Small Cap Value Report (15 Aug) - DOTD, TRI, LTC, ACM, PVCS

Thursday, Aug 15 2013 by

Good morning. Apologies for today's report being a little later than usual.

dotDigital (LON:DOTD) is an email marketing software company which has been mentioned here before several times by myself, and also Marben100 and StrollingMolby. They presented to investors at the ShareSoc Tech Seminar in the spring of this year, and I remember being impressed with their growth, and a very impressive client list. Although I did have some concerns over the longevity of this type of product.

They have issued a positive-sounding trading update this morning, which has boosted the share price by 12% to 17.88p. The statement says that the company has looked at a number of potential acquisitions, but not found anything likely to create shareholder value. Instead they plan spending up to half their cash pile of £6.1m on driving accelerated organic expansion.

In the core division, turnover grew by 28% to £12.2m for the year to 31 Jun 2013.

As with most software companies, they quote EBITDA, in this case for the full year ended 30 Jun 2013 they expect to be "slightly ahead of the current market forecast (of) £3.8m". Last year they capitalised £1.2m in intangibles, so assuming no change, then profit as I would look at it (i.e. taking out amortisation charges, and adding back capitalised development spending) is probably around £2.6m. Take off tax, and you're in the £2m ballpark. So the £50m market cap after today's rise in share price is an earnings multiple of around 25. That seems very pricey to me, even allowing for the net cash, and the fact that the company has a good growth track record.

It might well grow into this rating over the next year, but personally I don't like paying too much up-front for growth, so the price is too high for me to take it any further. Also, I still have a nagging feeling that email is a bit old hat. Personally I unsubscribe from as many email lists as possible, as so much time is wasted every day constantly reading & replying to emails, it must take up about half my working time at a guess. Other people must surely feel the same, so I think there are better ways for companies to communicate with their customers other than email (e.g. social media). Email just strikes me as a scatter gun…

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dotdigital Group Plc is a United Kingdom-based company, which is engaged in providing software as a service (SaaS) technology and tools for digital marketing professionals. The Company is engaged in providing Web-based marketing services. The Company's core product suite includes dotmailer, which provides e-mail and cross-channel marketing automation solutions. dotmailer provides marketers with a solution to engage customers through e-mail, mobile, social media and landing pages to develop customer lead generation, conversion and retention. The dotmailer platform and tools share data with clients' customer relationship management (CRM), e-commerce and third party applications. dotmailer also provides a range of design and campaign management services. The Company's subsidiaries include dotmailer Limited, dotsearch Europe Limited and dotmailer Inc. more »

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Trifast plc is a United Kingdom-based manufacturer and distributor of industrial fastenings and category C components. The Company provides design support and problem solving solutions to its customers. The Company designs, manufactures and distributes mechanical fasteners on a global basis to both distributors and original equipment manufacturer (OEM) assemblers. The Company offers a range of plastic components, metal fasteners and fixings. The Company has six manufacturing sites in Asia and one in the United Kingdom; with a global logistics capability from approximately 25 business locations within the United Kingdom, Asia, Europe and the United States. The Company offers brands, including Pozidriv, Polymate, Binx and Hank. Hank is the Company's fastenings brand for sheet metal fasteners. These are principally rivet bushes and self-clinch products. more »

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Latchways plc is engaged in the production, distribution and installation of industrial safety products. The Company's operating segments include Safety Products and Safety Services. It designs and manufactures fall protection equipment, which are sold across the world, both directly to end users and also through a network of installers. Certain products, such as the self-retracting lifeline (SRL) and personal rescue device (PRD) range, are sold through distributors. Its business consists of Horizontal business, which include systems for those working at height, such as on rooftops and crane rails, and Vertical business, which include systems for those climbing to or from height, such as ladders, telecom masts and electricity transmission towers. It also offers personal protective equipment, guardrails and walkways and rescue equipment. The Company's subsidiaries include HCL Group Plc, Height Solutions Limited, Sigma 6 d.o.o., Latchways Australia Pty Limited and Latchways Inc. more »

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  Is dotDigital fundamentally strong or weak? Find out More »

3 Comments on this Article show/hide all

rick 15th Aug '13 1 of 3

I agree that PVCS is being valued as a basket case. It appears to be trading at expected cash return to investors at about 11p. i.e. 7.25p soon and about 3 to 4p later after costs of winding up.

Looking at it another way - the market is ascribing zero value to the business, its IP or its future profits & revenue. Also look across the water at US solar chip manufacturers like SunPower Corp, First Solar etc. they have made quit a powerful share price recovery over the last year, albeit under a more protectionist/anti-dumping environment that has protected them from the big state subsidies of the chinese. It is a shame that the EU did not see fit to do the same. Management are playing down future prospects whilst they should be opening sales offices in the US and Japan.

On a contrarian view point all the "bad news" appears to be in the PVCS share price so the downside is negligible, so an interesting risk-reward environment for the value investor.

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dubeye 15th Aug '13 2 of 3

Would agree dotd is now fully valued, but on the subject of effectiveness of email marketing, it's an analytics rich channel, so it's possible to observe with accuracy open rates and engagement, so I would disagree it is a scattergun approach, any more than PPC is, which is Google's bread and butter. On the other hand, I agree email is vulnerable to disruption and I'm an ex holder of this share.

Any thoughts on BLUR?

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dangersimpson 15th Aug '13 3 of 3

Blur (Group) (LON:BLUR) trades on 45xSales, never made a profit, cashflow sufficiently negative that even if they meet consensus forecasts they will need a placing to keep the business going in the next year. SP momentum is good but the value stock rank is 2nd percentile suggesting that it is significantly overvalued. It will make a great short when the momentum subsides imo.

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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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