Small Cap Value Report (30 Nov 2016) - D4T4, VP.

1st Dec '16 by Paul Scott

7 comments 9563 reads

Good morning!

There was nothing of interest today, so I'll recap on a few interesting updates that I've missed in previous days.

D4T4

Share price: 146p (up 7.7% today)
No. shares: 37.4m
Market cap: £54.6m

Half year results, 6 months to 30 Sep 2016 - background: this company caught my eye in Feb 2016, with a very upbeat trading update, which I reported on here. Since then, the company put out excellent results here (for year ended 31 Mar 2016). Adjusted EPS rose 113% to 8.24p, and the divi was up 257% to 2p. Impressive stuff!

Note that Peter Simmonds is the Non-Exec Chairman here - he's got a considerable investor following, as his track record at dotDigital (LON:DOTD) was very impressive. Plus more recently, he's been important in helping management at Cloudcall (LON:CALL) (in which I have a long position) refocus their strategy. So it's good to see him buy 70,000 D4T4 shares at 142p yesterday.

The interims look good to me, here are a few key numbers;

Adjusted EPS is up from 3.78p last H1, to 5.44p this time. Although note this is flattered a little by a reduced tax charge.
Adjusted profit before tax up 25% to £2.12m
Revenues of £10.0m in H1, so note the strong profit margin

Outlook comments sound good;

D4t4 Solutions trading remains strong and, since the start of the second half of the financial year, we are pleased to report that we have secured a number of additional contracts including one with a leading US retailer and one with a UK based insurance company.

In summary, on the back of a strong first half performance coupled with continuing demand from our existing customers and a growing new business pipeline, the Board remain confident of being able to deliver further strong growth.

Therefore, notwithstanding any unforeseen economic impact of Brexit and the recent US elections, the Company expects to deliver trading results for the year ending 31 March 2017 in line with current market expectations.

I particularly like the comment about "further strong growth". Plus of course an "in line with market expectations" comment is always good.

Valuation - the forward PER looks to be just under 15 (I'm not sure if the graphic below has updated for the 7.7% share price rise today), which looks…

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drvodkaquickstep

1st Dec '16

Paul. Re: £D4T4 the Finncap note explains the high debtors as follows:

"A large project was invoiced (through partner SAS) at the end of September, due this month. It left £4.7m working capital outflow in H1 and lifted trade debtors from £2.8m to £7.0m at September. The resultant £2.6 Free Cash Outflow and £0.5m dividend reduced net cash from £3.4m at last year end to £0.1m. We are reassured this is a major, long standing global banking client which is in good standing and payment is due imminently. With the usual strong cashflow we expect D4t4 to finish the year with around £6.0m net cash".

Paul Scott

Good morning Doctor!

Thanks very much for posting that comment from FinnCap re debtors, very helpful, and sounds reassuring. Although it does raise the question of how dependent the company & profits are on individual large contracts, lumpiness, etc. It looks the type of business that could easily have a gap in the order book & warn on profits, at some stage (maybe not imminently though, as the outlook comments are very good).

Regards, Paul.

Hi Paul

At the AGM we quizzed them re: their reliance on Teradata (their principle Client) as a significant amount of revenue comes via them, however, as with most major companies (Teradata) they have multiple client bodies within and hence the risk is somewhat mitigated.

The Board were very cognisiant of over reliance on any single customer and have secured a number of new Clients and partners over recent months. They also have decent recurring revenue. Your point, however, is of course still valid!

Suggest it's worth watching this re: what Celebrus / D4T4 do (well part of their business anyway):

http://www.teradata.com/Resources/Videos/PARTNERS-...

Teradata have US$2.5b of revenue....

iwright7

Paul,

If you are circling round maybe you can get a chance to comment on Focusrite (LON:TUNE) FY results. You have commented on them once before suggesting they should go on your watch list.

I missed their FY announcement last week, but Focusrite (LON:TUNE) cropped up on the new Stocko QM movement screen this morning, up +14 points to score 90. They have a number of updated digital audio products that sold particularly well in H2. Their broker has bumped up this years earnings which probably accounts for their improved QM rating. The short term outlook is quite strong and they appear to have a dominant position in a particular audio/mixer recording segment.

rhomboid1

Hi Paul

Re VP (LON:VP.) Further down the cashflow you get;

Proceeds from sale of property, plant and equipment £8.108m ,

so the net profit on disposal is c.£4.8m, its presentation is confusing but I suspect it is largely because of the way it is funded, so the first figure is the net finance balloon paid in the accounting period , and the latter number is the actual sale proceeds received in period .

The assets in question will vary from one to the other due to timing issues and some wholly owned assets but on balance VP has been very conservative and made money on RV's

Cheers

Proceeds from sale of property, plant and

The Judge

Paul - D4T4 work with retailers and banks to collect data from multiple touch points (eg websites, social media etc) to understand what a consumer likes (both today and historically) so that the client can offer their customers a relevant offering in real time. Eg they work with a large UK bank to offer new loan or mortgage products based on current and historical browsing habits. On the retail side the poster child for them is Shop Direct who have worked with Celebrus (who they acquired in Jan ’15 for £8.5m) for the last 5 years. Shop Direct’s investment in big data and personalisation even made the pages of the CEO’s review – see page 2 of their interim review here:
https://www.shopdirect.com/wp-content/uploads/2016/05/Shop-Direct-Interim-Review-2015-16.pdf
And here’s a great article that talks about Shop Direct’s digital personalisation which also mentions Celebrus
http://internetretailing.net/issue/internetretailing-magazine-july-2015-issue-53-irm53/shop-direct-making-good-things-easily-accessible-to-more-people/ . They've also just launched a new product called Insider Threat. The product has been developed with SAS – one of the World’s largest cyber fraud s/w providers – and will be targeted at Banks who want to monitor insider threats from staff. Their s/w is embedded into banks web browsers (which is where staff access c.90% of applications now) and can capture every key stroke, mouse move, what you printed etc. Essentially SAS didn’t have the collection technology - but using the Celebrus tech they can now collect data and build up a pattern. SAS then have the algos which decides whether to flag behaviour as suspicious. The City boys better be on their best behaviour!

3rd Dec '16

I understand that D4T4 has just been recommended in the Smaller Companies Share Watch news letter...

Small Cap Value Report (30 Nov 2016) - D4T4, VP.

D4T4

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Paul Scott

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