Small Cap Value Report (Tue 7 Feb 2017) - NETD, DX., SDY, ENTU, HRN, AMO, WGB

Tuesday, Feb 07 2017 by
60

Good evening.

Sorry I'm late today - was up at 5am, had done all my emails & Tweets, and was raring to go when the RNS started chucking out announcements at 7am, but within an hour was shivvering & coughing with a bug, so had to go back to bed.

Anyway, we don't like gaps in the sequence, so I'll catch up now.



NetDimensions Holdings (LON:NETD) - (at the time of writing, I hold a long position in this share) - a friend has pointed out this video with the CEO of Learning Technologies (LON:LTG) . In it he emphatically states that the Placing to raise the cash necessary to buy NETD has been done. Therefore any worries I had about whether it could raise the necessary funding seem to have been satisfied.

So it looks a done deal. I've not sold my shares yet, as a 5p discount to the 100p takeover price is too large, so I'll sit tight until the discount is only say 1p.



DX (Group) (LON:DX.)

Share price: 6.95p (down 61.4% today)
No. shares: 200.5m
Market cap: £13.9m

Trading update (profit warning) - this is the latest in a series of dire updates from this mail & parcels business. Key points today;

  • Challenging conditions continuing
  • Pressure on pricing
  • Higher margin business failed to materialise
  • Fixed cost nature of courier business is hurting profitability
  • Problems integrating 5 sites into 1


On a more positive note,

  • the lower margin logistics business has been winning new work, and
  • "material new contracts are now being implemented and the Company's pipeline of new business opportunities is robust"


Put this all together then, and it's a nasty profits warning:

it now anticipates that profits for the year will be significantly below current market forecasts, with net debt consequently higher than expected.


Forget dividends too, probably forever;

...It has also taken the decision not to pay any dividends for the foreseeable future


A full review of the business is underway:

...and has commenced a wide-ranging review of the Company's operations with a view to driving revenues and improving its financial performance.


What's taken management so long? It's been obvious for some time that the business model here was completely broken. The reason is simple - a high fixed cost base, and declining customer revenues.

The core DX Exchange…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
61 thumbs up
1 thumb down
Share this post with friends



NetDimensions (Holdings) Limited is an investment holding company. The Company is principally engaged in licensing of computer software and the provision of related services. It provides learning and performance management solutions to help companies, government agencies and other organizations manage productivity. Its segments include North America, Europe, Middle East and Africa (EMEA), Asia Pacific and Rest of the World. It offers solutions, including Enterprise Solutions, which include NetDimensions Talent Suite that offers industry solutions for mobile workforce learning and performance support; Content Solutions, which include NetDimensions Interactive business unit that offers custom e-Learning, course libraries, course conversion, consulting, gamification, mobile content/ applications and learning portals, and Professional Services, which include consulting, implementation, support and other professional services so that its clients can deploy its technology solutions. more »

LSE Price
99.5p
Change
 
Mkt Cap (£m)
51.0
P/E (fwd)
73.3
Yield (fwd)
0.4

DX (Group) plc is engaged in the provision of parcels, mail and logistics services in the United Kingdom and Ireland. The Company's segments include parcels and freight, mail and packets, and logistics. The parcels and freight segment offers services, such as DX 1-Man, engaged in the delivery of irregular dimension and weight items; DX Courier, which provides next day parcel services, and DX 2-Man, which offers a business to consumer home delivery solution for heavier and bulkier items. The mail and packets segment comprises services DX Exchange, a business to business (B2B) mail service providing its customers with collection and delivery times; DX Secure, which provides security, and DX Mail, a mail service offering downstream access for smaller volume users. The logistics segment includes the provision of customer-liveried vehicles and uniformed personnel, such as fleet management solutions and integration with customer's business operations. more »

LSE Price
9.25p
Change
4.3%
Mkt Cap (£m)
17.8
P/E (fwd)
6.2
Yield (fwd)
14.1

Speedy Hire Plc is a tools, equipment and plant hire services company. The Company's segments include UK & Ireland Asset Services and International Asset Services. UK & Ireland Asset Services delivers asset management and focuses on relationship management. International Asset Services delivers overseas projects and facilities management contracts by providing a managed site support service. Its geographical segments include UK, Ireland and Other countries. It operates across the construction, infrastructure and industrial markets. Its hire fleet comprises a range of small tools, specialist equipment, and large plant vehicles and machinery. It also retails a range of tools and equipment, as well as safety personal protective equipment (PPE) and site supplies. It also offers various services, such as on-site operative training, test and repair, fuel supply and management, industrial shutdown project management, on-site depots and hire desks. It also offers partnered services. more »

LSE Price
50.08p
Change
-0.8%
Mkt Cap (£m)
264.4
P/E (fwd)
17.2
Yield (fwd)
2.0



  Is NetDimensions Holdings fundamentally strong or weak? Find out More »


30 Comments on this Article show/hide all

JohnEustace 8th Feb 11 of 30
3

In reply to Paul Scott, post #10

Re Revolution Bars (LON:RBG), beauty is in the eye of the beholder. You see a fantastic upmarket concept in Reading, I see another tacky bar on Friar Street where the HMV used to be!
But seriously, some of those Trip Advisor reviews are very mixed with regard to customer service. My cynical side suspects that quite a few of the glowing reviews are not from genuine independent customers but rather from staff and friends and family.

| Link | Share | 1 reply
Paul Scott 8th Feb 12 of 30
9

In reply to JohnEustace, post #11

Hi John,

I don't care whether a bar is swanky or tacky. It's how much profit it generates that matters!
RBG is a straightforward financial investment for me, based on its profit, and the upward trajectory of profits due to new site openings. We don't have to like the format or not. Just look at the operating cashflow though - the adjusted EBITDA (as a proxy for cashflow) margin is 13.1%.

Here's the top part of the cashflow statement for last 2 years;


589a6962e0bf5RBG_net_cashflow.PNG


As you can see above, it's generating a lot of cash for a £100m market cap business, and most of it is being recycled into opening new sites, which have a ROI of 38%. What's not to like about that? With patience I think the market is likely to re-rate this - as all other self-funding roll-outs on the market are priced much higher.

Re Trip Advisor reviews - I look for generally good reviews, plus a handful of terrible reviews - because then you know that it's genuine. There are always a few people who get angry about a poor experience, and post a bad review. So when there are NO bad reviews, that's when I get suspicious.

It's usually only people who are delighted, and people who are upset, who bother to post reviews. Most people in the middle who are broadly satisfied, don't bother.

But anyway, reviews, and what people think of the sites, are irrelevant. It's the profits, growth & cashflow that make this an attractive investment. Plus the bid potential.

Just my opinion - sounds like we'll have to agree to disagree :-)

Regards, Paul.

| Link | Share | 1 reply
veganvader 8th Feb 13 of 30

Really good write up today Paul, I especially liked the report on ENTU and use these to further educate mysef on how to understand all the information presented here on StockOpedia.

Thanks
Shawn

| Link | Share
paduardo 8th Feb 14 of 30
2

Hi Paul fantastic report as always. I read with interest the article on research tree (naked fund manager) on retail rollouts. I dont know if you ever considered doing a special session maybe at UK investor show or similar on how to crunch the numbers for these chains. You could show the good (cake, rbg, ful) and the bad (craw). I would happily pay to attend as would I am sure a number of your other readers. Thanks Peter

| Link | Share
Ramridge 8th Feb 15 of 30
7

In reply to Paul Scott, post #12

Hi Paul -
No matter how you look at the numbers, they are really outstanding.
One ratio I look at for growth stocks is the operational gearing measured as (increase in OP/ increase in sales). For Revolution, it stands at 20. To put this in simple english, for every £1 increase in revenues, the Operating Profit increased by £20. (last Prelims 4/10/16).

OCF/ Sales also stands at 12% which is also outstanding. Enough to fund more bar openings.

However there is always the banana skin that we need to watch for, such as a very experienced FD resigning after 6 months in the job. 6 months is long enough for a seasoned FD to find serious stuff he doesn't like.

I am not an investor as this sector is not my patch, but wish I had been October last when a number of analysts, including you, were flagging it.


| Link | Share | 2 replies
Paul Scott 8th Feb 16 of 30
3

In reply to Ramridge, post #15

Hi Ramridge,

Interesting, thanks.

I think we need to be careful not to imagine reasons why the CFO of RBG has left.
He'd only been in the job 5 months, and from the announcement last year he didn't seem to have any relevant sector experience - his previous roles being for a crane hire business, and a dried fruit/seeds company. How does that make him qualified to do a retail roll-out? (it doesn't, in my view).

I'd tend to keep an open mind, and hope the company appoints a new CFO who has been there & done a retail roll-out before. In this type of business you need much more than someone who can just keep score. Luke Johnson wrote an article about this recently, bemoaning the lack of sector experience on the board of Whitbread.

Regards, Paul.

| Link | Share
pastybap 8th Feb 17 of 30
1

I like rollouts, but for me the lifespan of concepts such as clubs/cocktail bars is far too short, and subject to extremely fickle trends. They also suck out too much in capital investment as the next "cool" place to be and be seen arrives. I remember in my student days, I always wanted to open my own clubs/chain. Now looking at it from a more experienced eye I will always avoid this industry.

| Link | Share
imranawan 8th Feb 18 of 30
1

In reply to Ramridge, post #15

Hi Ramridge,

Thanks for your comments about Revolution Bars (LON:RBG), which I hold.

Out of interest, how did you calculate operational gearing for Revolution Bars (LON:RBG) and get to a figure of 20, as I calculated the operational leverage is lower than that based on the prelims. Would you mind outlining the specific figs you used.

Regards,
Imran.

| Link | Share | 1 reply
simoan 8th Feb 19 of 30
1

Hi Paul,

I think the Stockreport for Amino Technologies (LON:AMO) has really been hiding the investment case under a bushel for a while now - it's interesting that all the backward looking QV metrics have been at odds with the Momentum metrics which tells the story. I expect the StockRank will jump up following these results (although they don't seem to have been factored in as of today). I've held for a while and bought more after the last trading update because these results were pretty much in the bag. The management here are excellent IMHO and made two very good acquisitions using the cashpile that have broadened the product range and its appeal to customers. I'm really glad they didn't just hand the cash back to shareholders! :)

Re Walker Greenbank (LON:WGB) I bought a small stake on the recent dip. Again it seems a soundly managed company and they have made what looks to be a very good acquisition in Clarke & Clarke another UK company with a large proportion of export sales. With regard to the flooding, the RNS mentions that the flood defences have been completed, so perhaps you missed it while skim reading.

I must admit I'm struggling to find new positions to open at the moment, everything seems to be so expensive and the cheap stuff is cheap for a reason. So much so, I've started building stakes in Sage (LON:SGE) and Diageo (LON:DGE). So more than ever, I really appreciate your reports.

Have a great break! Si

| Link | Share
Ramridge 8th Feb 20 of 30
4

In reply to imranawan, post #18

Hi imran -
I tend to use stocko screens to dump the raw data onto a spreadsheet and manipulate values there.

Checking this data against the actual P&L figures for the prelims in oct last, the calcs are as follows

- op leverage = increase in OP profits / increase in sales
= ( (7.3-3.0)/3.0)% / ((119.5-111.8)/111.8)%
= 143/ 6.9
= 20.7
This calculation doesn't take account of any adjustments to OP.

Hope this helps

| Link | Share | 1 reply
imranawan 8th Feb 21 of 30

In reply to Ramridge, post #20

Thanks Ram - much appreciated.

| Link | Share
gus 1065 8th Feb 22 of 30
3

Re., DX (Group) (LON:DX.) , an RNS just out saying Gatemore have doubled their holding to 22m shares/over 11% of the company.

http://www.investegate.co.uk/dx--group--plc/dx-/holding-s--in-company/201702081041373440W/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=DX%20(Group)%20PLC%20Alert

B***sy call from an investor presumably keeping close track on the business.

Gus.

| Link | Share
fred9566 8th Feb 23 of 30

Hi Paul - I seem to recall that you said in your last report that you did not know much about what Amino technologies does and it appears that you still don't .Not sure where you are going on holiday next week but if you are in an apartment with access to Sky through a broadband connection I will lay money that Amino are providing the technology to support this .Been in and out of the share for the last couple of years but very much in at the moment -if you read the report you can see that they are providng some very disruptive technology that will continue to grow - tremendous cash generator as well
Keith

| Link | Share
fred9566 8th Feb 24 of 30

You mentioned a few days ago that you were half way through the report on 32 Red - did you finish the second half and if so I would appreciate knowing where it is
hope you have a good holiday

Keith

| Link | Share | 1 reply
Maddox 8th Feb 25 of 30
1

Wonderful, I find your candid opinions so refreshing, cheers Maddox

| Link | Share
timarr 8th Feb 26 of 30

In reply to fred9566, post #24

Comment 26 on Monday's report.

timarr

| Link | Share
gus 1065 8th Feb 27 of 30
2

Topical article from Phil Oakley giving a useful framework for analysing a "retail roll out". Focuses on Restaurant (LON:RTN) and Dunelm (LON:DNLM) as roll outs that have maybe run their course and are flagging a bit ( Dunelm (LON:DNLM) had some indifferent interims this morning and is well down again today) and using the analysis for a discussion of Patisserie Holdings (LON:CAKE) . Relevant for considering Revolution Bars (LON:RBG) as well IMO.

https://www.sharescope.co.uk/philoakley_article141_f.jsp

Gus.

| Link | Share
crazycoops 8th Feb 28 of 30
3

Yes, this is a good article from Phil Oakley. The Naked Fund Manager (via Research Tree) also wrote a good article on retail roll-outs this week which included some comment on Revolution Bars (LON:RBG) and Patisserie Holdings (LON:CAKE)

https://www.research-tree.com/blogs/the-naked-fund-manager/roll-outs-the-good-the-bad-and-the-ugly

Blog: Share Knowledge
| Link | Share
TMFMayn 8th Feb 29 of 30
11

It is interesting to compare RBG and CAKE.

Last year RBG opened 5 sites (and presumably refurbished others) at a cost of £13m. This was funded from net cash flow from operations of £14m. RBG ended the year with 62 sites.

Last year CAKE opened 21 sites (and presumably refurbished others) at a cost of £9m. This was funded from net cash flow from operations of £22m. CAKE ended the year with 184 sites.

Let's assume for the current year that RBG opens another 5 sites and CAKE opens another 21 sites. Estate growth is therefore 8% for RBG and 11% for CAKE.

Even though RBG has the lower estate growth, its accounts suggest most its operating cash flow will once again be spent on capex.

In contrast, CAKE has the higher estate growth, and yet its accounts suggest less than half of its operating cash flow could be spent on capex.

From this admittedly cursory analysis, CAKE's chain clearly enjoys the more attractive roll-out economics.

That may explain the P/E rating differential between the two.

| Link | Share
simoan 11th Feb 30 of 30

I think the Stockreport for Amino Technologies (LON:AMO) has really been hiding the investment case under a bushel for a while now - it's interesting that all the backward looking QV metrics have been at odds with the Momentum metrics which tells the story. I expect the StockRank will jump up following these results (although they don't seem to have been factored in as of today).

Well, it took a few days but the SR has now jumped from mid 40's to 96!!

Si

| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are NetDimensions Holdings's fundamentals sound as an investment? Find out More »



About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis