Small Cap Value Report (Thu 7 Sep 2017) - ITQ, FUL, BOOM, TIDE, BOTB, KOOV, MCB, SSY, FDEV | Paul Scott

7th Sep '17 by Paul Scott

37 comments 16424 reads

Good afternoon, it's Paul here.

I'm starting late today, but will be working on this report for the rest of the afternoon, as I've got the rest of the day free. The header shows the companies that have caught my eye today.

Interquest (LON:ITQ)

Share price: 24.6p (down 24.3% today)
No. shares: 38.7m
Market cap: £9.5m

Termination of NOMAD and suspension - this is a small recruitment company. The story so far goes like this. The Chairman & major shareholder, Gary Ashworth, together with the executive Directors, tried to buy out the company on the cheap, with a 42p cash offer recently. This was opposed by the only independent Director, and a group of shareholders who resisted the opportunistic & under-priced takeover bid. Chisbridge didn't get enough acceptances to de-list the company (75% needed). The major shareholder (via a takeover vehicle called Chisbridge Ltd) now owns 58.3% of Interquest. So the company has been in limbo recently, with it being unclear what would happen next.

It was clear to me that management wouldn't want to keep the stock market listing. Indeed I warned readers here on 29 Aug 2017 of what might be ahead, saying,

My opinion - I just don't trust management here, so for me it's uninvestable. The problem is that management tried to take it private on the cheap, but failed to secure enough acceptances. So it's now in limbo, with management in control, holding 58% of the company. What happens if they decide to de-list the shares? That would trigger a collapse in the share price probably. (SCVR: 29 Aug 2017)

Unfortunately for shareholders, my prediction was exactly right.

However, what the company has now done can only be described as despicable.

Today, it announces that it provided 1 month's notice to its NOMAD on 10 Aug 2017, so that means under rule 1 of AIM (requirement to have a NOMAD) that the shares will be suspended on 9 Sep 2017.

It is also, bizarrely, claiming that it can't find another NOMAD to replace Panmures! How utterly ridiculous. I find this a ridiculous assertion, and I don't believe it;

InterQuest Group plc Group, the AIM listed company focused on digital recruitment and solutions, announces that it has provided one month's notice of termination to its nominated…

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grumpy5

7th Sep '17

Paul,
Congratulations on a typically pithy and accurate depiction of the ITQ story. Perhaps ShareSoc and/or Stocko members should write to Marcus Stuttard (head of AIM, I believe) outlining how this sort of behaviour only brings capitalism, and the City, into very poor favour with the wider world.

willhampson

Entirely agreed with you Paul re Interquest (LON:ITQ). I'm not a holder, but if I where I would certainly be investigating my legal options. The law has developed precisely to prevent steps such as these by majority shareholders, in particular the development of unfair prejudice petitions for example. While the days of no-win-no fee are largely behind us, investors may well find third party funders that are interested in this kind of work. No advice at all intended, but absent another excuse (which I can't see) what has occurred here is abhorrent.

sharw

So they sacked the NOMAD on 10th August, That is the day after the RNS stating:

"InterQuest will continue to operate its business as usual and remains a public company subject to the AIM Rules for Companies".

Well done Paul for your analysis.

Viz

Edited to avoid any legal issues for the stockopedia guys.

Flackwell

The evil face of capitalism - or as the FCA would say "......................"

For clarity, that's, nothing as per usual

InvestedGeordie

Hi Paul,

Can you have a look at Frontier Developments (LON:FDEV) please? They released some astonishing numbers this morning.

Thanks,

IG

andrea34

Please would you be able to give a quick view on FDEV results? They look to be making smashing progress IMHO, though the share price has rocketed in last few months already.

Beginner

PER of 340!!!!! Great prospects admittedly though!

Trident

Re: Interquest (LON:ITQ). Any MBO is freighted with issues for shareholders. It has all the potential of seriously conflicting the management from acting in shareholders best interests. That is pretty much a standard starting off point. As a shareholder I would be seriously concerned that they are incentivised by the process to downplay company performance, to avail themselves the upside. For a public company their should protections in place, but it would seem the Interquest (LON:ITQ) saga seems to prove that the conflict issues are no bar for a determined management. It just proves that integrity as well as rules are a massive component for governance.

Roger Lawson

Yes a truly appalling story re Interquest, but if directors or anyone else control 58% of the company then minority shareholders are in a very difficult position because they will have the ability to do lots of things that prejudice the minority shareholders - for example pay themselves enormous salaries. Yes a legal action for prejudice of a minority is available but as my lawyer said today, these are complex cases, as I well know from having run one myself in the past (we were discussing my past legal cases). It's difficult enough in a private company, and even more so in a public one. In summary, having an AIM Rule about delistings may not help if one cannot win a vote of shareholders.

Samsgrandad

Any chance Paul of revisiting WAND who reported their interims yesterday. Making progress with sales but the accounts take some fathoming for an ungifted amateur accountant with capitalised developement costs added to intangibles etc.

simoan

Paul,

Re: Fulham Shore (LON:FUL) : I noticed there was some interesting info from the analyst meeting in the Daily note from Langton Capital this morning which for those that may not have seen it is here: http://www.langtoncapital.co.u...

Of particular interest:

• Landlords looking to fill sites. FUL will move in if landlords cover the cost of the premium & the site is already fitted out. This could knock 65% off fit-out costs

• DP said if you can spend £650k on a restaurant which earns £250k a year that’s a great business.

• Debt is not an issue. The group has significant headroom. The group will grow from cash-flow and by debt. It does not want to issue shares

I take your point about director buying after a warning, however I take each case on it's own merits and the management here are pretty savvy and have no need to support the share price with PR stunts and there's not a lot you could teach David Page about flogging pizza!

All the best, Si

DMG2305

Hi Paul,

Your view on Filta Group's interim results would be appreciated.

Regards

DG

Geronimo9999

Thanks for this succinct report Paul.

Today I wrote to AIM and FCA and also completed a report on Action Fraud website alleging severe misconduct by ITQ 'management' in rather dubious manoeuvres to manipulate the share price to the detriment of small investors and for the advantage of majority shareholders who control the company. If AIM do not seek to resolve this blatant flouting of their regulations and allow ITQ to profit from flaunting their 'success' in delisting with/without achieving 75% shareholding, as you say, the game's up and I, for one, will be dissuaded from investing in any AIM company again.

It is tough enough to find winners without being undermined by unscrupulous executive directors by unethically pursuing only their own agendas.

FDEV PER of 340?!? I work out the current PER on these results to be 54... and although it is unlikely that the next prelims will show another increase of 440% in eps, it could be argued that they are pretty cheap on this measure of growth alone... especially in a roaring bull market. Anyway, finally bought some, wish I'd noticed them earlier in the ...

dgold

Paul, it would be very interesting to have your opinion on Molins (LON:MLIN)

Panmure and Equity Development put out bullish notes. The company recently sold is tobacco machinery division and along with sale of a property in Canada should end up with net cash of around £1.35 versus a present price of £1.60. My problem is that the remaining business doesn't seem to produce any cash at all after allowing for pension payments and the new rent cost that will arise after selling the Canadian property. So on that basis there should be no value attached to the present business. But Panmure argues that the new management should be able to significantly improve revenue and margins. So they have a target price of 194p based purely on the expected eps from the old business and seemingly arguing that this does not even allow for the net cash.Their forecast shows an EV/EBITDA for 2018 of 1.5. If they are right the shares are incredibly cheap but the market doesn't seem to be buying it. Possible because their expected improvements in the present business are too speculative. Would be interested in hearing Paul's opinion or Graham's or anyone else's.

ricky65

Looks good to me - EPS, Revenue, Margins all up. Breakout to all time high. I topped up this morning.

Small Cap Value Report (Thu 7 Sep 2017) - ITQ, FUL, BOOM, TIDE, BOTB, KOOV, MCB, SSY, FDEV

Interquest (LON:ITQ)

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Paul Scott

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