Small Cap Report (5 Feb) - ALL, ALU, LWB, HNT, GHT, LID, CRA, BAE

Tuesday, Feb 05 2013 by

Yesterday was an interesting day, with the FTSE 100 down 100 points, yet my portfolio of small cap value shares was actually up on the day, helped by a further rise in Amino Technologies (LON:AMO) and good results from Walker Greenbank (LON:WGB). Long may it continue, although I'm very mindful of the reality that this excellent run we're having at the moment can't carry on forever.

OK, let's look at some results! Firstly, Allocate Software (LON:ALL) releases its interims to 30 Nov 2012. They provide "workforce and compliance optimisation solutions", whatever that means?

I like the way they have presented the breakdown of turnover on the face of the Income Statement, that's a helpful initiative, giving a subtotal for recurring revenue, and then showing licence revenue, and service revenue separately too.

The numbers don't look good though. Whilst turnover is flat, costs have risen by about £1.1m, meaning that the highlighted EBITDA figure has fallen by two thirds to £562k. Amortisation & other charges take them to a basic EPS loss of 3.48p. I can't see anything in the figures or the narrative that excites me, especially as the £51m market cap seems pretty racy, given these lacklustre results.


Alumasc (LON:ALU) is a £35m market cap (at 99p a share) supplier of premium building & precision engineering products. Their shares are up over 50% from the low in July 2012, but still well below their recent peak in Jun 2011. The headline figures for their interim results to 31 Dec 2012 look pretty good - underlying EPS has more than doubled to 4.8p, and the interim dividend has doubled from 1p to 2p.

Whilst net debt has fallen sharply to £8.4m, that is expected to partially reverse in H2. They are on track to deliver on "previous expectations for underlying results for the full year". I'm not sure what the significance of "previous" is, in that sentence? Perhaps there has been a very recent broker upgrade which should be disregarded?

The forecast PER of 10.5 looks reasonable at first, but when you factor in a fair bit of debt, and the pension deficit, it stops looking good value, so to my mind this is probably fully priced at around a quid a share, hence doesn't interest me.


Low and Bonar (LON:LWB) is a manufacturer of technical textiles, such as carpet underlay, side curtains for lorries, marquees, etc. Their results for year-ended 30 Nov 2012 look solid, with adjusted EPS coming in ahead of forecast at 6.3p (forecast was 6.1p). So at 59p that puts them on an apparently reasonable PER of just under 10.

However, the Balance Sheet rules it out for me, with £83m in net debt, plus £25m in pension deficit, figures which are far too high to make it a safe investment, in my opinion.


Huntsworth (LON:HNT) is a public relations group. with a market cap of £106m at 45p a share.

Their pre-close trading statement this morning says that rigorous cost control will deliver a double digit (percentage, presumably?) improvement in profitability for 2012 against 2011, and that they will meet expectations for 2012. Sounds good. Rather too much debt again for my liking, although it's reduced to £67m at 31 Dec 2012.

The most striking thing here is the dividend yield, which at 3.5p seems to give a yield approaching 8%! If that's sustainable, then the shares might be worth a look, although such high levels of debt are not usually compatible with a big dividend yield - i.e. earnings should probably be used to pay down the excessive debt, rather than paying dividends. Personally I only attribute weight to a high dividend yield if it is well covered by earnings, and where net debt is low, because both factors need to be in place to make a dividend yield sustainable. As we saw with HMV, a highly indebted company which continues paying an unaffordable high dividend, simply hastens its own demise when trading deteriorates.

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I recall in 2003-4, shares in Gresham Computing (LON:GHT) were massively hyped up to a ridiculous valuation, and I've been suspicious of these shares ever since. Their trading statement this morning looks sensible though, with revenue and earnings for 2012 in line with expectations. However, that puts them on a PER of 24 times 3.1p EPS, which is far too expensive to warrant me spending any more time on it. They have net cash, but don't pay a dividend, which seems a rather glaring omission.


Lidco (LON:LID) issues a trading update for year-ended 31 Jan 2013. It's a cardiovascular monitoring company. The historic numbers look pretty weak for a £27m market cap (e.g. only £7.1m turnover, and breakeven for 2012), but they do talk about strong growth in the UK expected in 2013.

However, 2012/13 has been unremarkable, with no overall growth, and a small operating loss. So I can't see the sense in paying up-front for future growth with a £27m market cap, unless you have a very good handle on what the figures are going to look like in a year or two's time. I don't, so will pass on this one.


Shares in Corac (LON:CRA) have shot up 15% today on a positive-sounding trading update. Although they say that results for 2012 will be ahead of market expectations, the figures I have forecast a heavy loss of around £6m for 2012. It seems to be a blue sky thing on a racy valuation of almost £50m after today's rise, so not of any interest to me.


It's interesting to see that shares in Alumasc, Huntsworth, and Low & Bonar (mentioned above) are all up 5%+ today on positive-sounding results. What worries me is that people don't seem to be even looking at the balance sheet any more, or considering debt and pension deficits. That suggests a degree of irrational exuberance is appearing, in my opinion. I shall stick to my value investing approach, even if it means missing out on some of the more speculative upside.

On a final note, I see department store group Beale (LON:BAE) announced poor results yesterday afternoon. I don't normally cover results or trading statements issued during the day, as it's just too much for one person to cover, and the majority come out at 7 a.m., which I do cover. Suffice it to say that I'd be surprised if Beale is still around in a couple of years' time. It's amazing that they have survived this long really, as little has changed there since I remember losing my parents in the one in the Arndale Centre in Poole, in the 1970s, and suffering the humiliation of being announced as lost on the tannoy!

See you at the same time tomorrow. Don't forget to bookmark the home page of Stockopedia, as a reminder to check out my report here every weekday, if that's not too presumptuous a suggestion!

Regards, Paul.

(of the shares mentioned today, Paul holds long positions in: AMO and WGB only. He does not have any short positions)

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Allocate Software PLC (Allocate) is a United Kingdom-based company engaged in software and services business. The Company operates in the healthcare and defense sectors. The Company is a provider of specialist workforce optimization and assurance software and services as well as provides workforce optimization and compliance software applications. The Company’s client base includes healthcare, defense and maritime offshore oil and gas companies. The Company’s license revenue represents revenue from the sale of non-cancellable software license agreements. The Company’s subscription revenue is derived from the sale of software’s as a service product, allocate cloud and hosting revenues. The Company’s support and service revenue represents revenue from the provision of installation, consulting, training and product support. The Company’s subsidiaries include Time Care AB, Time Care Sverige AB, Allocate Software Inc, Allocate Software PTY Limited and Allocate Software Sendrian Berhad. more »

Share Price (AIM)
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The Alumasc Group plc is the United Kingdome based company which is a supplier of premium building and precision engineering products. The majority of the group's business is in the area of sustainable building products. Company’s operating business consists of Energy Management, Building Products and Engineering Products.  The building products operations consist of Construction products and Rainwater, drainage and house building products. The key products under this segment are engineered access cover line drainage systems roof, shower and floor drainage systems, metal rainwater systems ventilation products, access panels, cavity trays building and access products. The energy management operations consist of LEVOLUX, ALUMASC, euroroff, blackdown, ROFF-PRO and ALUMASC insulated renders. The engineering product segment consist of Alumasc Precision Components which offers high pressure die casting, low pressure die casting, gravity die casting, machining and finishing. more »

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Low & Bonar PLC is an international company manufacturing and supplying a range of products to the Performance Materials industry. This is a global business, supplying yarns, fabrics and fibers to a range of end markets including civil engineering, building products, transport, sports and leisure, agriculture and other industrial applications. Its divisions: bonar; technical coated fabrics, and yarns. Its Bonar division serves the civil engineering, flooring, transport, industrial and construction sectors. Technical Coated Fabrics division serves the building products, transport, leisure, print and industrial sectors. The Yarns division serves the artificial grass yarns and woven carpet backing sectors. The Company’s products includes woven and non-woven geotextiles, construction fibers, architectural fabrics for permanent and temporary building structures, coated fabrics for sunshading, boat, pool, camping and sports, and polypropylene carpet backing yarns for woven carpets. more »

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  Is Allocate Software fundamentally strong or weak? Find out More »

15 Comments on this Article show/hide all

Asagi 5th Feb '13 1 of 15

Hi Paul - r.e. exuberance, see what happened to Northbridge Industrial Services (LON:NBI) yesterday following a Midas tip in the Mail on Sunday. Shares up something like 15%. The Stockopage for the company says they now have a market cap of £49m.

That's some rise for a paper tip! It isn't like the company was a £5m tiddler.

I can't help buy think those punters would not have rushed in if the markets had not been good - sick of seeing other people make gains. With a real twinge, I sold my shares in the company this morning.

I think that we have been in a bull market since the New Year.

Asagi (no position)

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Paul Scott 5th Feb '13 2 of 15

In reply to Asagi, post #1

Morning Asagi!

Interesting that you should mention shares rising strongly on newspaper tips, I've also noticed that (it happened with Staffline, helping to push them up from around 240p to 300p very quickly, so I banked the profit).

It suggests to me that equities are coming back into fashion with the general public perhaps? That could give a very different type of market from the one we're used to, with "story stocks" once again being pumped & dumped, etc. I don't relish that type of stuff at all, as you almost have to throw out the value rule book and just trade on sentiment.

It's 15 years since the TMT boom began, and the financial memory is supposedly 15 years, so perhaps this is the start of the next big bull market? Makes sense, since residential property is over-priced, savings accounts pay nothing, yields on Gilts are laughable, so where else can people put their money?

Regards, Paul.

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Ramridge 5th Feb '13 3 of 15

Hi Paul.
Re. Allocate Software, I see the volume of trading was just over 3m yesterday. Average volume is normally a few thousands which I would expect given their size. And the price hardly moved. What gives?
Regards, and good to see you at stockopedia, Ram

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ericb 5th Feb '13 4 of 15

Re ALL - 2 big trades of around 1.55m each. could have been some asset reallocation between holders, hence not affect share price.

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Ramridge 5th Feb '13 5 of 15

In reply to ericb, post #4

Plausible. Thanks, Eric.

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brigandchief 5th Feb '13 6 of 15

Dear PP
I read somewhere recently that someone thanked you for your tips, sugggestions or just plain commentary. I would like to thank you for your 'not to be too interested in' as this does show how to approach value stocks or perhaps how to sift through the dross to find the real possibilities. Only one issue however, when is Indigovision (LON:IND) going to show some performance. I know you love this one but will it turn good before I die?? And I hope Feb has brought a small glass of red!!
Cheers David

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Paul Scott 5th Feb '13 7 of 15

In reply to brigandchief, post #6

Hi David,
Thanks for your comments. I'm only ever giving an opinion on shares, and the nature of the game is that sometimes I'll be right, and sometimes wrong! Outsiders never really know what's going on inside any company, it's all just educated guesswork really.

For me the key things with Indigovision (LON:IND) was the change in CEO about a year ago. I met the new CEO & FD last autumn, and was very impressed with their turnaround strategy, which was focussed on putting in place the right people & processes in year 1, then a big push for sales growth in years 2 & 3. We're now in year 2 of their turnaround, so if it's going to happen, it will happen this year I think, or not at all.

They've certainly got a highly focussed, and hard-working new CEO, who is absolutely determined to prove himself (perhaps after many frustrating years as FD to an absentee CEO, who let the company drift, instead of leading from the front, as we now know).

I feel that IND giving away the cash pile to shareholders was a pretty bold move too, which wouldn't have happened unless they were reasonably confident of making it work. The last trading statement wasn't bad - sales up 6%, and order book up 10%. If that accelerates to market growth and beyond (20%+) then the bottom line could rocket, since they have considerable operational gearing at 60% gross margins.

I would love to exit IND on a high, as it's taken up far too much of my time & energy over the last 9 years! My assessment, rightly or wrongly, is that there's a good chance it could pay off this year, but no guarantees obviously, and it has let us down several times in the past, when growth has started, only to fizzle out.

Cheers, Paul.

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brigandchief 6th Feb '13 8 of 15

In reply to paulypilot, post #7

Thanks Paul, really do appreciate your effort to reach us all!!!
Cheers David

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Trebor Ebagum 8th Feb '13 9 of 15

Think you are missing a trick with GHT Paul. They have brought in FDM to help cope with future demand of their CTC offering. ANZ were used as a test bed, just wait till the really big boys jump on board!

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Ramridge 8th Feb '13 10 of 15

In reply to Trebor Ebagum, post #9

Hi Trebor. Having worked in the financial services sector and software services for many years GHT 's CTC product is IMHO a big bet for a small company. CTC is a new proprietary platform offering. Financial institutions have millions invested in their current systems. GHT have a number of hurdles to overcome before turning a prospect into a paying client. Compelling business case, proof of concept, trialling, migration of systems, training, cutover, adoption of new system. Larger the institution the longer the lead time and the upfront cost to Gresham. Typically 1.5 to 2years. As Paul often says, not one for me. Better pickings elsewhere.
Regards, Ram

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Trebor Ebagum 8th Feb '13 11 of 15

"FDM will provide our core implementation team with the scalability and global reach we will need to meet customer demand."
There is a queue forming ...... Wait and see!

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Trebor Ebagum 23rd May '13 12 of 15

Taken from the recent interim statement:
We have advanced a number of CTC opportunities with global financial institutions from proof of concepts to paid projects for the deployment of CTC in Asia Pacific and EMEA - we expect a number of these paid projects to proceed to full contractual engagements in due course, certain of which would be of significant value to the Group;
Looking good IMHO

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Trebor Ebagum 3rd Jun '13 13 of 15

3 June 2013

Gresham Computing plc

("Gresham" or "the Company" or "the Group")

CTC Contract Win

Gresham Computing plc, the specialist provider of software based solutions that enable customers to achieve real-time financial certainty in transaction and cash management, is pleased to announce the following contact win.

On 15 May 2013, we announced that the Group was engaged in a number of paid projects with global financial institutions for the deployment of CTC. The Board is pleased to announce that the first of these projects, with a major financial services company in the Asia Pacific region, has moved to signed contract for the purchase of CTC as a platform technology from which to complete a major intersystems reconciliation project.

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Trebor Ebagum 3rd Jun '13 14 of 15

particularly like "the first of these projects" in the RNS

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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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