Small Cap Value Report (2 Sep 2016) - AVS, ECK, CHT, AVAP

2nd Sep '16 by Paul Scott

24 comments 18331 reads

Good morning!

There's not much news today, so I'll go back to an announcement from yesterday, and have a closer look.

Avesco (LON:AVS)

Share price: 261p (up 1.0% today)
No. shares: 19.1m
Market cap: £49.9m

(at the time of writing, I hold a long position in this share)

Trading update - this was announced yesterday at 12:46pm. Why??? It's crazy to put out a trading update during market hours, as that creates a false market in the shares. Someone might see that the price has gone up, and decide to sell, not realising that there's been a price-sensitive announcement. Professionals can usually read, interpret, and react to trading updates much more quickly than amateurs, which gives an unfair advantage. Thus In my view it should be obligatory to announce price-sensitive news at 7am, to give everyone an equal chance to digest the news, before the market opens.

The trading update said;

Avesco Group plc (the "Group"), the provider of services to the corporate presentation, entertainment and broadcast markets, is pleased to report that trading over the summer months has been strong, particularly in its Creative Technology ("CT") division.

In the US, CT continues to grow revenue, while CT London had a very successful Olympics in Brazil providing equipment and services to many of the ceremonies and events in and around Rio de Janeiro. CT London will be providing further equipment and services during the Paralympics.

Consequently the directors anticipate that results for the year to 30 September 2016 will be comfortably ahead of their previous expectations.

So now we're into the usual silly game of having to guess what they actually mean by "comfortably ahead". Why can't they just give some numbers?

A reader called PJ007 posted a useful comment yesterday, giving his interpretation of what specific words in trading updates mean. He's even copyrighted it! I think this looks very sensible, so it's worthy of repeating here;

"Materially better" than expectations : +10% to +15% beat
"Comfortably ahead" of expectations : +2% to +10% beat
"In line" with expectations : 0 to +2% beat
"Broadly in line" with expectations : 0 to -5% miss
Anything worse than this and a Boardroom shuffle is pending. Hope this helps!© PJ0077 2016

I urge companies & advisers to stop playing this game, and instead just give us facts & figures in trading updates. That is best…

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imranawan

2nd Sep '16

I had a look at Constellation Healthcare Technologies Inc (LON:CHT) and was impressed with the financials but picked up a couple of points:

1. Trade receivables increased by over $8m in H1, and no real explanation as to why.
2. The tax charge looks high, but again no explanation of this in the interim results.
3. Someone also mentioned to me that the CEO was a colourful character and came across a few news articles.
4. General tone of the RNS and results was very bullish, and off-putting.

I've added them to my w/list, but need to do some more research to ascertain whether the growth in profits is sustainable. Whilst the cash pile is impressive and growth the lack of a divi and some of the points above meant I didn't buy any stock.

Best wishes,
Imran.

bobo

I see LSIC has been put up for sale today with a premium of,,,,,, wait for it,,,,,,, 0.7% of last night's SP.

Now call me old fashioned but to do I hear a hint of brown envelopes?

timarr

The numbers from Constellation Healthcare Technologies Inc (LON:CHT) do look good but the increase in receivables and the tax rate look anomalous. As the main rationale of the business is to consolidate smaller providers it's to be expected that the numbers will be difficult to interpret from year to year but there's no explanation or justification in the commentary and without that it's hard to make the case for investment.

That aside, they do look interesting.

timarr

Markds28

I'm a large holder of AVAP but I'd perfer to look at Eckoh. Todays update was not good however I do feel strongly that if you dig into the numbers rather than look at stockopedia highlighted numbers you get to understand the value here better.

They have said that their new US operation will move from upfront software sale + maintenance to SaaS, that will hit the expected revenue expections of the US business this year and next but brings it into line with the UK business which typically has 80% re-occuring revenue. The UK business is the lion's share of the company's revenue.

They also said the non-core business in the US that they recently acquired will have one-time cost over-run on a fixed priced project of £700k this year. They want out of this part of the business and are accelerating closure of this project work.

They now forecast to 31 March 2017 a pretax profit in line with 2016, after allowing for the change to SaaS, contract over-run and the closure of this division. The operating profit last year was (ignoring £0.6m share based payments, £2m acquired amortisation, acquisition expenses) was £4.1m, applying a 20% tax charge to normalise the result we are looking at underlying PAT of £3.3m v a Market Cap of £82m currently, a PY & CY adjusted P/E of 25, not cheap but not crazy.

Knowing the company well I'm happy with that value, they have been growing operating profits for many years at in excess of 20% a year, they have a great product in the secure payments space, they have c80% reoccuring revenues, they virtually never lose a customer, the US opportunity is massive with the size of call centres handling payments via the phone many times larger than in the UK where they are the market leader.

I believe this is a buying opportunity and have been today topping up.

Paul Scott

As several of you have mentioned it, I'll take a look at Constellation Healthcare Technologies Inc (LON:CHT) next.

Regards, Paul.

Rusty2

Had a look it's not a company I know anything about. But my broker HL does not list them for some reason which does seem odd.

leyymgb

Due to it being headquartered in the US, but listed in the UK, you will need to sign a W8-BEN form; but your broker should list it.
I use Barclays Stockbrokers, who require you to deal over the phone for such stocks as they need to manually enter the trade (as they need to confirm you have a signed W8-BEN).

Yes I know but it's not even listed on their system. I can buy Somero Enterprises Inc (LON:SOM) and Lifeline Scientific Inc (LON:LSIC) and also many US based shares with them, that is not the problem.

I have already completed a W8-BEN form.

I have contacted HL, see what they say.

mothy9

Loved your category below "broadly in line with expectations", probably a boardroom reshuffle. How true!

tabhair

Did anyone see that Thalassa Holdings (LON:THAL) have offered to take a stake in £PML? It makes little sense to me.

I wrote some of my own thoughts here on Thalassa Holdings (LON:THAL) if anyone is interested - http://www.tabhair.com/2016/09/02/thalassa-holdings-september-2016/

warmerjo

Constellation Healthcare (CHT) came to the Market in December 2014, that is just one and a half years ago,
so it is only now that we are beginning to see the trade pattern and profit pattern as being real, and indeed
as being impressive. I think confidence in CHT will grow from now (after today's excellent H1 Results) , and so
will the share price grow, IMHO.

HL say "Unfortunately we are unable to trade Constellation Healthcare Technologies due to the way the shares settle."

Does not mean anything to me.

I'm not sure about the figures, I have a funny feeling so I will leave this one alone.

daveinthelakes

I had exactly the same reply off HL. It is the UK's biggest private investor broker, an FT100 constituent , saying "we can't be bothered with a small company with little UK investor interest". There is no reason why they shouldn't be able to settle trades on a UK quoted company.

I will be replying seeking a fuller answer and asking if they can recommend a broker who can deal as I
think CHT looks very interesting!

I hold US shares in my portfolio and their growth stocks rarely pay dividends. Also the PE's of UK quoted companies that are in essence US tend to be low due to relatively little interest from UK investors and US investors have never heard of them.

I have loaded up with more Somero in advance of their results out on Tuesday.

jraitt

Interested in your comments about your Airbnb experience. Is this a person's house or a house he/she lets as a holiday let? If the former - where does he go when you are there? BBC did a piece on Airbnb, the rise of conventional landlords switching to it and the effect it is having on the rental market in London and a number of other Countries some of which have legislated to curb its effects. How will it effect letting agents - not only hotels.
http://www.bbc.co.uk/news/business-37254670

MichaelFBS

I could trade Constellation Healthcare Technologies Inc (LON:CHT) with TD Investing if I wanted to on my iPad if I wanted to. Hope that helps.

Michael

cig

3rd Sep '16

Maybe they're not in CREST, hence requiring settlement elsewhere, which is a hassle for the broker if they're not already registered with that system/registrar.

Hi jraitt,

With regards to my first ever AirBnB experience, it's been fantastic. From now on, I will be looking to use AirBnB as my first choice when booking accommodation.

You can rent just a bedroom within someone's house, which might be nice if you want to learn a language. Although personally I find that a rather daunting thought, and prefer to rent an entire house or apartment, which is what I've done in Corfu.

I was chatting to the owners, a lovely couple with a teenage daughter. They own a restaurant out of town, where they live over the holiday season. They rent out their Corfu house over the whole season. Then they move back to their Corfu house for the winter. He said it works very well indeed for them.

From my point of view, I'm finding that actually living in a local's house is a more immersive experience than staying in a hotel - flinging open my bedroom shutters & windows in the morning, and seeing the neighbours opposite doing the same, somehow felt quite special!

The economics of it are amazing too. I'm getting a fully equipped, comfortable, 2 bedroom house, in a perfect location - very central, but down a quiet alley - for the price of a room in a budget hotel.
I can use the washing machine/dryer (which means you only need to pack a few clothes, hence avoid the need to pay extra for luggage to go in the plane's hold), cook my own food if I want to, and even invite friends round to socialise if they are staying nearby at the same time, which I've already done. There's a spare room, where my niece has stayed for 3 nights, free. It's just ideal.

It won't suit everyone, but for me, AirBnB is a revelation, and I think it is likely to seriously disrupt the hotel sector, and established B&Bs, long-term.

Regards, Paul.

Yes you could well be right, I guess that's what they mean by settles, has to been done manually, first time I have encountered this in recent times.

FREng

5th Sep '16

Barclays won't deal in Constellation Healthcare Technologies Inc (LON:CHT) online. I haven't tried by phone.

Ramridge

Re. Constellation Healthcare Technologies Inc (LON:CHT) In reply to my email to HL, I got this
" We cannot currently offer Constellation Healthcare Technologies Inc. on the Vantage platform due to settlement reasons."

Well, clear as mud then.

Small Cap Value Report (2 Sep 2016) - AVS, ECK, CHT, AVAP

Avesco (LON:AVS)

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Paul Scott

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