Small Cap Value Report (28 Apr 2015) -ABDP, XSG, SNTY, IND

28th Apr '15 by Paul Scott

17 comments 24334 reads

Good morning! I updated yesterday's report in the evening with some more companies (Sprue Aegis, Staffline, and Red24). So to review that enlarged report, please click here.

A quick thank you to the generous folk who have donated to my "Live below the line" charity challenge this week. To save cluttering up these reports, I'm doing video blog updates (you see Zoella, two can play at that game!!). Day 1 update is here on Youtube, if you are bored, and have 5 minutes spare!

Anyone who wishes to donate to the three charities, is welcome to do so here. Corporate donations are also welcome, so it's fine to mention your company name & website. Any amount is welcomed, don't feel obliged to match other very generous donations. We've already raised £500+Gift Aid, which is terrific, so thank you to everyone who has contributed so far!

Anyway, on to today's gruel-fuelled review of the RNS.

Ab Dynamics (LON:ABDP)

Share price: 202.5p (up 4.4% today)
No. shares: 16.8m
Market Cap: £34.0m

Interim results - for the six months to 28 Feb 2015 are out today, from this designer/manufacturer of testing equipment for car manufacturers. One interesting snippet from the blurb is that the company supplies all of the top twenty automotive manufacturers, suggesting that it has a good niche market position.

Turnover for H1 rose 12.9% to £7,559k, so it's obviously still a small business. Operating profit was healthy at £1,526k, giving a decent operating margin of 20.2%. Operating profit was up an impressive 32.9% vs H1 last year.

Note that it was an H2-weighted year last year, with 43.5% of operating profit made in H1.

The Stockopedia historic graphs show a very nice progression, from what looks almost a start-up in 2009. I would be interested in finding out more about the company's history, and how it has grown (i.e. organically, or from acquisitions?). It has only been listed on AIM since May 2013, so there is limited history of it as a listed company. A successful listing so far too, as it was launched at 86p per share, and is now more than double that.

Balance sheet - this is very strong. There are modest fixed assets of only £1.4m, and note there are no intangible assets - which is excellent. I loathe balance sheets which are crammed with…

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FREng

28th Apr '15

Paul

Today's update from Synety (LON:SNTY) seems to have agitated the bulletin boards. No more quarterly KPI reports ...

kevanp

Hi Paul

Would love to get your take on Next Fifteen Communications (LON:NFC). Their finals today show "headline" diluted EPS of 13.2p for the 12 months up to their shifted year-end of 31 Jan, while the statutory EPS for the full 18 months is a loss of 0.2p per share. I can't seem to shake off the smell of smoke and the sight of mirrors that accompany these figures. After Sprue Aegis (LON:SPRP) Next Fifteen is the best performing holding in my portfolio, having doubled since my purchase in Nov 13 — but I have a sneaking feeling that I should sell up and move on.

But, as always, sales decisions are always the most difficult!

Best, Kevan

Beginner

Bit of a stinker just out from Indigovision (LON:IND) . Ouch!

samenic

You weren't kidding at Peterborough about being a 'profit warning magnet'

Entrust

Afternoon Paul

Sorry to hear about that profit warning from IND, although I'm lucky not to have any of these I can empathise with the pain and grief that this sort of thing gives you :-( Fingers crossed that it picks up.

Chin up and don't let the bar stewards get you down......

Entrust

kenobi

Every time ind takes a dip, you cannot help but wonder why, are the products not good enough ? don't they have a wide enough range? at the moment the economies of most of the world aren't doing too bad, you would think that the us would be motoring on, so if ind sales aren't then you have to ask why ?

If it is just lumpy sales then I guess we should just be averaging sales over a few years, and not get disheartened, or over excited at the fluctuations ?
I must say I'm tempted to top up at these levels.

cheers K

MacroVal

Synety.....

"The Board have also taken pay cuts, which is announced today, although they don't say what % the pay cuts are. I think bonuses are also (rightly) very much off the agenda for the time being too!"

I doff my titfer in management's general direction - perhaps they read this board......

MV

Bonitabeach

Hello kenobi,

If you really must: but please DYOR and the best of luck.

Paul Scott

Hi Entrust,

I hold 50-70 small cap stocks typically, so profit warnings are just part of the normal course of things.

I usually have got over the emotional impact within an hour or two of the announcement coming out. You need to make clear-headed decisions, on whether to sell, hold, or buy more, so shrugging off the emotional side of things quickly is vital, in my view.

As regards Indigovision (LON:IND) - they've given us plenty of practice on how to deal with profit warnings, over the 11 years I've held the stock.

Regards, Paul.

Hi Paul

Yes, very philosophical and, of course, you're absolutely right, profit warnings are just an unfortunate consequence of being in this kind of "business". Heaven knows I've had plenty of them in my time! However I DO reserve the right to kick the dog occasionally to remind him I'm in a bad mood ;-)

Ramridge

Profit Warnings. Going by a EY report, there were 299 profit warnings in 2014 (a record high according to them). As there are approx 2000 quoted LSE companies, that makes a banana skid rate of around 15%.

So if you have a portfolio of say 50 shares, then you should expect to experience 7 - 8 profit warnings in a year.
And if your portfolio is weighted towards the low caps, then the number would be higher than that.

Personally I held 40 shares on average last year and experienced 4 profit warnings. So that's within a reasonable statistical margin of error. Does that make me feel better? No.

bsharman

Certainly, the Indigovision (LON:IND) profit warning was a bummer. I'm going to hold as the balance sheet is strong. I hope they get taken over!

janebolacha

29th Apr '15

Companies that say they're in a "lumpy sales" business are perhaps simply not offering products or a wide enough range of products to pick up more than a small and limited segment of the markets they are in. I don't agree that there's some kind of inevitability about this. IND is in the business of providing security systems through CCTV, a market that I suspect is very healthy all over the world, given the unfortunate times we live in. I suspect that their problem may be in having a relatively limited range of attractive and competitive products and systems and that, because of that, the number of tenders in which they would have a fair chance of success represents only a small part of the opportunities available in their market sector. Rather than the company simply shrugging its shoulders and serving up the "lumpy sales" excuse, they ought to be addressing the scope of the market they are in, the range of products and systems they ought to have (rather than what they actually have) and how to get out of the apparent "lumpy sales" trap. If the BOD has no ideas on how to do this, perhaps putting the company up for sale would be the way forward.

(I sold several months ago at around 350p).

From the Indigovision (LON:IND) statement yesterday:

"IndigoVision has sales and support teams in 22 countries and operates through 18 regional centres, in Edinburgh, London, Paris, Amsterdam, Dusseldorf, Johannesburg, Dubai, Mumbai, Singapore, Macau, Shanghai, Sydney, Mexico City, Toronto, Bogotá, New Jersey, Buenos Aires and Sao Paulo. IndigoVision partners with a network of some 600 trained and authorised IndigoVision resellers to provide local system design, installation and servicing to IndigoVision's system users."

So the "sales and support teams in 22 countries" and the "18 regional centres" together manage to bring in annual sales of around US$50m?

It's a company going nowhere, imo.

Perhaps advancing at a level altitude rather than going nowhere? Revised figures from Singer say profit for year of $2.3m which gives a PER of c13. Dividend to be maintained, giving a yield of c3.5%. Yes, they are the house broker, but you may still be better off having money here than in any oil exploration company! I did hold and bought a few more yesterday.

merlin51

30th Apr '15

Hi Paul

RNS this morning re New Pistoia Income Ltd. now holding exceeding 29% do they have to declare their intentions at this level? Are they likely to bid for the company. They seem to have played the shares over the years to their advantage.Perhaps as you have dug deeply into this company you could share over knowledge of New Pistoia?

Merlin

4th May '15

Hi Merlin,

My understanding is that New Pistoia are a supportive major shareholder in Indigovision (LON:IND) and are clearly not bothered by the recent profit warning, as they've used it as an opportunity to increase from 25% to 29%. They can't breach the 30% barrier, as that would trigger a mandatory takeover bid.

It's very frustrating for everyone, as IND has progressed greatly in the last 3 years, in terms of products, service, processes, etc. But it's a total hostage to the big contracts - failure to close one or two key contracts undoes all the positive work elsewhere. Bottom line is that, as with any company, they have to deliver on sales & profits, whatever the circumstances, and performance overall has not been good enough, so far. That said, the company has launched 8 new products in Q1 of this year, and if you talk to management, they're upbeat about the future - no hint of despondency.

Given that this cycle of good growth, alternating with profit warnings, has now been ongoing for years, I have come round to the view that the best route would be for the company to grow rapidly under PE ownership (and maybe run at a loss for a couple of years, to turbocharge growth), or be taken over by a larger electronics group which can give it some more serious marketing clout.

The company has concentrated shareholdings - and my impression is that if an approach came along at the right price, then the big shareholders would probably agree it. Or it can continue as an independent company.

Regards, Paul.

Small Cap Value Report (28 Apr 2015) -ABDP, XSG, SNTY, IND

Ab Dynamics (LON:ABDP)

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Paul Scott

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