Small Cap Value Report (9 Mar 2015) - TUNG, MAI, TRT, ESCH, CKN

9th Mar '15 by Paul Scott

12 comments 16266 reads

Good evening. My apologies for today's report being so late. As I mentioned on Twitter, this was due to breakfast having an adverse effect on me.

We don't want any gaps in the series, so I'll belatedly have a run through today's results & trading updates.

Tungsten (LON:TUNG)

Share price: 173.5p
No. shares: 103.5m
Market Cap: £179.6m

Market update - the battle between bulls and bears continues at this e-invoicing & invoice financing company. There was a very peculiar flurry of trading activity late Fri afternoon, which saw the shares spike a lot higher at the close, from 155p to about 170p. This struck me as suspicious, and it looks particularly suspicious now that a positive update was announced first thing Mon morning. So clearly those trades need to be investigated by the FCA as it very much looks like illegal insider dealing.

Today's update says that Tungsten Bank will now be taking deposits, to help fund its invoice discounting service;

My opinion - today's news seems to partially undermine the bear case against Tungsten, since the bears asserted that Tungsten had made a mistake buying a bank unnecessarily. If Tungsten Bank is successful in attracting deposits, then it will provide the company with very cheap funding for its invoice discounting product. This appears to be on top of the funding already in place from Insight, which is said to be several $billion.

I'm currently sitting on the fence with regard to this share, awaiting more firm evidence that there is a viable business here before considering whether to go back in.

On the chart (below) it looks like regaining & holding the 200p level for a couple of months would be necessary for bulls to claim success in seeing off the bears. I shall observe with curiosity. Sentiment is everything with this type of share, where you don't have any profits to value it on, nor any reliable forecasts.

Maintel Holdings (LON:MAI)

Share price: 675p
No. shares: 10.7m
Market Cap: £72.2m

Preliminary results - for calendar 2014 are out today. I don't seem to have ever reported on this company before, which is strange, as it's been around for years. That's possibly as I normally avoid small telecoms companies, as it's difficult to work out what they do, and if they…

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brucepackard

10th Mar '15

Thanks Paul. I checked early yesterday afternoon and saw you hadn't written a SCVR, and realised in it's absent how much I appreciated these SCVR posts!
On Tungsten - worth pointing out that it is subject to a threat from disruptive new entrants. Invoice discounting, where banks have traditionally held the upper hand and name their terms is being targeted by peer to peer sector. I can think of Market Invoice in the UK - and a few marketplace lenders in the US who are going after this space. Probably negative for RBS et al, but banks are so big, dumb and stupid that we know about the problems there. But potentially could be damaging for Tungsten. https://www.marketinvoice.com/how-it-works I have tried funding circle, but not market invoice - but generally I think p2p could seriously disrupt financial services in the UK.

hayashi22

I do like reading about companies I have not heard of; Maintel being an example. Had a quick look through -looks interesting. Slight concern that organic revenue growth is 1% so clearly sales growth has been dependent on acquisitions -and they highlight two -one in 2013 and one in 2014. As they generate cash they can no doubt continue to find suitable add-on's. No idea why the value rank is 37 which is low. Forecast P/E is 12.1x -maybe lower as earnings should grow. I'm aware that the value rank does take onboard things other than the PER.

Funderstruck

The Baltic index was a useful way of judging the world economy but over recent years there has been a big increase in the building & launching of freighters , with increased capacity the shipping rates fall, thus volatility.

jimbobjames2002

I confess I don't know that much about peer-to-peer, but isn't one of the biggest problems the lack of regulation? By constrast, TUNG have been jumping through all kinds of hoops in various countries to make sure they are up to standard. From Edi Truell recently:

“Tungsten operates in a heavily regulated landscape, and one of the key reasons we acquired Tungsten Bank was to ensure we obtain approval to offer invoice financing in multiple territories around the world. We have invested in establishing financing structures in new geographies through Tungsten Bank, while maintaining our governance standards to meet and exceed current and potential future regulatory requirements."

Henry Walpole

brucepackard - I agree there are competitors to Tungsten (LON:TUNG) but Tungsten have a massive advantage in that they already have a large number of suppliers on their systems they can tap into. Also being a bank gives them entry into markets like Germany which many competitors cannot enter because only banks are allowed to finance invoices in that country.

Also their competitors are at a disadvantage because they are taking on the credit risk and therefore inevitably there is more work involved for them in assessing a client. Tungsten only finance invoices that have already been approved to pay by trusted clients on their network and with the Insight deal the credit risk is taken by Insight anyway.

jimbobjames2002 - spot on, this whole banking licence issue has been used as a stick by the bears to beat Tungsten (LON:TUNG) but in fact puts them at significant advantage to their competitors. Rick Hurwitz Tungsten CEO for Americas said something similar to the quote you have from Edi Truell:

Ours is a global platform serving global buyer organizations and their global suppliers. When those suppliers seek financing, they’re not just doing it here in the US, but they’re doing it in markets around the globe. For Tungsten to be able to be that global platform that we’ve just positioned ourselves to be, we need to be able to provide capital in other jurisdictions – jurisdictions that may require heavily regulated activity. The bank allows us to fulfil that global approach we’re taking to our activities. Point one.
Point two, the small- and medium-sized enterprises often want confidence that they’re trading with a safe and sound counterparty. Tungsten as a banker, we’re a fiduciary, a regulated entity. We need to make that known to the SMEs so they have confidence in clicking that green button. That’s a big part of our activity.

Rusty2

Hi Paul, Hope you are feeling better. Re Clarkson which I hold long, I think the sp is disappointing considering the results with shipping rates down. Yes a lot depends on the new acquisition which I don't know much about. Just read a bit about them, seems the RS Platoue London management have broken away and will set up their own company, so that could be a problem, latest profits were about £30, so I don't think they got it cheap. But profits could double next year.

valueman

I've been a happy holder of Maintel for 3 years . They are an ambitious management team who act as owners ( they own over 50% of the equity) and are prudent so seem to be aligned with us private investors .I also like the fact that Herald have a large holding (7%).
One key measure ,not reported on, is the return on capital that is in excess of nearly all companies on Aim at 64%. If you look at the past record of earnings growth of 24% per annum which is excellent .They are putting their extremely high free cash-flow to good use with complementary acquisition growth .The growth rate will slow as the dividend payout ratio is being increased to 50% .
It is not unthinkable that they may quite a large valuable company in the next few years !

SparksTrader

Hi Paul,

You mention the current ratio quite often - is that something you use often ahead of the more conservative acid test?

boothbym

1st Apr '15

Back over the £2 mark but will the shorter dump more stock

chemistdude

2nd Apr '15

214p with over 9% short is a beautiful position!

They can try but Edi has fired a warning shot buy to coincide with yesterday's RNS. Shorters will have to be prepared to go all the way but then again they have underestimated us PI's. If they think we will be selling so they can cover cheaply they can think again!

Paul Scott

Edi Truell has certainly pulled out all the stops with demonstrative Director buys at Tungsten (LON:TUNG), but no fundamentals have really changed. I personally want to wait to see tangible progress before considering a repurchase, so am sitting on the sidelines for the time being.

Regards, Paul.

Small Cap Value Report (9 Mar 2015) - TUNG, MAI, TRT, ESCH, CKN

Tungsten (LON:TUNG)

Maintel Holdings (LON:MAI)

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Paul Scott

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