Small Cap Value Report (17 Feb 2016) - SIXH, UTW, SNTY, PRES, TRB, MWE

17th Feb '16 by Paul Scott

34 comments 24051 reads

Good morning!

Investing is a team sport

An early report today, as it's my periodic trip to Reading for an investor lunch today. I've been meeting the same small group of investors for lunch every 1-2 months now for the last 14 years, and there are always some interesting insights shared.

In my view, building a network of like-minded individuals, and nurturing contact with investors that you know are honest, successful, and trustworthy, is really important, as well as being enjoyable on a social level. Investing can be a lonely pursuit, and some bulletin boards contain so many unpleasant & downright malicious characters, that in the main, communicating with such trolls online is both dispiriting and a waste of time. Emails, or face-to-face contact with hand-picked good eggs is much more pleasant, and worthwhile.

Newbie investors often ask me for ideas on how to develop their investing skills, and first on my list is to build your own network of successful investors that you can share ideas with, discuss companies & sectors of interest, etc..

We've got one of the most civilised bulletin boards here on Stockopedia too, with some terrific contributors, so thank you to everyone who posts useful follow-up points each day after my articles. More of this please!

Of particular note yesterday was a follow-up comment from "ganthorpe", with regard to my positive noises about the freehold property owned by Severfield.

I know Severfield Rowan well but not a holder currently. I would not put too much reliance on the property aspect as two major units are in rural North Yorkshire (Dalton and Sherburn) with very large specialised buildings and probably difficult to easily be used for other activities or to get planning permission for housing on any volume.. - See more at: http://www.stockopedia.com/content/small-cap-value...

I've not verified this info, but have no reason to doubt it. It's an important point, that freehold property may or may not actually have a resale value of what it's in the books at. Anyway, an excellent contribution, so thank you to ganthorpe, and everyone else who contributes to our teamwork here.

600 (LON:SIXH)

Share price: 9.5p (down 27.6% today)
No. shares: 92.4m
Market cap: £8.8m

Profit warning - bad news for shareholders here, with the key bit saying;

...As a consequence of the above factors the Group's results are expected to be…

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aflash

17th Feb '16

Beware of generalisations!

Beware of confirmation bias!

Caveat Emptor!

It is a mistake to avoid foreign owned London listed stocks.

MWE has been one of my best performers over a two year period, buying around 7 and selling around 13. Now it is really popular so I avoid it for that reason and Paul's remark on debtors confirms my opinion. (Confirmation bias!)

The Israeli hi-tech sector is recognized as superior. Look up Warren Buffet's remarks when he went there.

How come SOM gets the nod? They have done a good PR job and Joanne Hart of Midas endorsed them. (Newspaper tips are normally a sell signal for me!)

If one avoided foreign owned stocks listed on the local market then all the FTSE 100 ADRs on the New York Market would be under suspicion. (Not a bad idea, given their performance over the last year!)

I understand the value of Paul's generalized warning about sharp operators from China, India and Israel but they are effective, efficient business people. This can help you make profits. If you buy low enough before the crowd gets involved is one way, if you read between the lines another.

Look at PLUS. Everyone said it was toast if the 'merger' was called off. It has been very strong since then! This is a good example of clever Israelis exploiting London market legislation. Fine for shareholders and challenges the FCA to keep up.

The stereotype shorthand of 'trust the straight-talking-Northener' and distrust the above is entertaining but individual investors need to go further in their research.

Why not refer this as a disclaimer, instead of DYOR!

Paul Scott

aflash,

This is going over old ground, but for me, red flags are not necessarily automatic "don't touch it", they are just major warnings that something MIGHT be wrong. So we should scrutinise things a lot more closely. Occasionally we will get enough comfort to overcome the red flag. That's fine - the red flag has served its purpose - in stopping us getting caught up in the other 9/10 similar stocks that would have been a disaster!

Of course the occasional Israeli AIM stock will do well - I did well on Pilat Media for example, and covered that in my SCVRs. The outcome was very good - a premium-priced takeover bid.
As an example, here is my report from 22 May 2013.

I agree with you that Israel has an impressive tech sector. Not sure that I would want to buy shares in the ones that are attracted to AIM though! (AIM tends to attract wrong 'uns very often, as there are no consequences for ripping off investors, unlike other markets).

My personal investing results have improved dramatically since I adopted strict rules on avoiding jam tomorrow stocks, and overseas AIM companies. As my mentor always says to me, "Just keep doing more of what works, and stop doing things that lose you money". So cutting out nearly all overseas AIM stocks has worked very well indeed for me.

There's also the opportunity cost of our own time - we only have enough time, and mental bandwidth, to research a certain number of stocks. Personally I would rather focus my time & energy on a filtered group of stocks which are more likely to contain winners. The StockRanks are fantastic for that too, and there is a lot of overlap between my approach, and high StockRank companies.

So if I want some new stock ideas fast, pre-screened, then my first port of call is the StockRanks, and the Guru Screens here on Stockopedia. Not a sales pitch, it's what I genuinely do, and helps me unearth the occasional nugget of gold, and reinforces my conviction on nuggets of gold I've found independently.

But hey, just do whatever works for you!

Regards, Paul.

A reader emailed me today, to ask how they should go about building up a network of like-minded investors, as I suggest in today's report.

I replied to him, and thought this might interest other people, so for general interest, here is my reply;

Hi X,

If you can get to London occasionally, then the ShareSoc seminars are great, as are all Mello events organised by David Stredder. Also I recommend the Equity Development Investor Forums, which are really good.

I just tend to float round after the presentations, and chat to anyone & everyone. We've all just seen the presentations, so have a common interest, so it's easy to break the ice, just go up to people and ask them what they thought of a particular company, and tell them which one you liked best, etc.

After a while, you soon build up a little network of people you get chatting to, and then you can pick & choose which are the best ones to nurture. As with anything worth doing, it takes a bit of time & effort.

Alternatively, if you can't get into London then connecting with decent people online is easy by email.
Also you can build up a good reputation by commenting sensibly on bulletin boards. If you post sensible things, then you tend to get noticed after a while.

James RH

My tuppence worth...

Given the huge spread, I think you'd need to be super-confident that the company is returning to a growth phase. I'd personally want cold, hard figures rather than rely on a brief trading update.

spike501

Good news from Mirada (LON:MIRA) today and strong share price reaction - looks to be moving from a jam tomorrow to a jam today company which is on track for revenue year ending 31st March 16 of £7million with PBT of £0.6million, while next year (starting in 6 weeks) is forecasted £8million revenue and £1.8million PBT which the company seem very confident of acheiving based upon pipeline of business and ongoing licence revenue stream from the contracts with Televisa including the rollout announced this morning.

Looks to have real value at current less than £8million market cap.

Your view on foreign companies listed on AIM seems a sound one, however while Mirada is essentially Spanish, its AIM listing comes from its merger with Yoomedia a few years ago, it is headquartered in London and has a development team in Exeter.

DarwenLad

Sounds like Tribal has found the right chief executive to oversee its turnaround. Ian Bowles did a good job over eight years at Allocate Software, which provides workforce and risk management software to the healthcare and other regulated industries. It was sold for £110m to private equity house HgCapital, a year ago, at around 22 times earnings. Tribal has the same potential attraction as Allocate which enjoyed strong growth with a large and engaged client base and significant repeat business. It is reassuring that Strategic Equity Capital (SEC), an activist investor which has been increasing its stake in Tribal to 8.6% , was one of the biggest investors in Allocate and may well have had a say in Bowles’ recruitment. SEC, along with Schroders (Tribal’s second biggest shareholder), are also major investors in Servelec, another successful software company, whose board has provided Tribal with a new chairman and senior independent director. So Tribal's biggest shareholders should be better placed than most to judge whether this company can be turned round and can be counted on to support the company’s £35m rights issue due before the end of the first quarter. But even after today’s sharp share price jump, Tribal is still capitalised at less than £30m. Fortunately, the company has promised to raise the money via a rights issue rather than a placement. Assuming the company sticks to its word small shareholders, wanting to avoid the huge dilution, should have an opportunity to participate in the refinancing of what could be a very profitable recovery play.

fourayes

In reply to rhomboid1; re PRES and Shell

Price wise, for PRES there may be good technical support at around 150; looking at fundamentals, PRES is a group of small specialist engineers, in several different niche areas two of which are oil or gas related. I regard their management as good. Obviously we may be at the nadir of this oil cycle, with today's news from opec and the Russians. All I have got out of RDSB is their dividend flow, there has been very little actual capital appreciation over the last 17 years!

rhomboid1

Hi fourayes

Looking at http://www.shell.com/investors/dividend-information/historical-dividend-payments/_jcr_content/par/textimage.file/1450815743961/abe5742cf03b8347fd9aad08aeb10b93/dividend-history-q3-2015.xls

Shows the dividend has doubled in 10 years so not too shabby a performance on income, I guess what I was doing was swapping a quasi partial O&G share for a full fat version and getting twice the income in return. I also love the liquidity of mega caps as well as the broadening of risk v a small cap who may or may not get the Q3 cylinder orders neede to achieve the forecast.

I can see a £20 plus RDSB share price by the turn of the year whilst my fear was PRES might still be reeling from a Q4 profit warning!

Cheers

Joeydisco

Does anyone think this loan will allow Synety to get to breakeven without a further fundraising?

Beginner

Thanks aflash. It is on my watch list now as well. The cash flow is not the greatest, but I like the cash and assets. There is definite potential here. I noticed HQ is now in Limassol, and am not sure what to make of that!

Thank you James. The spread is not as bad as is quoted. You could buy today at 11.8 and sell at 11.2, so not too bad. I'll wait for those figures, but may dip in in the meantime if there is a noticable draw back.

Hi DarwenLad,

Thanks for the additional colour re the new CEO of Tribal (LON:TRB) - very helpful.

I agree, the UNDERWRITTEN Rights Issue pre-announced by Tribal (details are due out with 2015 results in Mar 2016) made this a very interesting turnaround situation, which I reported on here on 14 Dec 2015.

Since we should not see dilution, if we take up our Rights, and the whole thing is already underwritten, then it looked a nice falling knife situation to catch. I mistimed market sentiment buying at 29p, but moved into profit today on that position. Wish I'd averaged down now, was tempted but you always worry when the price takes another leg down that there might be more bad news in the pipeline.

I'm treating this as a trade, not a long term investment, and am hoping to exit at c.60p post fundraising & turnaround. Fingers crossed!

Joeydisco,

Re Synety (LON:SNTY) - I put a call in to the CEO today to ask that very question, but he was in a meeting, and then I had to go out, so missed him.

My view (FWIW) is that the existing cash, plus the £900k loan is probably going to be enough to get SNTY very close to breakeven. It should then be in a position of considerable strength wrt raising a final tranche of equity funding - people will be happy to put fresh money in, once monthly cash burn has been largely eliminated.

It depends on how management execute now. They've used up most of their 9 lives, in my view, and a lot of private investors are stale bulls. However, sentiment can turn on a dime with this type of stock, and I think it could be a 2-3 bagger from the current price later this year, if execution is good.

Watch out for significant share purchases from the recently appointed new Chairman, Peter Simmonds - that will be the big "tell", in my view. Helium buying is not a bad tell though.

Hi Paul,

Many thanks for your response.

As always, a great help.

All the best.

Joe

seadoc

Hi Paul.

I think you are right to have concerns at 600, and bobo might be right about a barge pole! Market cap under £10m. The pension fund is valued at £229m with liabilities of £194m, hence £35m on positive side of balance sheet. 25% shares owned by (new) Chairman who has also lent £8m at 8% with 42m warrants attached. Assuming 100m shares in issue (25+42)/142 is suspiciously close to 50%. This might be yet another AIM share suddenly suspended pending an announcement and if lucky we may get a generous offer for 15p a share, which might be £7.5m for £35m pension kitty and an engineering business thrown in for free.

Would be interested if you have a spare minute and can see the same figures.

Regards,

Seadoc

Hi seadoc,

Thanks for your comments re 600 (LON:SIXH) .

I'm stretched to full capacity, reviewing over 500 small caps as it is. So I just don't have any time to do detailed work on individual special situations such as 600 Group, especially where my initial review throws up red flags that put me off.

I do the best I can reviewing figures in the daily SCVRs, to flag potential ideas to readers, but the idea then is that if people want to dig deeper, and potentially invest, great, that's down to you.

Regards, Paul.

Thanks Paul, you are right, I needed a large shovel as well as the barge pole to dig as far as I got!

Regards, Seadoc.

cig

18th Feb '16

On 600 (LON:SIXH) 's pension surplus, from the narrative in the announcement it seems they are trying to get rid of that legacy liability, hence trying to reach the buy-out valuation, which is almost always above the actuarial valuation (conveniently covered in this nearby thread). If so this seems sensible.

The pension "surplus" is shown as an asset but really it belongs to pensioners, in that in case of voluntary liquidation of the group, shareholders would probably get none of it as trustees would be likely to keep it to compensate for the loss of the option they have on future company earnings when a pension fund is attached to an operating company. It would have value for shareholders only if they're ready to wait for most pensioners to be dead, and it then turns out there's some money left.

gus 1065

11th Apr '16

Interesting announcement from Utilitywise (LON:UTW) this morning.

http://www.investegate.co.uk/utilitywise-plc--utw-/rns/partnership-with-dell/201604110700107178U/

They have agreed a tie up with Dell to cooperate on the installation and operation of "intelligent" power utilisation management systems. In essence, computer systems within factories and offices that optimise cost effectiveness of power consumption. This should complement their other services enhancing client retention and maybe provide them with something of a USP (unique selling point, I hate TLAs too) in a very competitive sector. It could also improve their quality of earnings, providing an ongoing contracted income stream from a more stable client base.

It will be interesting to see whether/how the market reacts.

Gus.

Small Cap Value Report (17 Feb 2016) - SIXH, UTW, SNTY, PRES, TRB, MWE

Investing is a team sport

600 (LON:SIXH)

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Paul Scott

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