Small Cap Value Report (21 Nov 2016) - AVS, AN., BON, DX.

21st Nov '16 by Paul Scott

43 comments 22580 reads

Good afternoon!

Mello Beckenham

We're hoping to have a full house at Sea Salt restaurant in Beckenham tonight. Organiser David Stredder has asked me to do a presentation on the key features about Avesco (LON:AVS) which pointed towards both the share being undervalued, and the possibility of a takeover. The idea being to identify points which we may be able to spot at other companies, and hopefully thereby spot future big winners.

So I was burning the midnight oil last night, learning how to use Powerpoint - something which has been on my to do list for about 20 years. It only took 17 minutes, watching this video, to learn the basics. Four hours later, and my slides were created. Exciting!

If you'd like to come along, there are a few places left. Booking details here.

Alternative Networks (LON:AN.)

Share price: 332.5p (up 16.6% today)
No. shares: 48.6m
Market cap: £161.6m

Recommended cash offer - the takeover bids are coming thick & fast at the moment. However, I doubt many Alternative shareholders are celebrating today. This agreed deal is at a pathetic 17% premium to the last closing price.

The explanation for this deal given in today's announcement seems unconvincing to me. The price of 335p looks far from generous, when you look at the 2-year chart:

5832ec5d3d158AN._chart.PNG

There again, it may be the case that previous levels of profit and cashflow could be unsustainable - which was the main worry that kept me away from this share.

As I reported here on 27 Sep 2016, forecast profits were falling. It was a mild profit warning. So perhaps the bid isn't such a bad deal after all?

This looks a done deal, as 57% irrevocable undertakings have been given. Remember that Institutions often welcome takeover bids, as it gives them an exit route from a position they may be stuck in & otherwise unable to exit. So their agenda may be different from private investors, who are able to move more easily in & out of small caps.

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Beginner

21st Nov '16

I don't imagine too many people here will have an interest in DX (Group) (LON:DX.) but here is a comment from a user. Our use of the company to deliver confidential material has now ceased, and been replaced by encrypted transmission on 4G. I am sad to see their driver go. A great lad, and formerly an excellent service. I am afraid this is now a common occurrence.

Rusty2

I also hold Burford Capital (LON:BUR) and it's one of my larger small cap holdings. There is some risk that one of the large cases goes wrong, it's bound to happen one day hopefully not for a while.

I did look at Juridica Investments Closed Fund (LON:JIL) but they never seem to make a profit.

MichaelFBS

Thanks Roland

AnonymousUser252054

I'm another fan of Burford Capital (LON:BUR) and would recommend reading the interim and annual statements even if you are not thinking of investing. It's a real treat to read something so eloquently written. A lesson in clarity and precision from a counsel that makes other company reports seem like B- homework.

JohnEustace

I completely agree. I came away from their Capital Markets Day happy that I was at least investing in an outfit that is run by people who are considerably more talented than I - not an impression I always take away from company presentations.

Tortoise investor

Thanks Roland (and Paul). I am fairly relaxed about interest rates as I think slow Western economic growth will dampen enthusiasm for any large rate rises.

In reply to Paul's comment I'm a bit sceptical about a huge shift in more people working remotely as it's always more difficult to manage remote workers. The shift in IT/internet in my view is also leading companies to move their HQs and staff into offices outside of London where it is cheaper which might benefit Palace Capital (LON:PCA). I've seen a lot of organisations in my area (government agencies) use video conferencing etc to successfully move and connect with staff in non-London offices. I probably need to seek out hard data on this though as it's all my own experience/guesswork.

Paul Scott

22nd Nov '16

Hi mikelevie,

Sure, I'll put my slides from tonight's presentation on Avesco (LON:AVS) up on t'internet.

PIWorld recorded my spiel, so it's probably best if we let them publish that, and then if people want my slides to download, I'm happy to publish them - or actually I'll just email them to Tim & Tamzin now, so they can publish them for me if they want!

Cheers, Paul.

dominic higgins

I'm a big fan of BUR and it's also my largest holding just ahead of KWS. Having recently personally benefited from a 'no win no fee' class action legal case over several years, I thought it must be growing market. We had given up all hope of retrieving money from a property fund investment (390 people and euros29m value) and no-one wanted to invest any more money to a very expensive legal case and potential lost cause after such a long time. We were also up against large financial companies in Jersey and a whitewash cover up that was going on. I'd written my money off several years before.
Up came the opportunity of a class action with 3rd party litigation finance company funding the case (Harbour, not Burford) who took on the case as it was very strong. After 3 years we won and I received 50% of my capital back in Jan 2017!!!
I like to invest in companies which I believe in and operate in a growing industry which I understand. Having been a beneficiary of this type of service I've wholeheartedly backed it since June 2017 when I started investing my pension money via a SIPP.
Income will be lumpy for sure but BUR are a leading light in this sector and developing the industry as a whole for the benefit of all players. i did look at JIL as well as Bentham IMF on the Australian market who are another major player. BUR ticked more boxes for me and I only wanted ti invest in one company.
Anyway, I'm in it for the long term and in the age of the little people vs big companies (Volkswagen anyone?) and anti-globalisation, I can only see this industry growing a lot further. I believe governments and legal governing bodies in the US, UK and elsewhere will be put off from constraining this industry due to any negative backlash on behalf of the common people against large companies. I could be wrong of course but we'll see.
Anyway, my two pennies' worth, I rest my case!
Best wishes to all.

I don't like BUR - it just takes one big case to go wrong, and you're in a right mess. Whatever management say. I just don't like that kind of company. They nearly always go wrong, sooner or later.

Not for me.

PP.

Dean brooks

I banked the earnings from AVS but sit here reading up on other companies and just cant find something that takes my fancy. Can the deal fall through and I get my AVS back please?

tabhair

Great Scott, he's done it again! Lavendon (LON:LVD) up 37% on a takeover this morning. The Beam Me Up Scotty Portfolio is just smashing it this year.

Trident

I agree with Paul re: BUR. Mostly I don't like the model of 'have a go' lawyers from a moral perspective. It might not be ambulance chasing but it has a bad odour. There is a point when lawyers when benefit society, and a tip over point when there are too many of them. Slater & Gordon got ther comeuppance when they took over Quindell, as was.

Bushranger

A few years ago I had a single car accident. Only people to know about it was my own insurance company. A few weeks after the accident I had a claims firm ring up wanting to take on my personal injuries claim. I told them I had no injuries at all. They then advised I could claim for wiplash and other injuries. I was disgusted.

The first thing Burford will tell you is that they only invest in claims that have merit.

ridavies

.....and another one (ie Avesco) with Lavendon (LON:LVD), Paul? What should we all do now, d you think? selling yours?

I suspect Paul will be slightly behind his morning schedule, noting his 4.0am email earlier :-)

Judging from the stockopedia stats, there is an estimated 2016 normalised eps of 18.8 for Lavendon. On the current price that suggests the current bid of £2.05 is a circa pe of 10.9x, which shows how undervalued by the market the share is relative to the average (Stockopedia estimate market average PE is circa 13x).

Peel Hunt apparently has an estimated value of £2.75 in their previous analysis. So it is arguable that the board were right to reject the offer. However, market forces have made Lavendon pretty vulnerable, so a tricky one to call.

I've had those calls as well even without any accident, they are just call centres fishing I think.

What has that got to do with £BUR?

pastybap

It'll be some hangover cure when he does resurface too!

I have to thank Paul for this one though. Following his recent write-up I did a little research myself and bought LVD only yesterday. Makes a change from my usual trick of selling the day before an announced takeover :)

Teddy

Palace Capital are presenting in Manchester next Wednesday at a shares of event http://www.sharesoc.org/manchester-nov.html

23rd Nov '16

A very nice lady has left a message on Stockopedia offering to send me pictures of her.

I assume these are pictures of her portfolio stock picks?

Small Cap Value Report (21 Nov 2016) - AVS, AN., BON, DX.

Mello Beckenham

Alternative Networks (LON:AN.)

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Paul Scott

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