Small Cap Report (6 Mar) - TRCS, LCG, BDI, VNET, TRB, AMO, SPGS, AMS

Wednesday, Mar 06 2013 by

Pre 8 a.m. comments

I mentioned in my report of 4 Mar that the broker forecast for Tracsis (LON:TRCS) seemed to show turnover & profits expected to halve for year-ending 31 Jul 2014. The company has been in touch to say that this is definitely incorrect data, because there are not any forecasts in issue for Tracsis for year-ending 31 Jul 2014 yet, and that in any case they wouldn't expect trading to go backwards. So my apologies for this, and I'm happy to correct this error, which I have passed on to the data provider to be corrected at their end too.


London Capital Hldg (LON:LCG) shares shot up recently on it announcing that 3 competitors were interested in taking over the spread betting company. It all went wrong yesterday afternoon, with an announcement at 3:39pm saying that it is no longer in discussions, and the shares are back down to 36.5p, which is only slightly above the price before the takeover approaches.

One has to wonder about the shares, given that three competitors all looked at bidding, and all withdrew. I had a look at these shares recently, and had some concerns over a legal/compensation problem the company had, which seemed to involve large payments. Also they are in a very competitive sector, and I'm not clear what (if any) competitive advantage LCG has. I'd want up-to-date facts & figures before taking the plunge on this one, something just doesn't feel right with it at the moment.


Bond International Software (LON:BDI) announce a contract win to provide payroll & HR software to Carpetright's 600 stores. That's great, but no indication is given of the size of contract, or whether it is material to their results (which I suspect it probably isn't). Nevertheless, for a serial disappointer, it's good to hear that BDI is winning new business. I've been in & out of these shares several times over the years, and the company has often looked promising, but the accounts are a bit wobbly on closer inspection, due to capitalising development costs. I might have another look though, as you would imagine there should be a nice cyclical angle on the shares, as companies invest in new software as economic recovery beds in.


Post 8 a.m. comments

I see that a flurry of small sells have once again brought Vianet (LON:VNET) into buying range, although the ridiculously wide Bid/Offer spread that market makers insist on, seemingly regardless of volume, deters me from trading. I shall wait for it to get a few pence cheaper, as the momentum seems downwards, but c.90p seems a very attractive price to me, since that would lock in a well-covered dividend yield of 6%, plus with upside in the pipeline from their growth plans, somewhat delayed but still happening.

If you split out VNET into its main activities, it becomes obvious that the shares will be worth more than the current price, once the loss-making growth areas have moved into profit (e.g. fuel monitoring, vending, and USA expansion). Short term disappointments don't bother me, as these things happen, as anyone who has run a business themself knows only too well, things rarely go to plan.

See my most recent Equity Active note on VNET's profit warning, especially the table showing performance of the different parts of the company to get the overview of where they currently are. I like value situations, and a temporary setback in a company with a reliable source of recurring profits, strikes me as a buying opportunity, but as usual please do your own research, these are only ever my personal opinions.


Educational group Tribal (LON:TRB) issues a trading update which has pleased the market, with their shares up 13% to 130p this morning. With 93.7m shares in issue, that's a market cap of £122m. They indicate that 2012 turnover will be in line with expecations (which seems to be around £113m, looking at forecasts on Stockopedia), and that adjusted profit before tax will be approximately £12.8m.

The trouble is, they haven't said whether the profit figure is above, in line, or below market expectations, which is not very helpful. Stockopedia shows a forecast net profit of £8.75m, but I can't tell whether that's comparable with the adjusted figure which Tribal quote. Usually brokers quote adjusted profit figures, but not always. Given that it's often difficult for private investors to get hold of broker notes, one shouldn't need the latest broker note in front of you to make sense of a trading statement. Trading statements should be worded in such a way that the reader is left in no doubt as to whether profit (not turnover!) is in line with, ahead, or below, market expectations.

Given that the shares are up 13% today, it looks safe to assume that they have exceeded expectations.

TRB haven't given an EPS figure either, which is also unhelpful. But it looks to me roughly 10p EPS, so at 130p the shares are on a PER of 13, and given they have a bit of debt too, it's not a valuation that I can get excited about. The dividend is very small also, giving only a 1% yield, so this share doesn't interest me. As it relies heavily on Government contracts, there is an added risk that Tribal will fall victim to the latest crackpot policy idea that some politicians or civil servants dream up, to further wreck educational standards. They can't even teach kids to speak coherently, without every other word being a superfluous, "like", so you wonder how on earth we're going to compete with the better educated & motivated youth from emerging economies.


There has been a sudden bout of profit-taking in Amino Technologies (LON:AMO), a share I have held for a while now, so I've nipped in and bought some more at 73.5p today, which seems a good price, given the company's cash pile, and the progressive dividend policy announced a few months ago. That should lock in a dividend yield of 4.7%, and the stated intention is to increase it by 15% over the next 2 years. Almost half the market cap is net cash!

It's funny how sometimes a few small sells can set off a mini stampede of people desperate to lock in gains. I suspect we'll be seeing a lot more of that, as markets get increasingly frothy and irrationally exuberant. Personally I'm not chasing up anything in price, and am only holding shares which are still good value on fundamentals. That way I'll be happy to continue holding through the inevitable market correction which is bound to be triggered at some point.

Value shares don't tend to fall in price as much in downturns either, compared with the hyped up story & growth stocks which are doing so well at the moment, which I believe will get a bucket of cold water thrown over them by the market at some point, when expectations reset to more realistic valuation levels commensurate with sluggish Western economies.


Superglass Holdings (LON:SPGH) is a good example of why I don't invest in highly geared companies any more. Trading is poor, and they've effectively run out of money, so will need to raise fresh equity to survive.  Looking at their last balance sheet, dated 31 Aug 2012, current assets were £5.5m, and current liabilities much larger at £10.8m, so a £5.3m deficit there. On top of that, there was also £4.8m in long term debt. Plus it was trading at a loss (stripping out an exceptional gain), so it seems pretty obvious to me that additional funding would be required. The shares have halved today, and will now just settle at whatever level is dictated by the people who invest the fresh money, who can dilute existing holders out of existence if they wish, unless those existing holders are also prepared to inject fresh cash.

It just isn't worth getting into financially distressed companies shares, which is why I place so much reliance on strong balance sheets. Companies don't go bust because they are loss-making, they go bust because they run out of cash. If a company has a sound balance sheet, then it gives management time to trade their way out of any temporary problems, whereas highly geared companies face disaster in the same circumstances, which can often wipe out the value of existing equity.


Results from Advanced Medical Solutions (LON:AMS) look very good, although almost all the 53% turnover growth came from the acquisition of RESORBA. Adjusted fully diluted EPS rose 24% to 5.3p, so at 71p the share price looks up with events, giving a PER of 13.4. So it's really all about growth, and whether you think the company can deliver that. I don't know, and with only a 1% dividend yield, it's not something that would interest me, unless I were to meet the company and get excited about growth potential.


Talking of meeting management, at 5pm today it's David Stredder's quarterly "Mello Central" evening, hosted as usual by FinnCap of 60 New Broad Street, just across the road from Liverpool Street Station in the City.

I shall be attending, and look forward to seeing some of you there. The companies presenting tonight are UtilityWise (UTW), which I liked after reviewing recent results here. Also, Idox (IDOX), Jelf (JLF), and Hayward Tyler (HAYT) are presenting. It's a great way to meet management of smaller Listed companies, hear short presentations from them, Q&A, and networking over wine & a buffet afterwards. We usually head to a Pub over the road for a couple of pints too.

Dave says there are a handful of places left, so for anyone interested, please find booking details here.

Details of the companies presenting have been published by Dave here on Motley Fool.

Best Wishes,


(of the shares mentioned today, Paul has long positions in VNET and AMO, and 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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Tracsis Plc is a United Kingdom-based company that specializes in solving a variety of data capture, reporting and resource optimization problems. The Company’s products and services consists of: Software: Industry strength resource optimization and rail management software, Professional Services: Consulting and technology related professional services across the operational and strategic planning horizon, Remote Condition Monitoring (RCM): Technology and reporting for critical infrastructure assets in real time and Data Capture and Analytics: Collection, collation and analytical services of traffic and passenger/customer data within rail, traffic and pedestrian rich environments. It has contracts with operators within the rail and bus industries. Its subsidiaries include R.W.A. Rail Limited, Peeping Limited, Safety Information Systems Limited, MPEC Technology Limited are few of the company’s subsidiaries. more »

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London Capital Group Holdings plc is a United Kingdom-based company that operates through its principal subsidiary, London Capital Group Limited. The Company's core activity includes provision of spread betting and contracts for difference (CFD) products based on financial market products, such as futures, equities and foreign exchange. The Company provides online trading to private, retail and professional clients. The Company's operating segments include financial spread betting and contracts for difference (CFDs), the United Kingdom, and institutional foreign exchange (FX). The financial spread betting and CFDs, United Kingdom segment is engaged in the provision of the spread betting and CFD products, commission income, exchange gains and interest. The institutional foreign exchange segment earns commission income generated from the clients' FX trading. more »

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Bond International Software plc is a United Kingdom-based provider of software solutions in the field of human capital management. The Company is engaged in providing software, hardware and related support services to the recruitment industry; providing human resources and payroll software and related support services and outsourced payroll services, and providing outsourced services to the state education sector. The Company operates through three business segments: Recruitment software, HR and payroll software, and Outsourcing. The Recruitment software segment is engaged in supplying specialist recruitment software. The HR and payroll software segment is engaged in supplying human resources and payroll solutions. The Outsourcing segment is engaged in providing outsourced human resources, payroll and other services to schools in the state sector, and payroll bureau services to organizations in the state and private sectors. more »

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  Is Tracsis fundamentally strong or weak? Find out More »

2 Comments on this Article show/hide all

marben100 6th Mar '13 1 of 2

Hi Paul,

Re London Capital Hldg (LON:LCG) , was not attracted to that one after seeing them present. I formed the impression that it's another one of those cos that makes profits from exploiting dumb clients. As you've experienced, those stories generally don't end well for shareholders, so I steered clear.

It's good to have plenty of filters for companies not to invest in. Makes it easier to narrow down the choice of attractive & investable propositions and focus on those. Doesn't matter if you miss some that turn out to be good. More opportunities always come along.



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tads 6th Mar '13 2 of 2

Hi Paul

Given that VNET now has iDraught installed in 2000 American pubs, do you know how much this will be worth to them?



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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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