Small Cap Value Report (3 Apr 2017) - SYS1, CTG, LUCE, IDP, IMG

Monday, Apr 03 2017 by
58

           

SYS1 (new ticker)

Share price: 787.5p (+1.3%)
No. shares: 12.2m
Market cap: £96m

Name Change

As previously flagged, Brainjuicer has changed its name to the more professional-sounding "System1". The new ticker SYS1 is now effective and the new website, (system1group.com/) will be launched later today.

Its old website (which can still be viewed online) is very quirky and interesting, so the new one should also be worth a look.

The share rating is fairly high but it remains one of the better-quality companies on AIM, and the new name will serve to unite the company's marketing and researching brands (System1 Agency and System1 Research).




Christie (LON:CTG)

Share price: 77p (unch.)
No. shares: 26.5m
Market cap: £20m

Preliminary Results

A weak result set of results considering the scale of revenues:

  • Revenue growth of 1.2% to £64.5m (2015: £63.7m)
  • Operating profit before exceptional items of £1.0m (2015: £3.8m)
  • Operating profit after exceptional items of £2.3m (2015: £3.8m)

The total dividend for the year is unchanged at 2.5p and is still more than twice covered by earnings.

H2 improvement: The hoped-for improvement in the second half did materialise, despite the referendum result which the company had feared, as it registered an H2 operating profit before exceptional items of £1.9m, about the same as the prior year. This was almost entirely generated by the Professional Business Services (PBS) division.

Exceptional items: The exceptional item is a £1.3 million gain from inflation-capping the company's final salary pension schemes.

It's always refreshing to see exceptional items which improve the results, as it feels like in 99% of cases they are costs which the company wishes it hadn't incurred!

Outlook statement is positive:

The year for both our divisions has started more strongly than in 2016.  We have some inflationary costs to absorb which our budgets allow for.  Your management and staff alike strive to always deliver a service that is second to none, and on your behalf I thank them.  We plan for continued growth in 2017. 

Total Comprehensive Income

It's essential to look through the financial statements for the details which get left out of the headline numbers.

In this case, I immediately see that the company suffered an £8 million actuarial loss on its pension scheme (despite the inflation-capping measure, mentioned above).

Losses such as this aren't included in the income statement, instead they're in the…

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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System1 Group PLC, formerly BrainJuicer Group PLC, is a United Kingdom-based company, which is focused on marketing and brand consultancy, with proprietary market research and advertising solutions grounded in the principles of behavioural science. The Company’s services include System1 Agency and System1 Research. System1 Agency is advertising agency, that creates advertising proven to translate emotion into profitable brand growth. System1 Research produces the FeelMore50, an annual ranking of the world’s 50 TV and digital ads. The Company offers its client create 5-Star, fame-building communications. The Company operates in the United Kingdom, the United States, Continental Europe, Brazil, China and Singapore. more »

LSE Price
867.5p
Change
 
Mkt Cap (£m)
106.4
P/E (fwd)
21.5
Yield (fwd)
0.6

Christie Group plc is a provider of a portfolio of professional business services for the leisure, retail and care sectors. The Company operates through two operating segments: Professional Business Services, and Stock & Inventory Systems & Services. The Professional Business Services segment is engaged in business valuation, consultancy and agency, mortgage and insurance services, and business appraisal. The Stock & Inventory Systems & Service segment covers stock audit and counting, compliance and food safety audits and inventory preparation and valuation, hospitality and cinema software. The Company's subsidiaries include Christie & Co (Holdings) Limited, Christie Group Central Services Limited, Pinders Professional & Consultancy Services Ltd, RCC Business Mortgage Brokers Ltd, Orridge & Co Ltd, Reedwall Limited, Vennersys Ltd, Venners Ltd and Venpowa Limited. more »

LSE Price
85.5p
Change
 
Mkt Cap (£m)
22.7
P/E (fwd)
7.6
Yield (fwd)
3.9

Luceco plc offers a range of brands, including Luceco, BG Electrical, Masterplug and Ross. The Company's products include Luxpanel, Epsilon and ambient lighting. Luceco light emitting diode (LED) lighting provides commercial and domestic lighting solutions. BG Electrical is a wiring accessory manufacturing brand, which serves electrical trade and specifiers. BG Electrical's products include White Rounded Edge, Nexus Flaplate Screwless, Nexus Metal, Nexus Storm, Nexus Grid and Metal Clad. Masterplug supplies portable power equipment through do-it-yourself (DIY) outlets and street retailers. Masterplug offers products under various categories, including indoor power, such as plugs and adaptors, sockets, chargers and cables; outdoor power, such as case reel, weatherproof box and extension leads, and workpower, such as trailing sockets, inline connectors, cassette reels and cable reels. Ross offers a range of audio visual and home entertainment products. more »

LSE Price
244p
Change
-0.7%
Mkt Cap (£m)
392.4
P/E (fwd)
22.7
Yield (fwd)
0.9



  Is System1 fundamentally strong or weak? Find out More »


30 Comments on this Article show/hide all

Jardine 3rd Apr 11 of 30

Does anyone have views on the news today from Frenkel Topping (LON:FEN) that they are looking for a buyer for the business?

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Trident 3rd Apr 12 of 30
1

I don't know what Apple's ethics are. Allegedly they were talking to Imagination to buy them at one stage.
Its often tempting for big businesses to crush smaller business just because they can.
Although smaller business can also tie up bigger businesses in patent disputes in this area.

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simoan 3rd Apr 13 of 30

In reply to paraic84, post #7

The announcement of the branch in Italy sounds more like a vanity project than genuine international expansion to me.

Actually, I view the expansion more positively as a toe in the water of overseas expansion into a known market using a franchising model. If you are looking to expand overseas, using a franchise model is the way to go, especially if it is something as  relatively straightforward to replicate as a pizza restaurant.

All the best, Si

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rick 3rd Apr 14 of 30
2

In reply to Trident, post #12

Not sure Apple has got a lot of IP and patents in the GPU design area. Which makes this a very strange announcement. My thought was that ARM, QCOM, IMG had all the IP in this area. I would have thought any legal case against Apple would have a high chance of success, albeit I'm not sure IMG can fund it all to conclusion.

What's the chance that one of Apple's rivals buys IMG and takes them to the legal cleaners?

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herbie47 3rd Apr 15 of 30
3

Could people try to put in £ followed by the ticker FUL, as Fulham Shore (LON:FUL) then it's far easier to see which companies are being discussion.

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JohnEustace 3rd Apr 16 of 30
2

In reply to rick, post #14

I don't think Apple can be sued at this stage as they aren't even going to ship their own designs for another 15 - 24 months. And just because Imagination think Apple can't develop their own IP doesn't necessarily make it so.
I've seen speculation about Apple bidding for the Toshiba NAND memory business. They do seem to be vertically integrating.

If £IMG do turn out to have a strong case against Apple then perhaps their lawyers could talk to Burford Capital (LON:BUR) about some third party funding.

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Ramridge 3rd Apr 17 of 30
4

Re. Innovaderma (LON:IDP)
I seem to have read somewhere (company's marketing material?) that this company is ready to make a big sales drive to Asian countries.
Skinny Tan, a tanning lotion, is their flagship product. To be sold to Asians.  I see.
This is not a late April fool, is it?

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rick 3rd Apr 18 of 30
4

In reply to JohnEustace, post #16

According to AppleInsider, at least 25 engineers and managers have quit Imagination and gone on to work at Apple over the past two years. What chance they have designed totally new GPU from ground zero without infringing some of IMG's own IP ? In my experience its almost zero. Software development never works like that.

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simoan 3rd Apr 19 of 30
1

In reply to rick, post #14

Not sure Apple has got a lot of IP and patents in the GPU design area. Which makes this a very strange announcement. My thought was that ARM, QCOM, IMG had all the IP in this area. I would have thought any legal case against Apple would have a high chance of success, albeit I'm not sure IMG can fund it all to conclusion.

To be honest, it is very difficult to prove infringement even when you have a whole bunch of patents to your name, and it has been known for patents to be made void in court under the spotlight of litigation. So Imagination Technologies (LON:IMG) have to tread carefully.

The thing that would concern me most as a shareholder (which I'm not) is that Apple have felt the need to do this. Clearly they are worried that using Imagination Technologies (LON:IMG) IP going forwards will put their products at a significant disadvantage technically to competitors - most likely through excess power consumption meaning lower battery life than equivalent Samsung products. It is not a decision they would have made lightly and the idea it would have been made for financial reasons is ridiculous. 

The second thing that would concern me is that Apple have apparently already nicked a team of Imagination Technologies (LON:IMG) engineers including some senior management and so the company should have seen this coming. Why on earth did they not have a Non-solicitation clause in their agreement with Apple? If they didn't have such a clause then it begs the question what other concessions they may have made to win Apple's business? 

What's the chance that one of Apple's rivals buys IMG and takes them to the legal cleaners? 

Name me a company with deeper pockets than Apple who would bother doing this? I don't believe Samsung will give a monkey's and they're probably too busy laughing!! Not likely to be a Chinese company either given their attitude to patents or any form of copyright.

All the best, Si

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herbie47 3rd Apr 20 of 30
2

In reply to Ramridge, post #17

Innovaderma (LON:IDP), sounds like it, considering nearly all Asian lotions contain whitening agents, as most asian women want to look whiter.

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simoan 3rd Apr 21 of 30
1

In reply to herbie47, post #20

Innovaderma (LON:IDP), sounds like it, considering nearly all Asian lotions contain whitening agents, as most asian women want to look whiter.

Could you please include the original text you are replying to so it makes it easier to know what you are referring to :-)

Thanks, Si

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Ramridge 3rd Apr 22 of 30
2

In reply to herbie47, post #20

Hi herbie - Re. Innovaderma (LON:IDP)
I managed to retrieve the source of my comment. The last HY report says
"
Asia
Skinny Tan is currently sold in Olive Young's stores nationwide and is distributed through PROS Korea, a distributor for InnovaDerma products for North East Asia. Olive Young is planning an in-store marketing campaign for Skinny Tan to coincide with its peak season in 2017. As announced on 27 January 2017, the Company is in discussions with PROS Korea to address distribution of the Company's products in China, Russia and Japan.
"
I am no expert at all on this topic, but it looks like Asians of a whiter complexion (Chinese, Russians, Japanese) seem to have an appetite for a tanned look.
My view is same as yours, i.e. most Asian women want to look whiter, but hey, what do I know.

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peterthegreat 3rd Apr 23 of 30

Just tried to visit Innovaderma's web site to check out the company and my McAfee security system stopped me going there with a message that the web site was risky to visit. Seems strange for a company which is meant to be internet savvy! I tried using both Firefox and Explorer browsers and got the same message.

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rick 3rd Apr 24 of 30
1

In reply to simoan, post #19

Indeed "might is right" often wins the day in these sorts of arguments. I'm sure Apple have some clever lawyers kicking about.

My point was not about who is most lawyer'd up (I think that is clear). My point was about IP infringement. Apple have been tinkering with IMG designs for years to lower excess power consumption. But to say they have their own entirely different own product which uses non of IMG's IP does take a lot of believing.

It will be interesting to see what transpires.

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abtan 3rd Apr 25 of 30

In reply to peterthegreat, post #23

I managed to get through using Chrome.
There's no HTTPS, but that doesn't seem to have been an issue (although clicking the 'i' in the Chrome search bar notified me that the site was not secure)

skinnytan.co.uk does have https and also let me in

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steviej 3rd Apr 26 of 30

In reply to peterthegreat, post #23

Edit: abtan beat me to it.

Its fine for me.

Some of the content is delivered http, even if you visit the https version*, which may be the cause of the AV warning.

*This is fairly common and no need to be blocked completely as an up to date web browser should do it for you. See: https://support.mozilla.org/t5/Protect-your-privacy/Mixed-content-blocking-in-Firefox/ta-p/10990

I wonder when stocko will go https

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OsullivanB 3rd Apr 27 of 30

In reply to Ramridge, post #17

"Skinny Tan, a tanning lotion, is their flagship product. "

I was thinking of buying these shares a while ago but decided against after reading the reviews of this product on Amazon.

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shine66 3rd Apr 28 of 30
1

I'm surprised at some of the accusatory and threatening rhetoric Imagination Technologies (LON:IMG) has come out with today. It's as absurd as Fallon saying he's well up for war with Spain. Bizarre.

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Graham Ford 3rd Apr 29 of 30
3

This article on Apple and its options regarding graphics may make useful reading to understand the situation with Imagination better.
http://www.techradar.com/news/phone-and-communications/mobile-phones/if-apple-starts-making-its-own-gpu-what-will-it-mean-for-iphone-gaming-1317575

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Ramridge 3rd Apr 30 of 30
1

In reply to Graham Ford, post #29

Graham -
That's an excellent article - thanks for the link.
The writer makes two powerful and convincing arguments. First, that developing graphic chips technology in-house is incredibly difficult even for a company that has an abundance of cash and technical talent. The barriers are huge. And secondly, the need for Apple to develop their own in-house capabilities is necessary to fulfil the long term strategy and goals they are pursuing.

But then he fails to join the dots. The answer seems obvious. Just buy IMG outright. As I said in my earlier post, Apple can buy IMG from pocket change.

The fact that they haven't done so suggests that there is something in this equation that is alluding me/ us. Why would they be prepared to fight IMG in court for potential patent infringements and theft of intellectual property, when they can just buy the company outright using the mountain of cash they possess?

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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