Small Cap Value Report (Wed 27 Dec 2017) - DFS, HAL, D4T4, WEY, CLP

27th Dec '17 by Paul Scott

24 comments 12546 reads

Good morning/afternoon, it's Paul here.

I hope everyone has had a smashing Christmas break.

As you would expect, there's very little news today. A couple of items caught my eye.

DFS Furniture (LON:DFS)

Share price: 198.25p
No. shares: 211.7m
Market cap: £419.7m

Acquisition - this is only of passing interest. DFS has bought 8 stores, and the intellectual property of MultiYork, a smaller competitor which went bust not long ago.

This sector is looking quite interesting, as there are several up and coming new entrants. Plus, Harveys & Bensons Beds are reported to be in financial trouble, due to a reduction in trade credit insurance. People often forget that it's not just banks which extend credit to many companies, but also trade credit insurers can be even more important. If the trade credit insurers lose confidence in a company, and refuse to insure its suppliers against bad debts, then that can kill a business, as supplies dry up. An example was the original Game Group (now in a new incarnation of Game Digital), which went bust in Mar 2012, when suppliers refused to supply products due to withdrawal of credit insurance.

For me, its awful balance sheet rules out DFS as an investment, even though it is a decently cash generative business.

Halosource Inc (LON:HAL)

Share price: 3.0p
No. shares: 338.0m

Market cap: £10.1m

Trading update (profit warning)

HaloSource, Inc. ("HaloSource" or "the Company") (HAL.LN, HALO.LN) the clean water technology company, today provides an update on trading ahead of the year ending 31 December 2017.

Looking at the market price of this share, the bid price today is 1.0p, and the offer price is 5.0p - so valuing the company at the 3.0p mid price is pretty meaningless.

Today's profit warning is caused by a temporary regional shutdown in China, ordered by the government, for pollution mitigation reasons.

2017 revenues are now forecast to be between $2.6m to $3.0m, resulting in a net loss of between $5.0m to $5.5m. So an absolutely horrendous performance, worse even than the $4.16m net loss showing on Stockopedia's broker consensus forecast figures.

Amazingly, the company has found investors prepared to refinance it, with a $2.8m fundraising apparently in progress. That was priced at…

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bobo

27th Dec '17

Wey will also be important in places like the highlands to extend smaller schools reach and fill in teacher gaps in more core courses.

FREng

I agree with Paul's views on cybercurrencies (negative) and blockchain (positive) though both offer short term opportunities. I'm hoping that Abaco Capital (LON:ABA) will announce something blockchainish, now that it's a cash shell. Indeed, I can't imagine what they are waiting for, as it currently seems unnecessary to have any blockchain technology (or even to know anything about the technology) before issuing an RNS that trebles the share price.

Wol

Re: L.D4T4
There were quite a few decent sized director share purchases during November and December. It looks as if the directors are expecting a good hike in the share price and so probably also decent profits growth from these and other new contracts. I am long D4T4.L but with some caution.

shauniekent

Blockchain good cryptocurrency bad is a tired response to the current mania.
How do you reward participants in the blockchain without a paynent mechanism ie the coin or token. The two are co-dependent.
Crypocurrencies have an enornous future. But yes... current prices have got ahead of themselves.

rpannell

Crypocurrencies have an enornous future

Yes, but as Graham N pointed out, which of the 1000 cryptocurrencies. Want to make same money, just invent yet another cryptocurrency.

Johns

How do we know whether cyptocurrency prices have got ahead of themselves or not ?
How can we value a bitcoin ?

Gromley

The train station advertising option strikes me a being an odd choice for the "full school" offering; anyone considering a private education for their children will almost certainly be doing lots of research anyway, doubly so if they are looking at any kind of home schooling option.

In fairness Wey Education (LON:WEY) do say that they have "put in place procedures to measure the impact of such advertising." Although one would hope that is a bit of a redundant statement - who spends money on advertising without some means of knowing whether it works?

Personally I regard the full remote schooling option to be quite niche ; I know a handful of young people who have had some form or home schooling and they generally lack social skills ; as a parent it would take some extreme circumstances for me to consider anything that did not involve face to face interaction.

The add on they have just completed, offering "add-on" learning, strikes me as a significantly bigger potential market (in terms of number of customers) whether it be 11+ / admission tests, addressing areas of weakness, subject extensions - this also might be a better option for the train station advertising.

Remote adult education is also imho a significant market (but hardly new-wave) I'm not sure how much exposure or ambition Wey Education (LON:WEY) have in this area.

I am struggling to make up my mind on an investment here to be honest :

I think that some people are getting carried away about the potential size of the "end-game", but in the near term there is a fair chance they will deliver on some quite exciting growth.

I am tempted to take a position on the basis of the short term potential and the "greater fool theory" of that reinforcing peoples view of the "size of the prize".

I think I have probably read situations like this well in the past, but having never invested in one that may just be selective memory. This wouldn't be a long term position for me, but I am tempted to take a shorter term view.

alpha2

There seem to be a lot of crypto bears about. An interesting stat is that if all the high net worth individuals in the world wanted one bitcoin there would not be enough to go around.

I don't think it really correlates with the dot com boom yet when there were major financial institutions piling in to all sorts of iffy projects. I am not sure whether we have seen the bubble yet, as the hedge funds and sovereign wealth funds don't seem to have got involved, let alone state banks and the big commercial banks. This may just be the foothills.

underscored

In which case, what are your buy signals, and what are your sell signal? Otherwise this is just dumb luck surely?

Andrew L

28th Dec '17

Wey Education - I haven't really looked at this in depth. I don't really understand the niche they are pitching in education. The case studies for InterHigh pupils are about a small minority who didn't want to be at school due to bullying etc. There also appears to have been legal attempts by Wey Education to remove negative posts about InterHigh on Mumsnet. It would only take an item on Watchdog for InterHigh to get a lot of bad PR. I am not sure what the market is for InterHigh in the UK but home schooling or dropping out of physical schools in general for some reason is generally quite rare.

Online or private education is competitive and has few barriers to entry. English education in Asia is a good example or after school tuition in countries like Korea. Pearson recently sold out of Wall Street English. I think it works best for top-up type courses or explanations like Khan Academy. It can help make up for the issues of physical education in that people are at different levels and learn at different speeds.

Online education in general - There is a film on Netflix about US education. I can't remember the name. It delves into online education which was touted as solving everything. However, humans need social interaction and help with motivation. Home schooling or 100% online learning does work for the highly motivated and disciplined but that is relatively few of us. The vast bulk of 11 to 18 year olds (from GCSE to A-Level age) are unlikely to have the discipline to learn from home.

Wey Education - On face value I am a cynical on this. Online learning is a competitive market and the company has relatively low revenue versus its market value. In my view, investors appear to be focused on "online" growth rather than the prospects for the business. I will try and meet management to get a better idea but it just seems like a company talking a great game to me.

fwyburd

Hi ratioinvestor,
I'd be interested in joining you if you arrange a meeting with management. Let me know.
cheers

Francis

ed_miller

"How can we value a bitcoin ?"

- I can: It has zero intrinsic value and zero backing. Zero is what it will be worth once the bubble has really popped.

To anyone wanting to take a chance on Bitcoin (or your crypto-currency of choice from over 1300 of them...Bubble?...What bubble?!): Good luck finding a bigger mug prepared to buy them from you when everyone is rushing for the exit.

I have no position in crypto-currencies.

Re crypto-currencies
Trust me: when prices accelerate like this (despite zero intrinsic worth) it's a bubble; when copy-cats proliferate (over 1300 and rising) it's a bubble. Every bubble is a little different but this is strongly reminiscent of the tech-stock and dot.com bubble to me. Those with experience of that bubble aren't likely to get involved, but there are plenty of millennials out there too young to have experienced it - plenty to inflate a speculative bubble to epic proportions.

matylda

I'll give you a tulip for one :)

JohnEustace

Bitcoin mining is already using the equivalent of Denmark’s electricity consumption. The article below says that extrapolating the current trends it will use more electricity than the US during 2019 and the whole world by 2020. Clearly unsustainable.
But I guess a clean energy future was so yesterday.

https://grist.org/article/bitcoin-could-cost-us-our-clean-energy-future/

I'll up matylda's offer to two pizzas (what 10,000 bitcoins were worth seven years ago...)

I don't disagree that it's a bubble, I do think that the market can go on being irrational for a lot longer yet and there is plenty of fun to be had to small stakes. I've been in since Dec 15 and its been a multi bagger for me with profit taken and more still left in than I've taken out. I think 20k will be a good time to take profit for anyone who buys in now.

smatthews1

To put a stop to the mining due to the outrageous energy consumption sounds like an ideal catalyst for for this to go pop.

bryaz

BITCOIN
i have decided to set up an exchange to sell fresh air if anyone is interested -i can supply any quantity required

vik2001

2nd Jan '18

for anyone interested in reading latest interview with Wey Education (LON:WEY)

https://www.directorstalkinterviews.com/wey-education-plc-qa-academy-21-acquisition-lonwey/412742859

Small Cap Value Report (Wed 27 Dec 2017) - DFS, HAL, D4T4, WEY, CLP

DFS Furniture (LON:DFS)

Halosource Inc (LON:HAL)

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Paul Scott

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