report (15 Feb) - TRK, NXR, SNX, ISL, SAND, DQE, MBE, FFA

Friday, Feb 15 2013 by

Torotrak (LON:TRK) has been trying to commercialise its revolutionary Infinitely Variable Transmission (IVT) for vehicles, which they claim can deliver 20% fuel savings (in urban driving), for almost the entire time I've been actively investing in the stock market (about 15 years). It never quite seems to achieve proper success, but always seems on the cusp of it. Hence I'm very sceptical about this company, especially as the founder departed not that long ago - if the founder throws in the towel, why should anyone else believe in it?

They seem to have branched out into other areas, and now also make variable drive superchargers (V-Charge), and mechanical kinetic recovery systems (M-KERS), which I assume must be some form of energy recovery from braking? Automotive things interest me, as I've always been a total petrol-head, and used to love dismantling and repairing cars.

There doesn't seem to be anything exciting in this morning's IMS. Looking back at the last set of accounts (interims to 30 Sep 2012), Torotrak had current assets, less total liabilities of £9.4m (of which £10.7m was cash), so they are in a strong financial position. Historically they lose on average about £2-3m p.a., so there should be enough money in the kitty for them to keep going for about 5 years, even if they don't make any commercial progress.

The market cap is £42m at 25p/share, which looks pretty aggressive to me, given the long-term failure to make any significant commercial progress with this product (although they have managed to get it into some niche vehicles). Personally I'd only be prepared to have a flutter on this if I was paying little more than net cash, so about a quarter of the current share price.


Incidentally, the RNS news service from Investegate which I have used for years, every morning to get company results, has been very unreliable of late, omitting a lof of RNSs first thing, then they appear later in the day. I asked on Twitter a moment ago for an alternative, and Dan from Shares Magazine helped me out by recommending DigitalLook as an alternative source for company news. Thanks Dan! Just shows how useful Twitter is to investors, it's a great way to communicate.

I should also add that Stockopedia have major upgrade plans in the pipeline for this year. I met with them yesterday to have a brain-storming session, and can see this site going from strength to strength. One area that needs upgrading, is to make company news real-time, instead of delayed as it is at the moment. It's going to happen, along with real-time prices too, so those will be massive improvements that I'm very keen to see.


I have no idea why there was such a muted response from a positive trading update from Norcros (LON:NXR) yesterday, perhaps people were expecting an out-perform statement, instead of an in line statement? Anyway, it shows that the business is doing well. People forget that good companies do well, even in economic downturns, because although their market might be static or shrinking, good companies gain market share from weaker competitors exiting the market. So that leaves a fewer number of leaner, fitter companies to enjoy a growing market again once economic recovery happens, which I am convinced is now happening (based on Mervyn King's fascinating analysis of the situation televised on Tuesday this week). The early stages of economic recovery never feel like a recovery, GDP growth has to get to 2%+ before it feels like a recovery.


Synectics (LON:SNX) (formerly Quadnetics) announce a "major contract win" of £2.7m to develop CCTV for Avon & Somerset Police. Use of the word "major" seems stretching things a bit, in the context of an £80m turnover group, this is only just over 3% additional turnover. I am meeting the Directors of Synectics on 27 Feb, for their results presentation lunch, so am looking forward to that. It looks an interesting company, which I've followed for quite a few years, but don't currently hold shares.

Synectics seem to be building profits (from a low base), and the trend of market consensus is rising (see chart to the left, from Stockopedia's StockReport), which is a good sign, although at 355p the good news looks priced in already (15 times est. EPS for year ended 30 Nov 2012), and 12.3 times forecast EPS for the current year.



IS Solutions (LON:ISL) reports a, "strong second half", and that results for year-ended 31 Dec 2012 are expected to be in line with market expectations, and will be released in the week commencing 25 Mar 2013. At first glance it looks quite attractive, with a 2013 forecast PER of 10, and 4% dividend yield, and they report net cash (which I suspect might be a seasonal blip, as they had net debt of about £1m at the interim stage).

I've had a quick look at the last set of results, and it's just a tad too small for me. Anything under about £1m p.a. profit (which they are just below) is getting into really very small businesses, which arguably shouldn't really be Listed - as the costs of Listing can be around £200k p.a., how does that possibly make sense for any company that is making under £1m p.a. in profit?

Although interestingly, I have heard CEOs of several AIM listed companies say that being Listed on AIM is a major commercial benefit - they are taken much more seriously by customers & competitors as a result of the perceived status of being Listed. Of course we all know that any old rubbish can (and does!) list on AIM, but that fact does not appear widely known in the country as a whole.


Canadian technology company Sandvine (LON:SAND) has announced its intention to cancel its dual listing on AIM, and that's hit the shares by 10% this morning. I never invest in companies with dual listings. It is inherently a bad sign in my view, and an unwise use of company money, to maintain two listings, in an attempt to achieve a higher share price by drawing on two sets of shareholders.


I also try to never invest in overseas companies listed on AIM, as it seems to me the motivation to List in one of least regulated smaller companies markets in the world, has to be questionable. Whilst there some very good companies on AIM, there's also a great deal of dross, much of it overseas companies.


However, I might try to find the time to look again at Indian entertainment rights company, DQ Entertainment (LON:DQE). Their trading statement this morning says that the company is on track to "meet its target" for year ending 31 Mar 2013. I looked at their accounts a while ago, and came to the conclusion that their accounting treatment of intangibles was far too aggressive, and that the EBITDA wasn't real cashflow at all. Hence the apparently cheap valuation seemed to me all smoke & mirrors. But I'll try to look at it again over the weekend, as if I'm wrong then it could be very cheap, and I do know one very smart investor who likes this company, so who knows?

Let's have a quick look at the top section of the Stockopedia StockReport, with my comments below:


1  Market Cap is only £8.27m, but Enterprise Value (market cap + net debt) is much higher, at £39.1m, so this instantly warns you that the company has high levels of debt.

2  Click here to see what other people have written about the company (which should include my archive posts from these morning reports), and to post a comment yourself about the company.

3  The growth & value section gives a quick visual impression of the key measures. Note that the "vs industry" and "vs market" colour-coded bars work on a traffic light system, so strong green is best, and strong red is worst, with various intermediate colours. Really handy to quickly identify value. In this case my immediate reaction to a PER of 1.59 is - too good to be true! Also bear in mind that very highly indebted companies often have a very low PER. Also note there is no dividend (a bad sign), and no asset backing - price to Tangible Book value is 94.2! (which means there's negligible net asset backing)

4 Note the weak share price chart - do other investors realise the company is no good, or does this present a buying opportunity?


I need to delve deeper into the accounts of DQE, but just wanted to flag up how the StockReport gives you a single page of info which instantly tells you a great deal about potential risk/reward, before you've even looked at the accounts. I will report back in due course on this company. To emphasise, the picture above is only about a quarter of the StockReport, but it was all I could fit into a screen grab!


Shares in serviced office company, MWB Business Exchange (LON:MBE) are up 59% today on an all-cash takeover offer at 100p. Seems an odd situation, as Regus are shown as holding 75.2% of the shares, with Pyrrho Investment (the party making the cash offer) holding 16.7%. There seems to be some kind of dispute over ownership, from glancing at the previous news.


There is also a recommended cash offer for Ffastfill (LON:FFA), which values it at £106m per the RNS, which seems a very full price based on the historic performance of the company. The bidder already holds 25% of the company, so maybe this is the start of a trend for large shareholders to buy out other shareholders? Another sign of a bull market, so very interesting.


OK, that's it for today. Just a last plea for charity donations for my Half Marathon, which is this Sunday! I'm nervous about it, but hopefully it will be OK. I just need to raise another £153 to hit my target of £2,000, so if you can spare a few quid for great causes (Macmillan cancer care and/or Sussex Beacon), it would be very much appreciated! Here is the JustGiving link.



(of the companies mentioned today, Paul holds shares in NXR only. He has no short positions)


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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Torotrak plc is a United Kingdom-based company, which develops, licenses and sells low carbon technologies, for application in a range of automotive sectors and vehicle types. The Company's operating segments include license agreements, engineering services and development activities, which include research and the creation of intellectual property. The Company's technologies include Flybrid kinetic energy recovery system (KERS), V-Charge and Main Drive Transmissions. Flybrid technology consists of Flybrid passenger car KERS, Flybrid KERS composite flywheel, Flybrid clutched flywheel transmission (CFT) and Flybrid Volvo testing at Silverstone. V-Charge is a variable drive supercharger for gasoline and diesel engines, which allows downsized engines to maintain their emissions levels. The Company's main drive infinitely variable transmissions (IVTs) combine toroidal traction drives variator with other conventional transmission components. more »

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Norcros Plc (Norcros) is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. It is focused on showers, taps, bathroom accessories, tiles and adhesives. The Company operates through two segments: the United Kingdom and South Africa. The Company is managed divisionally, with the seven operating divisions across the United Kingdom and South African segments. Its United Kingdom segment include divisions, such as Triton Showers, Vado, Johnson Tiles and Norcros Adhesives, and South Africa segment include division, such as Johnson Tiles South Africa, TAL and Tile Africa. In the United Kingdom, it offers a range of bathroom and kitchen products both for domestic and commercial applications. It offers showering, bathroom controls, tiles and fixing solutions. The Company serves consumers, architects, designers, retailers and wholesalers across the globe. more »

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Synectics plc is a United Kingdom-based company that designs, delivers and manages integrated security and surveillance systems. The Company operates through two divisions: Systems, and Integration and Managed Services (IMS). Systems division provides specialist electronic surveillance systems. IMS division focusses on delivering security and surveillance solutions, mobile systems for transport operators, as well as service-led solutions for the management of facilities and security services. It primarily serves the oil and gas, gaming, infrastructure and high security, transport and public space markets. It offers Synergy 3, a command and control software platform for security and surveillance applications. Its subsidiaries are engaged in the design and manufacture of video systems control products, integrated digital CCTV systems and CCTV equipment and systems for hazardous environments, and the provision of security management and support services. more »

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  Is Torotrak fundamentally strong or weak? Find out More »

19 Comments on this Article show/hide all

ericb 15th Feb '13 1 of 19

How can digital look charge to read RNS ??
Is that where you get the news if investegate is mal functioning ?

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Paul Scott 15th Feb '13 2 of 19

In reply to ericb, post #1

Hi Eric,
DigitalLook don't charge to read RNS.
What I meant was that Stockopedia will have to pay a data provider to get live RNSs on this site (as presumably other websites have to do too), but it's free to us, the end users.

I wasn't sure where to get news when Investegate is malfunctioning, but as mentioned in the article above, I've been told that DigitalLook is the best alternative, and have found it works very well, so I'll be using that myself from now on, as investegate is hopeless.

Cheers, Paul.

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SevenPillars 15th Feb '13 3 of 19

Agree on Investegate, not sure what is happening there, but yesterday the Norcros statement didn't appear for hours. I only found it in the end by doing an advanced search and including the word statement in the key words option. I've used Digital Look for quite a while and its free for use offering is quite good.

Norcros did see some share price movement the day before its statement so perhaps there has been a little profit taking on the statement? Still in a solid upward trend though.

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ericb 15th Feb '13 4 of 19


DigitalLook wanted me to upgrade to a subscription sub when i clicked on a news PDF


Oh OK thats the company fact sheet doh!!

i see its the same news feed as ADVFN, and it gets cluttered up with alll that ishares cr*p

Good luck with the half marathon :)

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shanklin100 15th Feb '13 5 of 19

Cluttered up with ishares stuff, etc, but a source I resort to id investegate and ADVFN are not working, is

Its not the prettiest site but does seem very reliable.

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Funnymoney 15th Feb '13 6 of 19

Ideally we would have a feed of just results, trading statements and director deals - who really urgently needs to read a net assets statement?

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johnrosier 15th Feb '13 7 of 19

Hi Paul,

Thanks for the DigtalLook tip.
It took until mid morning for Synergy Health to show up on investegate yesterday and they still have not got the Synectics, (which I bought a couple of weeks ago) contract win on the site.


Website: JohnsInvestmentChronicle
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som100 15th Feb '13 8 of 19

In reply to SevenPillars, post #3

Hi Paul,

firstly great service by you. secondly i find that that if Invertegate is not working that i go to LSE site and you will get all the RNSs but the site is not very user friendly.


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djpreston 16th Feb '13 9 of 19


Just a correction on Torotrak.

The founder hadn't just left. Dick Elsy, to whom I think you are referring was not the founder of the company, no where near. He joined a few years ago and decided to accept the offer from the government to head up a new drive.

Darron - disclosure, we are one of the biggest holders of TRK.

Fund Management: European Wealth
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Paul Scott 16th Feb '13 10 of 19

In reply to djpreston, post #9

Hi Darron,
Thanks for that, I stand corrected!
Dick Elsy was at least a long-standing CEO of Torotrak though I think.
I recall it raised a lot of eyebrows when he left.

Do you have any ideas about why the technology has never really taken off?

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Paul Scott 16th Feb '13 11 of 19

In reply to shanklin100, post #5

Hi Shanklin,
I agree, I've started using the website too.
Funnily enough, I found that a simple keyword filter for the word, "results" seems to pick up nearly all interim & preliminary results, and IMSs, whilst cutting out all the background noise (click on blue highlighted link to see it for the last week)

Cheers, Paul.

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djpreston 16th Feb '13 12 of 19

Why? It's a very long story. I, trust you are sitting comfortably?

Short version is latent investment.

In cars the big companies have invested heavily in automatic gearboxes and didn't want to scrap in favour of new technology and that evolved to be 5,6,7 & 8 speed boxes. Also remember the last big technological revolution was, if I recall correctly, the Wankel rotary engine, which came close but wasn't taken up. Newer groups, such as tata without the legacy investment have taken a licence.

The main opportunity at the moment and indeed had been the focus for several years is in the truck and bus sector where there are very significant savings as are proved by the tests with the European outfit and of course Allison. Allison is very interesting as out is a private equity backed outfit. They don't waste money on licences and equity stake unless they have clear intention and advantage. As, if I recall correctly, Allison are the largest auto transmission manufacturer, there is a very big opportunity there.

Both the European and Allison have made steady progress over the years and of course, with the slowdown, there had been a lack of desire to invest in new systems.

The mkers and vcharge are newer ideas but, especially vcharge, have been warmly received.

The ever increasing pressure to reduce emissions and improve mpg is seeing a move to smaller engines but how to retain performance? answer is turbo and super chargers each have problems and charge does really address these, as those who have driven the test vehicle will attest. Add in the benefits of MKers vs electric and the future still looks very very bright. Then again, they have always been on the cusp of a break through.... If they do then the licencing model is very profitable, as per ARM.

Bhod on the TMF site can probably give a better response.

It will be very interesting to see what Allison say when it comes to the licence payment in march.

To me, the technology and proposition is compelling and will eventually work but when is the hard part.



Fund Management: European Wealth
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peterg 16th Feb '13 13 of 19

Hi Darron,

Short version is latent investment.

Thanks for that background on TRK. I'm in a similar position to Paul on this, it's one I've been aware of as interesting for as linage as I've been actively investing, but it''s never quite made the break. I think you might have stirred me to take another look.

One thing that does strike me with this sort of situation is that once one manufacturer takes it up seriously and gets trucks or whatever on the road which are significantly more efficient then the pressure on others to licence the tech too is likely become irresistible, so things could move quite quickly. I guess the counter argument is that once that situation exists the commercial pressure to find other ways of achieving the same end result increases too, and that's when we find out just how strong a technological moat TRK have?

Thanks also again Paul (and Stocko) for your morning post, it's getting to be essential reading!


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Paul Scott 16th Feb '13 14 of 19

In reply to djpreston, post #12

Hi Darron,

Thanks for that, very interesting.

My main reservation with TRK is that, to be blunt, I don't believe their claims of 20% fuel savings. It simply doesn't pass the common sense test.
A good quality manual gearbox drives the wheels with virtually no losses of power (through friction), and if driven well by a sensible driver, who changes gear promptly, and uses the torque band of the engine (without over-revving it), combined with an over-run fuel cut-off (so that you're using no fuel at all when slowing down, which is fitted to almost all road vehicles these days), and with a top gear which is as high as the engine can cope with, then it's simply not possible to make any significant fuel savings by changing the gearbox - you're already almost at the optimum level of efficiency that can be affected by the choice of gearbox.

I can see how an electronically controlled TRK gearbox could save fuel compared with if you had a bad driver who was over-revving, etc, using a conventional gearbox, and it could definitely save fuel compared with e.g. an old-fashioned 3-speed epicyclic automatic gearbox driving through a torque converter with no lock-up, in a small-engined car, which are notoriously inefficient.

So I suppose what I'm saying is that manual gearboxes with a heavily over-driven high top gear are already very close to perfectly efficient, and modern automatic boxes are pretty close, so in my opinion TRK are making unconvincing claims for efficiency in a rapidly shrinking efficiency gap. So perhaps conventional gearboxes have already been made so efficient, that there's little to no benefit from changing to a completely new type, especially bearing in mind the risks associated with introducing new technology, which might go disastrously wrong if they all started failing after say 3 or 4 years in service, or they self-destructed if customers put in the wrong grade of oil, etc.

All in all I think TRK have probably had long enough to hit the big time, if it was going to happen at all, and they might end up succeeding in some niche products, but I can't see any justification for a fairly hefty market cap premium over cash.
But they might suddenly crack it. The problem in your shoes, and I know what this is like, when you have a very big stake in a speculative company, you daren't sell, in case they succeed and the shares multi-bag just after you've sold!! So they are very difficult shares to disengage with emotionally after a long period of holding. I'm like that with IndigoVision - their new CEO has got to crack it in calendar 2013 in my view, or I'm just going to move on.

Regards, Paul.

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extrader 16th Feb '13 15 of 19

Hi paul,

My take FWIW on Darron's comments is that the original Torotrak product is still good for economies on trucks and buses (hence the focus there) whilst the later innovations are relevant for fuel economy in smaller vehicled by more efficient turbo charging and energy capture (nothing to do with transmission efficiency, per se....except negatively in the case of energy capture, if you see what i mean).

Speaking of energy capture, good luck with tomorrow's run ! I find that 'start slow, finish slower' works for me as a strategy - most of the time......


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jraitt 16th Feb '13 16 of 19

In reply to paulypilot, post #14

Hi Paul,
I am not the right person to answer this as I know nothing about the workings of a motor car. You say you do not believe the fuel savings claimed and then compare with a good driver with a manual gearbox. I think you have misunderstood the product.
As I understand it the TRK gearbox includes a spinning flywheel that was the origin of KERS, which as you know from F1 stores energy from braking and uses it to when starting or accelerating. Buses and delivery vehicles are constantly stopping and starting using this stored energy thus saving fuel particularly as those conditions are the most fuel inefficient for motor vehicles.
Hope you get the gist - maybe worth a quick look at the website.
Hope the run went well - thinking of you
PS You did say some time ago you would comment on your meeting with Angle directors. Very interested as I heard their presentation last week.

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kenobi 18th Feb '13 17 of 19

I have traded toro in the past, but what puts me off is the lack of progress, and the always about to make it. If the product is so good, why didn't for example rover take a punt on it when they were saved by the tower consortium, or why doesn't any struggling car company, take a punt on it to give themselves a 20% efficiency boost ?

technically I guess it's possible, however efficient a manual is, if you only have 4 or 5 gears, and realistically for town driving you're probably only using 3, then you're in the wrong gear most of the time (compared to the infitnite number you could have). so I would assume savings are possible, especially when you see how some people drive manual cars, over reving, and being in too low a gear.

So why hasn't it taken off, I can only imagine that a big investment is required. I must say though, that now is the time in the economic cycle when someone might take this put, recovery is kicking in, car companies are doing better, but fuel costs are still high. You would think it would be GM who would do this, they make big cars, not fuel efficient, and importantly, the majority of cars they sell are autos, so it would be less of a culture shock to their sellers, I know fuel is cheap relatively in the US, but they feel it when prices go up, and you'd think this would be a great selling point. The amount of money needed to do this would be peanuts for GM, and perhaps this would make a high cost option ?

Still as of now, and as you say 15 years or so, no one has gone for it, I wonder if this is one of those technologies that will never catch on for consumer vehicles.


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djpreston 18th Feb '13 18 of 19

An interesting announcement of a deal with Tata.

LONDON--Torotrak PLC (TRK.LN), a provider of gearless traction drive technology to reduce carbon-dioxide emissions in vehicles, Monday said it has concluded a collaboration agreement with Tata Steel U.K. Limited, MIRA Limited and Productiv Limited, which are the lead partners in a government-backed initiative to help bring U.K. low carbon technologies to market.
-Agreement centers around the creation of 'The Proving Factory', which allows the company to benefit from shared development, manufacturing and quality processes.
-Initial application for the project will be Torotrak's "V-Charge" technology, which allows single or dual stage variable boost, addressing the growing market for CO2-reducing downsized engines.
-Proving Factory should allow capacity of up to 20,000 units of manufacturing capacity per annum.
-Higher volumes will then be targeted at licensed manufacturing arrangements.

By the way jrait, I think youve got the technology all wrong - see their website for a better explanation.

Fund Management: European Wealth
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Ramridge 19th Feb '13 19 of 19

Hi Guys
I bought TRK shares a while back and sold them reluctantly in Oct last at a loss. Why?
1. Thought they had a disruptive technology, actually it is a sustaining technology, meaning potential for incremental improvements to existing technology.
2. Large corporations such as Ford and other potential customers are not shy in spending large amount of time, money and effort in evaluating something like this which may have the potential to make a huge difference to their competitive advantage. If they haven't bought into this so far, then that's good enough for me to exit.

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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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