Small Cap Value Report (16 Oct) - DGB, AIE, VNET, NPT, SAL

16th Oct '13 by Paul Scott

16 comments 17881 reads

Good morning! I'm surprised to see investors putting more money into Digital Barriers (LON:DGB). It looks a basket case to me, based on the terrible historic figures, and poor quality acquisitions (in my opinion). Yet somehow they've managed to sustain a £75m market cap, despite years of losses, and forecasts that can't even stretch to breakeven for the year-ending 31 Mar 2015. They're raising another £18m at 140p per share. The Directors are putting up £413k of their own money, but I'd be very surprised if anyone else putting money into this Placing is using their own money. Career risk, and all that.

Anite (LON:AIE) has put out another profit warning. The market cap was £338m yesterday, so that's more a mid cap to me, but at this rate it'll be a small cap - looks like a nasty one, as the shares are down 32% to 76p. I'm not sure what they do - something to do with mobile handset testing, and travel. If I hear the word "solutions" more than once in a company description, I just switch off.

I am intrigued as to why shares in Vianet (LON:VNET) suddenly opened up this morning, on no news from the company, and are now up 8% at 76.5p. In situations like this, I always turn to "The Publican's Morning Advertiser", which is renowned for keeping its finger on the pulse. They have some interesting news about something Vince Cable said last night, about the proposed Statutory Code, and this seems to be moving in the right direction, possibly, for Vianet. See this article.

NetPlay TV (LON:NPT) has issued a positive-sounding trading update. Actually, I haven't read it yet, so was just assuming it was positive, as they always are. Let's have a quick read ... yup it's all good, and they are confident of meeting full year expectations.

What they're not so keen to talk about is the potentially major impact on profitability from changes in taxation of online gaming companies. Worth looking at the Director selling of shares too, over £3m chips cashed in over the last 12 months, which…

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DJLJ23

16th Oct '13

Paul, I can't dispute the figures, but some of their products (Thruvision) really appear to have the ability to help prevent the outrages we have seen in Kenya, Boston and make airports and other public spaces safer.
deploying these will not happen quickly and i doubt if many places using them will want to make it public.
So while I have reduced my holding, sometime ago, I real hope they are successful.

loudenr

Hi Paul,

According to a BB, Vianet has been tipped by Faraday.

Cheers

kenobi

I can't honestly say that I understand how what vince cable said is either positive or negative for vnet, but to be honest it's only jumped up to a level a couple of pence below where it was recently, so perhaps it makes more sense that it's re a tip. Although obviously those with more knowledge of the situation might be able to explain who's pushing what view and what on earth Vince is on about. As a vnet holder, just concerned with whether flow systems in pubs will be banned or not, obviously they've got all sorts of other issues and vested interests to be considering too.

cheers K

Edward Croft

I sold Anite after the first profit warning. As they say, profit warnings tend to come in threes. ;-)

johnrosier

So did I!

http://www.stockopedia.com/content/anite-q2-trading-statement-lessons-from-this-mornings-warning-73123/

Dendyver

With SAL does it pass the Balance Sheet test?

Current liabilities are greater than current assets, and Debtors of £4.9m is not that far from net revenues of £6.7m

Laughton

Sort of downbeat comments on Netplay Paul (selling by director tells you all you need to know and potential tax treatment problems going forward). Bit different from your write up only one month ago.

Does this mean you're selling out of your holding now?

cig

So will you be buying back now? ;-)

Anite (LON:AIE) seems a classic case of over-discounting the next five minutes. The story of delays due to customer restructuring seems quite believable (think Nokia, Blackberry, etc) and if so should indeed be a temporary glitch. I may get in once the falling knife stops moving.

Paul Scott

Hi Laughton,

I turned negative on NetPlay TV (LON:NPT) on 17 Sept actually, as explained here (sounds like you missed that day's report!):
http://www.stockopedia.com/content/small-cap-value-report-17-sep-por-npt-bdi-ngr-bgo-77312/

Regards, Paul.

emmo1210

Hi Paul,

Just looking at Space and People, I see the directors collect £630k in salaries and benefits plus about £500k in share options (of which I can not see performance criteria). Does this not sound a lot for a company making £2.4m in operating profit?

Regards
Emmett

rmillaree

17th Oct '13

Hello emmo1210

I had a quick look at the annual report last night.

Ref the Directors Costs - the 630K includes four (who are presumably full time workers) Directors with the top whack dude only receiving 150k all in. So that not massively excessive.

With regard to the options - it appears they do have to be paid for and there is mention that there is a monetary limit of 120k per Director on issue - i am not sure exactly what this means. I would sort of presume that the 500k doesn't repeat every year - but there does seem to have been quite a lot of past options issued too - so i wouldn't really know how one off the 500k is - presumably the company if asked would have the answer here.

So £1 mill does sound alot but there is possibly an element of necessary staff costs and multi year bonuses does mitigate a little. In some respects as long as the profits after these expenses on the tin are fine figures wise and you expect profits to increase and you monitor the situation then it wouldn't put me off holding.

Rmillaree, thanks for you comments. I see another long term shareholder sold out yesterday, granted not the biggest shareholder, but doesn't look brilliant

20th Oct '13

Hi Emmett,

I think you're completely wrong on this. One of the key things I like about Spaceandpeople (LON:SAL) is that the Directors are grounded in terms of their attitude, and that their interests are nicely aligned with shareholders. So the CEO in particular (who is the key figure in this business) has a meaningful personal shareholding, of 10.7%, and only draws a basic salary of £133,250, which is modest for a decently profitable growth company. They had a good year last year, and 4 Directors were each paid a £10k bonus - how refreshing is that, compared with the grotesque 6-figure bonuses that many Listed small caps pay out seemingly regardless of performance?

The total cost of the Board was £628k last year, but that was for 4 Execs, and 5 Non-Execs, and includes bonuses, pension contributions, company cars, etc. That's cheap!

As regards Share Options, there were 583k share options in issue, in total at the end of last year. which is only about 3%-ish of the total number of shares in issue, which again is perfectly reasonable. They're not going to be issuing that number of share options every year! That's the total in issue, and they don't vest for several years, and are subject to performance criteria.
Also, they are NOT nil cost options, they nearly all have strike prices of between 70-86p, i.e. so the Director will have to pay that amount to subscribe for new shares, hence the benefit is only the upside from the strike price to the current share price, which is about 113p. So they're not massively in the money.

Overall, I would go as far as saying that SAL is a model example of how things should be done - i.e. modest salaries, bonuses & BIK, plus share options of again a reasonably modest quantity, and priced so that the Directors have to deliver shareholder value upside for their options to have any significant value, and the key players having decent sized shareholdings.

So it gets a big thumbs up from me for all aspects of Directors remuneration.

Regards, Paul.

Hi Paul,

Thanks for your detailed reply and patience, I am admittedly a relative novice. I wasn't so bothered about the salaries side but more-so the options element which I may have misunderstood. Its a shame the company don't state what the performance criteria are relating to options, unless I have missed it.

Looking at the 2012 report, it states there were 583k options outstanding 31/12/11, and 480k granted during the year but still 583k outstanding 31/12/12, with none lapsed - what am I missing here?

I quite like the company, just not wanting to miss anything

regards
Emmett

Hi emmo1210,

I've had another look at the Spaceandpeople (LON:SAL) 2012 Annual Report, and you've flagged an interesting point, in that the Share Options table appears to have an addition error in it, see below - the total of 582,829 share options in issue at 31 Dec 2011 has been carried across to 31 Dec 2012 unchanged, despite there being 480,000 new Options granted. So the total should be 1,062,829 (about 5% of the issued equity, so still not excessive).

It's possible that because the 480k new Options are not exercisable until 27/3/2015, that they might have been deliberately excluded from the total, but I note that there is an error with the date in row 4 (shown as 27/3/201 ), so it looks as if this table hasn't been properly checked. Here is a screen grab from page 30 of their 2012 AR:

I will email the FD to clarify this point, as it's a good one.

Note 27 on Share Options gives more details, and this indicates that Options are limited to £120,000 per employee, so therefore that seems pretty cut & dried that the 4 * £120k Share Options granted in 2012 were a one-off, so we won't see any more granted to those Directors.

However, interestingly, this note shows total Options granted to Directors and employees at 1,983,076, which is considerably more than the figures we discussed earlier, and is just under 10% of the issued share capital, although note that these are NOT nil cost Options, most of them are priced at 88.6p, so that is pretty close to the current share price, so that heavily incentivises staff to create shareholder value & get the share price up!

Here is another screen grab, of part of Note 27 to the Annual Report. Thanks for flagging up this issue & making me dig a bit deeper! Overall it looks fine to me, but there are more Share Options in existance than I realised (but they have a high strike price, so are not a problem in my view).

Thanks for clearing that up

Small Cap Value Report (16 Oct) - DGB, AIE, VNET, NPT, SAL

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Paul Scott

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