Small Cap Report (7 Feb) - TRI, UTW, DSG, MTEC, AVON, INL, CAP

Thursday, Feb 07 2013 by

Trifast (LON:TRI) presented at a Mello Central event hosted by FinnCap last year, and I wasn't impressed. It seemed to me that this was another example of a company run mostly for the benefit of its Directors - who are drawing fairly hefty salaries, leaving little in profits or dividends for shareholders. It's a low margin business anyway, making industrial fastenings, which can be made anywhere wages are low.

However, they seem to be making progress, as their IMS & Trading update today reports that profits are on track to meet market expectations for year-ending 31 Mar 2013. Forecasts indicate an increase from about 3.1p EPS to 4.7p, a useful increase that seems to have been driven by a sensible focus on higher margin work, rather than chasing low margin turnover for the sake of it.

Trifast (TRI) 12m chart

The shares are currently 52p, so that puts them on a current year forecast PER of 11, which doesn't look good value to me for a low margin, low growth company. Particularly when they also have a fair bit of debt too, which was last reported at £7.7m at 30 Sep 2012. Their balance sheet overall looks alright, but Stock is perhaps rather too high, which suggests to me they are required to maintain quite high stock levels in order to meet customer orders. All very well, but the cost of doing so eats up over 10% of operating profit in interest charges from the Bank.

I just can't get excited about the business, its prospects, or the valuation. If there was a 5%+ dividend yield I might look again, but the forecast yield is only 1.5%. So this one gets a thumbs down from me, there are much better companies out there on cheaper ratings in my opinion.


Today's trading statement from Utilitywise (LON:UTW) looks interesting. They are a utility bills consultancy, a sector which interests me because I've used a similar consultant before, and they are very good - negotiating useful savings on energy bills for SMEs, which is often too complicated to do yourself (as the tariffs are so confusing, and sales people from the energy companies make contradictory claims, so it needs a specialist to unpick the facts from the sales puff).

Trading is in line with management expectations (which we always have to assume are the same as market expectations), and "comfortably ahead" of the previous six months. It looks like an interesting growth at a reasonable price ("GARP") situation.

UTW is forecast to make 7.4p this year (ending 31 Jul 2013) and 10.3p next year, so if you look a year ahead, then the current share price of 101p (up 3p on the day so far) looks reasonable.

Unfortunately, the Market Makers have once again worked their negative magic, and prevented me from trading by quoting such a ridiculous spread of 98p Bid, 104p Offer, that's it's pointless spending any more time looking at UTW. Why would anyone buy a share and suffer an instant 6% loss just on the spread? (plus Stamp Duty, if applicable, and broker commission). Unless & until the market is opened up with direct market access ("DMA") for all shares, then it can only be viewed as a completely dysfunctional market for small caps. I don't exist to line the pockets of Market Makers, so they can forget it, no business is transacted, even though I would very much like to buy shares in UTW. Market Makers don't add liquidity to the market at all, since they try to run neutral books, and widen the spreads to such an extent that they actively kill off market liquidity!

It's so annoying because the solution is so simple & obvious! We just need to open up all shares to having an electronic order book, whereby anyone can place orders directly, without the need for intermediaries - other than an electronic broker to provide the DMA platform and take a very small commission on each trade of about 0.1%. I used to use such a platform from GNI Touch, and it was brilliant. There are probably too many vested interests in the way of such a simple solution for all small caps. It absolutely infuriates me, as you might have gathered!

Anyway, I have added Utilitywise (LON:UTW) to the watch list, as something to buy on a dip, if and when its shares become available at a reasonable price.


Dillistone (LON:DSG) looks interesting, they are a software company for the recruitment sector. Their trading update today sounds good, with profit for 2012 expected to be "comfortably in line with market expectations", and a good start to 2013.

Forecasts for 2012 indicate a rise of 12% to 6.6p EPS, which puts the shares at 88/90p (note the tighter spread here, even though it's a much smaller company than Utilitywise) on a PER of 13.5, which is probably about right. There might be scope for the shares to go higher, if 2013 is another good year for them. The other noteworthy point is that it has a decent dividend yield of 4%. Always good to be paid to wait for a share to go up in value. It also has net cash, so DSG ticks quite a lot of value boxes, although I'd be happier with a PER of around 10, not 13.5.


Matchtech (LON:MTEC) also looks interesting. It's a recruitment group, a sector where the smaller Listed groups are all priced quite low, although there has been a sector rally in the last 6 months. I thought I'd picked a winner with Staffline (LON:STAF) back in Sep 2012, until I realised that most of its peers had also re-rated at the same time. So it's always worth remembering that a rising tide lifts all boats. It's terribly easy to think you're a clever stock-picker in a bull market, but actually you're often just being swept along with the tide!

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It's also worth bearing in mind that the turnover figures for recruitment agencies are usually massively inflated, since they often include the wages paid to Temps. So it's the (smaller) net fee income which is the real turnover figure to concentrate on.

There's quite a bit of detail in MTEC's trading update today, but the key sentence says that "the group has continued to trade in line with the Board's expectations". Forecasts are for 28p EPS this year, so at 273p (up 6p so far today) the shares are on a current year PER of just under 10. That sounds reasonable, although it's the >6% dividend yield that has really caught my eye. Dividend cover isn't great though at 1.5, and the fixing of the dividend at 15.6p from 2008 to 2012 tells me that they were probably stretched on this, and came close to cutting it, but didn't.

Net debt has reduced from £14.5m at 31 Jul 2012 to £7.9m at 31 Jan 2013, although that looks to me more like a trading fluctuation rather than a permanent reduction, since most of their profit is paid out in divis, the debt is likely to be fairly static on an underlying basis. On balance I probably won't be following up on this one, but can see the attractions, especially once you factor in economic recovery, and rising earnings from that.


Having had a quick look at the IMS from Avon Rubber (LON:AVON), if I held shares I'd be selling them today. They've had a great run, up 50% in the last 6 months, but now look fully valued on a PER of 17 times historic EPS, and 13.7 times forecast current year earnings.

Avon Rubber (AVON) 12m chart


The thing that would worry me is the potential impact of public spending cuts in the USA, which is mentioned in today's statement. This relates to the gas masks that AVON makes for the US Military, I understand. Seems like a significant risk, so why take it, when there's not much upside? Risk/reward looks bad to me, so I'm negative on it at this price of just under 450p.


There are a lot of mid to large cap trading statements today, but even though I'm itching to comment on Ocado, shall restrain myself as I want to keep the focus here clearly on small caps, otherwise it gets confusing.

I see that Inland Homes (LON:INL) has edged up this morning to 22p. The discount to underlying NAV (NAV could be as high as about 35p once unrealised valuation gains are taken into account) is looking unwarranted, given the buoyant state of housebuilders in the South East, and their need for land. Therefore I am confident this share should close the gap on underlying NAV, but it might take some patience.

Following on from yesterday's comments on Clean Air Power (LON:CAP), I've been buying some more, because they seem to be in the early stages of commercialising their Patented technology to allow HGVs to run mainly on natural gas with largely un-modified diesel engines (some diesel is still used, as a "liquid spark plug"). That really could be a big money-spinner when it launches in the USA in 2013/14, given the glut of cheap natural gas over there. The market cap of £15m does not look unreasonable to me, given that their technology is actually in production, orders are growing, and they are funded for the time being after a Placing in Sep 2012. It's high risk though, so please be especially careful to DYOR (do your own research).

That's it for today, see you tomorrow at the same time.

Regards, Paul.

(of the shares mentioned today, Paul has long positions in INL and CAP. Paul does not have any short positions)

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Trifast plc is a United Kingdom-based manufacturing company. The principal activity of the Company includes manufacture and distribution of industrial fastenings and category ‘C’ components. The Company only operates as a manufacturer and logistical supplier of industrial fasteners and category ‘C’ components. The Company’s geographical operating segments: United Kingdom; Mainland Europe which includes Norway, Sweden, Hungary, Ireland, Holland, and Poland; United States of America includes the United States of America and Mexico, and Asia includes Malaysia, China, Singapore, Taiwan, Thailand and India. The Company’s subsidiaries include Trifast Overseas Holdings Ltd, TR Fastenings Ltd, TR Southern Fasteners Ltd, TR Norge AS, TR Miller Holding B.V., Lancaster Fastener Company Ltd and TR Fastenings AB. more »

Share Price (Full)
2.0  1.9%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

Utilitywise Plc is a United Kingdom-based business energy and water consultancies. The Company specializes in energy procurement and energy management services for businesses. It provides an account care service and offers a range of products and services designed to assist customers manage their energy consumption. Its energy management products and services include account care, energy health check, energy audit, ecofit, edd:e energy monitor, utility insight, smart meters and carbon zero. Its subsidiaries include Eco Monitoring Utility Systems Limited, EcoAuditors Licensing Limited, Clouds Environmental Consultancy Limited, Aqua Veritas Consulting Limited , Energy Information Centre Limited, EIC Energy Trading Limited, and Broadfern Properties Limited. more »

Share Price (AIM)
5.5  2.6%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

Dillistone Group Plc is a United Kingdom-based company, which provides software and services to recruitment firms and recruitment teams across the world. The Company operates in approximately 60 countries with over 2,000 firms. It operates in two divisions, including Dillistone Systems and Voyager Software. Dillistone Systems specializes in the supply of software and services into executive level recruitment teams. The division’s main product is FileFinder 10, which is the latest iteration of the FileFinder software system built using Microsoft .NET framework technology. Voyager Software division is involved in contingent recruitment, including permanent placement, contract placement and the provision of temporary staff. Voyager’s products include Voyager Professional, Voyager Commercial, Voyager VDQ! and Voyager Mid-Office, a product range used by temp and contingency recruiters. The division also has Voyager Infinity. more »

Share Price (AIM)
0.0  0.0%
P/E (fwd)
Yield (fwd)
Mkt Cap (£m)

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16 Comments on this Article show/hide all

Dinocras 7th Feb '13 1 of 16

Hi Paul
I've been a holder of Inland for about a year now and have finally lost patience with them, selling yesterday at just under 22p. Decided I needed the money to buy into Brightside. So no doubt Inland will close the NAV gap and Brightside will dip down ;-(

Love the blog by the way, it's a regular part of my daily reading and worth every minute.

Happy a investing


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Paul Scott 7th Feb '13 2 of 16

In reply to Dinocras, post #1

Thanks for the kind comments Terry.
I know the feeling about selling a share moments before it shoots up, that's one of my specialities!

Cheers, Paul.

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shipoffrogs 7th Feb '13 3 of 16

what would you do tomorrow if the spread on Utiliywise was 92/98? i.e. you could buy at today's Bid. I get the feeling that today you would have bought on a spread of, say, 98/100.
Sometimes I think if something looks really appealing at the Offer price you need to forget the wide spread, but it's an approach that works more for the long term holder than the trader.
Enjoy the blog too.

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Paul Scott 7th Feb '13 4 of 16

In reply to shipoffrogs, post #3

I agree that with very compelling value situations, one sometimes has to just cough up and absorb a ridiculously wide spread. However, with Utilitywise it doesn't look compelling enough for me to pay a 6% bid/offer spread.

If it had been 98/100p then yes, I probably would have bought some today. A 2% spread is about the maximum that feels bearable, and becomes insignificant after a (say) 50% rise in share price.

It's more the principle that annoys me, as well as the financial aspect of it all.
If I had DMA on small caps, I could have just put up a buy order at (say) 0.5p ahead of the highest Bid price, left it there, and hopefully got a fill. Or waited a couple of hours, then maybe put another penny onto my buying price, and if nothing doing then give up.

The problem is that the Market Makers are not creating any liquidity at all, they are destroying it. They just sit in the middle, waiting for a buyer & a seller to both turn up at the same time, and then take a huge cut from each. Imagine if a fruit & veg market worked the same way?! You couldn't buy anything until a farmer turned up & offered to sell 3 carrots to the stallholder for 50p, who then turns to me and offers the same 3 carrots for 55p! There is absolutely no need for the stallholder at all! He's an unnecessary & costly link in the chain that would be better off kicked out. Market Makers are the same - they just aren't necessary, if we all had DMA. It works great for SETSmm stocks, so why aren't all stocks SETSmm?

Regards, Paul.

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EssexPete 7th Feb '13 5 of 16

Hi Paul,

I remember the GNI Touch platform. It was great, you could place trades on both sides of the order book around the normal daily trading range and be your own market maker. The platform also had some great features, including a like real time charting package sensitive enough to spot the trading bots in action. It used to provide me with hours entertainment. :)

I agree, DMA would certainly improve the trading experience in London.. Have you tried IG's CFD DMA offering?


Website: Utility Warehouse Discount Club
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marben100 7th Feb '13 6 of 16

In reply to EssexPete, post #5

Hi Pete,

I'm afraid that GNI Touch, IG Markets and all other retail DMA platforms can only operate on SETS stocks (and SETSqx - I'll come back to that).

Many smallcap stocks, especially AIM ones, are only quoted on SEAQ and retail investors cannot place limit orders on SEAQ. SEAQ is a platform that only market makers can offer prices on.

These days, IG Markets - and every other retail CFD provider I've asked - will only allow you place to DMA orders for FTSE250 stocks and larger. My understanding is that iDealing will allow you to place standard stock orders (not CFDs) for any non-SEAQ stock - they're the only broker I know that will do that.

It is also worth noting that some full-service telephone brokers will be able to place DMA orders on clients' behalf.


Utiliwise is traded on SETSqx, which is a cross between SETS and SEAQ. For normal, continuous, trading, the market maker driven SEAQ platform is used. However, SETSqx also offers a DMA order book, but orders are only executed in auctions which are held 4x daily: at 8am (market open); 11am; 3pm and 4:30pm (market close). IMO SETSqx is pretty ideal for relatively illiquid stocks.

As a ShareSoc director, I have been trying to persuade the LSE to make DMA more widely available to retail investors - and to move all SEAQ stocks to SETSqx, on behalf of our members, for about the last two years. The LSE has made some rulebook changes designed to promote competition between market makers, but as Paul's post shows, these have had a limited effect.

The LSE argues that without quote driven systems (i.e. price quotes provided by MMs) liquidity would be even worse. I dispute that - but do acknowledge that with a pure order driven  system (as, for example, the Australian ASX and Canadian TSX offer), immediate order execution, even for small trades, may not be possible, and shareholders may have to be patient to get their orders filled.

The LSE recently held a consultation on limited changes to their system/rules, which is discussed on our members' network (private to ShareSoc members). Our response to the consultaion can be read here:


I would encourage anyone with an interest in this topic to join us! The LSE's head of equities and derivatives markets will be presenting at our next members' meeting on 26th Feb, so that'd be a great opportunity to make your views known to him. Paul, I hope you will be able to make it.



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Paul Scott 8th Feb '13 7 of 16

In reply to marben100, post #6

Hi Mark,

Indeed, I'm a full member of ShareSoc, and an enthusiastic supporter of your work.
I'll try to get along to the meeting on 26 Feb.

I still cannot see any problem at all with opening up ALL shares to SETSmm hybrid, which works brilliantly - you can either buy from a MM, or get your broker to put an order on the order book (or even better have DMA ourselves).

By restricting small caps to just the MM system, they kill off liquidity & destroy the reason many companies want to be listed in the first place.

I would like to see a requirement that all orders entered on the order book must remain for at least 5 seconds, as some people play silly buggers with the SETS system by flickering orders on & off, to create a false impression of trades going through, when there are none.

Cheers, Paul.

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beans4tea2 8th Feb '13 8 of 16

I’ve followed CAP closely since it’s IPO. Unfortunately I've never quite been able to convince myself to buy the shares. Even at 4p last year I couldn’t do it. I say unfortunately because I really like what they are trying to do and really want companies like this to succeed. Sadly I don't think they will.

The main problem for CAP is it’s operating in a very competitive market. You might think from reading CAPs updates that they are fighting a bit of a lonely battle but they aren't. They may have patents on some of their tech but that hasn’t stopped others from achieving similar goals with slightly different tech. There’s no reason why two or more of these technologies can’t co-exist but the very fact that there are at least three companies offering solutions suggests the patents aren’t locking down the idea of dual-fuel itself.

Current competition comes from Hardstaff who have a link up with Mercedes and a company called G-volution who are making trucks with MAN and Daf. It’s difficult to say who’s is best, I’m pretty sure they would all argue their case well. If I had to stick my money on one it’d be whoever Merc picked. It’s worth noting these are not the only companies doing dual fuel. GM is fitting flatbeds using a system from IMPCO in the US, Prins (the lpg people) are offering a dual fuel LPG diesel setup and there are others. It’s a long list.

Besides competition from other dual fuel makers, there is also competition from other fuel solutions. Volvo themselves offer a hybrid truck, as do other manufacturers. Then there is LPG. Coke recently bought a fleet of Iveco LPG trucks.

As you can see it’s a massively competitive area and CAP don’t appear to have any great IP that sets them apart. If they did, I suspect Volvo would have just bought the company in order to get the IP.

Aside from competing companies and technologies there appears to be a reluctance on the part of buyers to actually embrace the idea of dual fuel (or any alternatives). Only a very few of these units have been shipped from all producers despite being on offer in various guises for 5 years or more. I suspect it may be a combination of a lack of infrastructure for gas, the cost (about 25k extra) and a fear of buying the wrong technology, Betamax syndrome. Whilst buyers kick their heels and wait there is the risk that all of these solutions are rendered Betamax by a better technology altogether.

The problem is it’s a good idea but I can’t see CAP ever making a profit from it. I suspect the best chance of a good outcome for shareholders is a buyout from Volvo. If they start to ship more tractors then it’d make sense to bring the tech in-house. Other than that I fear CAP may just continue to lurch from one round of funding to the next.


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EssexPete 8th Feb '13 9 of 16

In reply to marben100, post #6

Hi Mark,

Thanks for your detailed reply.

I'm fully paid up member of Sharesoc and will take a look. Sadly, I can't join you on the 26th Feb. though.

How do we navigate to Paul's earlier Small Cap reports on Stockopedia? At the moment I just click through from his blog.



Website: Utility Warehouse Discount Club
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Murakami 8th Feb '13 10 of 16

In reply to EssexPete, post #9

Hi, they are all listed here on his profile - or you can just type "paulypilot" in the Search box (

We will be giving them their own "area" next week.

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EssexPete 8th Feb '13 11 of 16

In reply to Murakami, post #10

Thanks Murakami

Website: Utility Warehouse Discount Club
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Paul Scott 8th Feb '13 12 of 16

In reply to beans4tea2, post #8

Hi B4T,

Thanks for your detailed reply about Clean Air Power (LON:CAP), that's just what I needed to dampen my enthusiasm, as I was starting to get really over-excited about CAP, and indeed have bought some more today. Always useful to have a bucket of cold water thrown over more speculative ideas!!

All points duly noted, thanks again,

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Paul Scott 8th Feb '13 13 of 16

In reply to Murakami, post #10

I'm getting my own area?! Awesome!!! :-D

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darlocst 8th Feb '13 14 of 16

In reply to marben100, post #6

"These days, IG Markets - and every other retail CFD provider I've asked - will only allow you place to DMA orders for FTSE250 stocks and larger. My understanding is that iDealing will allow you to place standard stock orders (not CFDs) for any non-SEAQ stock - they're the only broker I know that will do that."

I have accounts with both IG Markets & iDealing.

With IGM I can trade via DMA any Sets or SETSmm share regardless of marketcap so your info is wrong there Mark.

iDealing is excellent for DMA for shares, although their interface is nowhere near as slick as IG's L2 dealer.

I agree with Paul on getting more shares quoted on SETSmm but can foresee liquidity problems especially when price moving news is out with those who have DMA access clearing out MM quotes in an instant crashing the price given what would be very limited depth to the order book on many small caps.

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Paul Scott 8th Feb '13 15 of 16

In reply to darlocst, post #14

Interesting points, thanks Darlocst.

An idea I had is that the publication of any significant RNS whilst the market is open should automatically trigger the cancellation of all orders on the SETSmm order book. That would prevent the issue you allude to, i.e. that people would try to trade on an RNS within seconds of reading it, and potentially have an advantage over people who weren't quick enough to cancel their orders.

Should be very simple for them to build into software these days.

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BrianGeee 8th Feb '13 16 of 16

In reply to darlocst, post #14

"I agree with Paul on getting more shares quoted on SETSmm but can foresee liquidity problems especially when price moving news is out with those who have DMA access clearing out MM quotes in an instant crashing the price given what would be very limited depth to the order book on many small caps."

I would also favour SETSmm, but I really don't see any problem at all with it on illiquid stocks, even when there's significant news. I'm not sure they're necessary, but intra-day auctions I believe are triggered if moves more than a certain level are triggered.

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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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