Small Cap Value Report (16 Sep 2016) - IGP, TUNG

Good morning!

Good news today that MPs are going to investigate executive pay. I'm going to give some thought to this, and write a letter to them, suggesting ways in which this problem can be tackled. It really is sickening, and a scandal, how many companies are plundered by their Directors for unjustified & excessive personal gain.

This link to the Govt's website shows the members of the relevant committee. So maybe some readers can also write to them, with your suggestions for tackling board room greed?

This appears to be a topic close to Mrs May's heart, so let's hope something meaningful is actually done.

Intercede (LON:IGP)

Share price: 61p (down 33% today)
No. shares: 49.2m
Market cap: £30.0m

Trading update (profit warning) - this company supplies identity & credential management software. They're not having a very good year (ending 31 Mar 2017);

The Company announces that it has had a slow start to the current financial year and is continuing to experience delays in the receipt of anticipated MyID license orders from both new and existing customers.

Consequently, trading for the year to date is below expectations and the prior year.

The Company still has a strong pipeline of MyID license opportunities and is continuing to make good progress in pursuit of its short to medium term strategic objectives.

However, the Board recognises that revenues for the full year are now likely to be lower than last year's record sales of £11.0m.

This is quite a big miss. Stockopedia shows brokers consensus as £14.3m revenue this year, and £18.6m next year, so those can safely be thrown out of the window now.

This probably means the company is likely to be loss-making this year, judging by the historic numbers.

Broker update - I've just received updated figures from FinnCap, which indicates a big drop in profitability. They only refer to adjusted EBITDA, but have lowered expectations from breakeven, to a £2.4m loss this year.

Also, the net cash expected at year end has dropped from £4.7m to only £2.0m. So the comfort blanket of a cash pile is rapidly being burned up.

My opinion - looking back at my previous reports on this company, I've consistently said that it's too difficult to value. There are no reliable profits, and it's always promises of jam tomorrow. I find that shares like this nearly always go wrong, and end up being over-valued by the market on hope, then reality bites and they come crashing back down to earth. Why take the risk?

Note that in recent years it only made a profit in 2014, but lost money in 2013, 2015, and 2016 (and probably 2017 too). On the positive side, it's got cash in the bank, and no debt.

Too speculative for me. Also, I think you would need sector knowledge, to assess if the product is any good, and how it stacks up against competition, etc.

Tungsten (LON:TUNG)

Share price: 64.25p (up 0.8% today)
No. shares: 126.1m
Market cap: £81.0m

AGM statement - trading update - another jam tomorrow stock, which has hugely disappointed to date. The latest update tries to sound positive, but I can't see anything positive in the figures it mentions;

"We are confident in our ability to achieve the performance objectives we have set for ourselves for the current financial year, principally revenue of at least £30 million, an EBITDA loss of between £12 million and £14 million, and cash in excess of £20 million at 30 April 2017. We continue to expect Early Payment financing levels to double, with material increases in this revenue from FY18."

My opinion - At least there seems to be enough cash to keep going for some time to come, but the losses are still enormous.

The company said in its last full year results that it's "on track to achieve monthly EBITDA breakeven in 2017". Personally, I just don't believe that is likely to actually happen. The company has been wildly over-optimistic in the past, and fallen a long way short of forecasts, repeatedly. Experience has taught me that when this pattern is established, it usually continues.

I think this company needs to stop promising jam tomorrow, and instead get on with actually delivering it.

I'll try to update with some more sections later today, am too tired to write any more right now.

Regards, Paul.