Small Cap Value Report (6 Mar 2014) - IND, CRAW, BEG

6th Mar '14 by Paul Scott

30 comments 29741 reads

Good morning! A thoroughly enjoyable evening was had by all at FinnCap last night, for the latest Mello Central investor evening. The organiser, David Stredder, asked me to give a brief rundown of the key financials (market cap, etc) before each presentation, so I did exactly that, flagging up what to me seemed the key issues. This didn't go down too well with the presenters, one of whom muttered "Who the hell is this guy?!" to a colleague, and the rather prickly presenter from Skil Ports and Logistics (LON:SPL) said sarcastically, "This was REALLY worth flying all the way from India for!".

He seemed to take offence at my point that since the market cap was way below their own cash, then the quickest way to create shareholder value was to disband the company & return the cash to shareholders. A perfectly valid point I thought. He gave a rather unapologetic, and defensive update on the company's project to build a small port in India. What was lacking in my view was any sense of what upside shareholders might see from the port once it has been built. Still, hats off to him for coming all that way to face some tough questioning from unhappy investors.

As expected, the CEO of Cambria Automobiles (LON:CAMB) was tremendously impressive, that's clearly a well run business that's going places, so I remain very keen on that share. Must get round to buying some at some point too, I think that share will be a long-term winner.

The CEO of CityFibre Infrastructure Holdings (LON:CFHL) certainly made an impact with his enthusiastic, American delivery! I think he could sell snow to eskimos. It's not my usual cup of tea, being a loss-making growth stock, and I'm sceptical of companies that build telecomes infrastructure, since they often go bust and someone else snaps up the asset for a fraction of the original cost. However, he did make an exciting-sounding case for building high speed fibre networks in towns and cities outside London. I'd like to see more forecast figures on this one before taking the plunge, but am intrigued.

Finally, small recruitment company Servoca (LON:SVCA) gave an informative presentation. My feeling there…

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kevanp

6th Mar '14

Couldn't agree more Paul. All business relationships should be appreciated and treated with respect and politeness, but the fact remains that there is a hierarchy. It goes, in grossly oversimplified terms: contractor/supplier, employee, manager, board director, owner. As a shareholder you are an owner, and business executives really should remember that their elevated position within a company does not apply outside the management structure.

So keep up the good work of being 'some bloke'. Best, Kevan.

WatsonNimrod

Hi Paul,

Just wanted to add to what others have already said. You were just saying what most there last night were thinking, I had a look at my own figures for SPL in the afternoon and was glad I wasnt going crazy when you opened your presentation. Hats off to you for stating it as it was. These midweek sessions are extremely worthwhile. 8I'm not a member of ShareSoc, but I see they do similar 'member only' presentations. Is it worth while joining to get access to these evenings?

WN

iiimurray

Paul
Any further view on Communisis who reported prelims today?

Regards
Peter

kinkell

Hi Paul,

Thanks for reply re SPL.

I wasn't there so may have misjudged the tone and if so I apologise.

I agree entirely about detailed questioning of CEOs.

In the case of SPL they have raised sufficient funds as I understand it to construct the port and as the work is underway I presume that they have entered into contracts to this end. Therefore it seems totally impractical to suggest that they hand the money back - apart from anything else presumably they would incur large penalties. I suggest that only people who do not know what they are doing set out on major projects and turn round half way - unless the facts change, which as far as I know have not. Reading your introduction gives me the impression that you think the directors don't know what they are doing so they should return the funds. A rather poor welcome to someone who has flown from India to give what I believe to be the company's first presentation to private investors.

Obviously your point about the currency devaluation is correct but they hold the funds in the currency they require to build the port. With the wisdom of hindsight it would have been advantageous to hold sterling or dollars but is that a valid criticism of the management? Remember the funds were raised some time ago and the delay in obtaining consents was not foreseen. Should it have been? I don't know but understand the company was caught up in a country-wide delay arising from political scandal, not as far as I am aware directly concerning this project.

You may think I am being emotional here but I can assure you that I realise I could lose my entire investment but am hopeful and reasonably confident that it will turn out well. We shall see.

I am disappointed however to learn that your questions were not adequately answered.

Ramridge

Hi Paul -
Re. BEG. I find it difficult to get enthusiastic about a company that profits from increased corporate insolvencies. Increased misery = more profits. Definitely a candidate, together with banks, for my personal room 101 :-). I don't pretend to take the moral high ground, but it somehow goes against the grain.

Paul Scott

Hi,

Again, I think you've over-emotionalised it!

I'm not making a judgement on whether the Directors are competent or not. I'm simply saying that if the share price is well below net cash, then returning cash is the quickest way to create shareholder value.

It totally baffles me why people think that is such a complicated idea, or insulting in some way. It's just basic common sense - there are 2 options - 1) Build the port, or 2) Don't build the port, but hand the cash back. Any rational person would assess the options, and then decide on the better course of action. Emotions don't come into it at all, it's just a business decision.

Regards, Paul.

Hi Ramridge,

Fair point. I also don't like investing in companies that make money from other peoples' misery. However, insolvencies need to happen, and Begbies charge about half the rates charged by the leading insolvency firms, so more money ends up going to creditors. I worked in this sector in the early 1990s, and it's more akin to legal work than anything else. To my mind it's at an acceptable level on the ethical scale for investing, but probably only just.

Regards, Paul.

jonesj

Companies are going to go bust in a capitalist market. That's necessary and of overall benefit to society, as badly run or obsolete businesses are eliminated, leaving well run businesses to serve customers.
If only there was a similar mechanism to dispose of inefficient public sector operations.

Begbies providse a valuable service to society. There is no ethical concern at all investing here.

Paul,

I don't think it is an emotional matter! Its more a question of common sense.

If the company had not entered into the construction phase and therefore contractual relationships, your scheme would be perfectly feasible. I honestly don't think you are taking that factor into account.

Incidentally When you accuse me of being emotional I wonder if you are thinking I am under water in the shares. I am not an original investor in the company. My involvement is much more recent - actually at the low point of the share price. I am delighted with the recent sp improvement and am hopeful that it has much further to go. Emotion doesn't come into it.

Also as far as I know this is the company's first effort to communicate with private investors. I think that they should be encouraged especially if they travel from as far afield as India. I don't think suggesting that they stop the project and hand back the remainder of the cash in the circumstances is likely to create a favourable impression. Just my opinion.

7th Mar '14

Sure, so let's ask what the contracted costs are. Then you can make a rational decision about whether the shut-down & liquidation option makes sense or not.

I don't hold the shares, and I generally find that people who do not hold a particular share are far better & more impartial judges of that share's prospects. People who have bought the shares naturally want to protect & promote their investments, and are emotionally attached to them, something we are all guilty of.

The Skil Ports and Logistics (LON:SPL) guy did not impress me. He struck me as far too arrogant for someone who has presided over a disappointing investment to date. He wanted to impress upon us the credentials & importance of the Indians involved in this project, and seemed to be demanding respect from us, whilst failing to understand that will not cut any mustard at all with UK investors.

He hit all the wrong buttons with me, so I won't be investing. Good luck to those of you that do.

Regards, Paul.

Interesting comments, thank you.

Perhaps a less hostile beginning might have created a better climate for rational discussion?

There is a very interesting post by Mount Teide in another place (#1258).

Sorry you have missed the bottom of this one, but you may not be too late...!!!

muckshifter

That looks distinctly like a typical comment from "another place" Kinkell. An insinuation, intended or otherwise, that Paul's comment was intended to have an effect on the price after which - he would buy.

He said "I won't be investing" - enough said.

Insinuations are best kept on the maniacs boards.

Regards.

Muckshifter,

Certainly no such insinuation intended. I most certainly do not think that Paul operates in that way. If I did I wouldn't read his articles.

I just feel that perhaps the discussion got off on the wrong foot and the emphasis was perhaps less than it might have been on the possible strengths and weaknesses of the project. I might be wrong. As I said I wasn't there.

But it does seem to me that this is a promising potential investment and I would have liked to have seen more discussion on the project. A personality clash perhaps?

davids_h

Re Indigovision

Interesting comments, Paul, thank you

I noticed this in the Interim Report

'IndigoVision Group plc ("the Company") is domiciled in Scotland.'

Does anyone believe that this fact might/should influence the timing of any purchase? Regardless of whether you really believes an independence 'yes' vote is likely or not, I would have thought the uncertainty caused by the vote might provide some interesting buying opportunities in companies with perceived 'Scottishness'.

Rgds

Bezhe

I had a quick look at SKIL accounts for 2012. The main shareholder, Mr Nikhil Gandhi, controls 28.91% of the company. He also controls another company (Grevek), to which SKIL had lent £1,732,665 as at December 2012 ("demand deposit"), up by £1,314,721 from £417,944 the previous year. It is unsecured. The interest rate is 5% per annum. However, the company had interest income in 2012 of £5,114,000 and average cash balances of £63,813,000. This suggests an average interest rate of 8.01% per annum.

It seems to me that the company is giving a 3% interest benefit (at least) to an insider. I would expect that the bulk of the remaining deposits are with relatively secure, probably regulated, institutions. A bit of a red flag if I were considering an investment here.

Bezhe

Thanks for picking up that point of which I was not aware. I certainly think it is worth following up by asking for an explanation.

marben100

This is rather interesting, from p50 of the AIM Admission Document:

There are criminal proceedings pending against Mr. Nikhil Gandhi at different levels of adjudication before various courts, tribunals and enquiry officers in India. These matters are: (i) a criminal proceeding against Mr. Gandhi, in which it is alleged that he and another individual committed forgery of bills and that they conspired and connived with each other to commit such forgery; (ii) a criminal proceeding against, Mr. Gandhi and certain affiliates, in which it is alleged that they and two other parties fraudulently evaded paying Rs. 20,000,000 in customs duties; and (iii) a criminal proceeding against Mr. Gandhi alleging that he dishonoured cheques. All of these allegations have been contested by Mr. Gandhi.

The National Stock Exchange of India Limited (‘‘NSE’’) has taken regulatory action against Horizon Infrastructure Limited (‘‘Horizon’’), a company of which Mr. Nikhil Gandhi is a director.

The equity shares of Horizon were listed on the NSE on October 9, 1996. Subsequently, trading of its shares on the NSE was suspended due to non-compliance with technical and procedural requirements under certain clauses of its listing agreement with the NSE. Following satisfactory redressal of instances of non-compliance by Horizon with provisions of its listing agreement, the NSE ended the suspension of trading in Horizon’s equity shares effective 25 January 2008. Between 25 January 2008 and 5 May 2008, the price of the equity shares of Horizon increased significantly. The extent of the share price increase during this period led SEBI to initiate an investigation in 2009 into the price movements of, and dealing in, Horizon’s equity shares during this period.

Cheers,

Mark

8th Mar '14

Kinkell,
Sorry if I misread your post. Perhaps I've been suffering too much abuse and deliberate misrepresentation of my posts on shft boards in "another place", and that has made me too defensive of sanity here. No offence intended.
Regards.

Muckshifter,

Thanks for your reply.

I have read your posts on various boards over many years on multiple subjects and have always greatly appreciated them and benefitted from them. Thank you for the very considerable efforts you have made.

Kinkell

chemistdude

8th Jan '15

Paul has your opinion changed at all?

Small Cap Value Report (6 Mar 2014) - IND, CRAW, BEG

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