Small Cap Value Repor (Fri 14 June 2019) - SSY, MOGP, TAP, WGB, GAN, ALU

Friday, Jun 14 2019 by
61

Good morning!

Today we have some updates from:



Scisys (LON:SSY)

  • Share price: 250p (+22.5%)
  • No. of shares: 30 million
  • Market cap: £74 million

Recommended Cash offer

Well done to holders of this one.

I've only covered it once before, back in March 2018.

This 254.15p bid is at a 24.6% premium to last night's closing price, so anyone who bought into it recently will be feeling lucky.

The premium is even bigger if you consider the price at which the stock has traded over the past six to twelve months.

The Board unanimously recommends the deal. That's a huge help, and probably means that the deal will go through, unless there's an even higher bid.

I can only think of one recommended offer which completely fell through - the offer for Revolution Bars (LON:RBG) in August 2017.

Comment by the SCISYS Chairman:

We believe SCISYS and CGI are highly complementary businesses sharing similar values and are confident that the combination will enable SCISYS to benefit from CGI's size, strength and global reach."

SCISYS is an IT services provider, and in a similar vein, CGI Inc is an international IT and business consulting group (2018 revenues of 11.5 billion Canadian dollars). Their activities sound very similar. Maybe they've been competing for the same work?

The SCISYS directors control 25% of the shares and all of these will be voted for the takeover.

Rationale - SCISYS says that the size of its management team has been insufficient to study acquisition deals which would allow the company to scale faster. They also blame the low valuation attached to the shares as a reason why they couldn't do more deals, using their equity as currency.

My view - those director shareholdings will…

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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SCISYS group PLC is a United Kingdom-based company, which is engaged in developing information technology (IT) services. The Company develops application solutions and products, and provides supporting services. The Company provides IT services to corporations and public sector organizations through four divisions: Space; Enterprise Solutions & Defence (ESD); Media & Broadcast (M&B) and ANNOVA Systems. The Space division provides various aspects of a space system, from fundamental research and onboard software solutions, to supplying ground segment infrastructure and services. The ESD division provides software solutions across various markets, including defense, security, marine, public sector and commercial. The M&B division is a supplier of digital radio production, archiving, asset-management and playout solutions. The Annova systems develops a portal for ARDAktuell based on the ground-breaking, product OpenMedia Newsboard. more »

LSE Price
251p
Change
 
Mkt Cap (£m)
74.5
P/E (fwd)
18.1
Yield (fwd)
1.1

GAN plc, formerly GameAccount Network plc, is a provider of enterprise online gaming software, operational support services and online game content development services to the casino industry. The Company's segments are business to business (B2B) and business to consumer (B2C). The Company is engaged in the provision and development of real money gaming software and the supply of Internet gaming systems to the online industry, and the provision and development of simulated gaming software and underlying systems to casino operators in the United States and other international markets. It offers GameSTACK Internet Gaming System, which is licensed to online and land-based gaming operators. The Company also licenses gaming content to a range of United Kingdom, Spanish and Italian gaming operators. In New York, the Company offers a Simulated Gaming Website, www.EmpireCityCasino.com. It offers a virtual reality (VR) simulated gaming application, containing Class III slot machines. more »

LSE Price
70.5p
Change
 
Mkt Cap (£m)
60.1
P/E (fwd)
51.2
Yield (fwd)
n/a

Mountfield Group Plc is engaged in the supply of fit-out services (and in particular the supply and installation of flooring systems) to data centers, office, retail and other commercial premises and of specialist construction services, including those related to property fabric repair and refurbishment. The Company's segments are Construction and Fit-out. The Construction segment includes direct contracting and trade contracting services to both main contractors and corporate end users. The Fit-out segment provides raised flooring systems to main contractors and corporate end users. It provides construction support and property services to private and public sectors. It provides construction and internal fit out of data centers for the information technology (IT) industry. Its activities include design and installation of environmentally controlled data centers; fitting out and refurbishment of commercial office buildings, hospitals and education facilities, and principal contracting. more »

LSE Price
1.8p
Change
 
Mkt Cap (£m)
4.6
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is LON:SSY fundamentally strong or weak? Find out More »


24 Comments on this Article show/hide all

runthejoules 14th Jun 5 of 24
2

Morning! Good news for me as Scisys (LON:SSY) getsa recommended bid from 254.15 pence in cash https://www.investegate.co.uk/cgi-group-inc-/ssy/recommended-cash-offer/201906140729242909C/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=CGI%20Group%20Inc.%20Alert - wish I'd picked up more at 183p on the recent 'H2 weighting' dip! However, this does seem a bit low given recent highs were about 220p. Should I be holding on for a counter-bid, or just pay the £11.99 dealing fee and bank?

(In a similar situation with SafeCharge International (LON:SCH) tb so any thoughts there appreciated too)...

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jonno 14th Jun 6 of 24
1

Hi Investorjohn
Missed the Scisys (LON:SSY) announcement. Happy days as you say. I hold. Runthejoules I am intending to hold as it is an agreed bid and to collect the dividend, which is I think 1.75p. The ex date being 28 June? There is of course the outside risk that the bid fails to materialise but also the possibility of a counter offer.

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MBFP 14th Jun 7 of 24
4

I am also a delighted Scisys shareholder.
I also wonder if there may be a counter offer as there is a lot of potential?
I top-sliced 3 weeks ago and repurchased a week later after attending the investor event.

Was my largest holding before today - got to enjoy the good times!

Woohoo!

Michael

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lyndhurst25 14th Jun 8 of 24

Alumasc (LON:ALU). "On the basis of the expectations set out above, the Board's intention is to recommend to shareholders at the appropriate time that the Group dividend of 7.35 pence per share is retained for the current financial year."

"Retain" not "maintain". Does that mean that they are paying the dividend or not? You could read that either way!

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Aislabie 14th Jun 9 of 24

In reply to post #483846

Like you I am in the happy position of holdings in both Scisys (LON:SSY) and SafeCharge International (LON:SCH) and like you I am happy but regretting that I now have to find two more companies with what I believe was potential for long term multibagging.
In the case of SafeCharge International (LON:SCH) I have sold, it looks buttoned up by the insiders and I don't think anything else is coming. For Scisys (LON:SSY) however the potential for the company might attract some counter offers so I will hold little while.

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davidjhill 14th Jun 10 of 24
2

Scisys (LON:SSY) well done to shareholders today. I bought these at 100p and sold at 200p in the middle of last year. Kicking myself for not buying back at the more recent lows as I had been reminding myself to do !!! Still, not unhappy with my gain but would have been a nice re-trade. Glad everyone has done well here though, they are a great company and a pity they are leaving the market.

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doug2500 14th Jun 11 of 24
1

A bit of perspective for anyone thinking the bid for Scisys (LON:SSY) is low..............it may be, but I sold out (for a profit) in 2016 at 60p.

Well done holders.

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ACounsell 14th Jun 12 of 24
3

Well done to the happy holders in Scisys (LON:SSY) but from another perspective my personal experience is a less happy one and goes against the advice of Stockopedia and many experts that one should pretty much always sell on a major profit warning. I bought Scisys (LON:SSY) at the beginning of 2015 for £0.92 only to see a major profit warning send the shares down by about 40% at the beginning of June 2016! Inevitably I sold taking a significant loss and the share only recovered to my original buy price at the end of the 3 Qtr 2017 so it seemed a good decision. However, it would appear the facts changed (and I wasn't smart.brave enough buy back in!) and the share price then took off with a a final leap from today's acquisition uplift. I may be unlucky but it begs the question what should we do with shares that are sitting on similar losses following profit warnings over the last year or so - hold on in hope or risk this scenario again as it is not the first time this has happened over the last 5 years. Perhaps the moral is to be a long term holder and don't sell anything!

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nicobos 14th Jun 13 of 24
4

Interesting news first from Science (LON:SAG) this morning that Frontier Smart Technologies (LON:FST) management are being uncooperative and not playing ball despite Science (LON:SAG) now being a major shareholder.

Then from Frontier Smart Technologies (LON:FST) saying that they are in preliminary discussions with another acquirer and will seek to maximise value for shareholders !

Does anyone have any views on the value of Frontier Smart Technologies (LON:FST) to a bidder ? My view is that Frontier Smart Technologies (LON:FST) shares could be a speculative buy on the basis of a healthy takeover premium or a bidding war. Frontier Smart Technologies (LON:FST) has also potentially forced Science (LON:SAG) 's hand to go hostile.

Graham - too tough for you to unpick this one ?

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FREng 14th Jun 14 of 24
4

In reply to post #483981

@ACounsell

Pal Scott's rule on profit warnings is to decide whether the problem is a one-off that can be fixed fairly readily (in which case hold or even buy) or a systemic issue (in which case sell, for all the reasons that have been explained in the Stockopedia analysis of profit warnings).

The 2016 Scisys (LON:SSY) profit warning arose because of a problem on a fixed price project, so the issue was whether this showed a general lack of control on projects or a specific problem. Management were very open about the action they were taking when they spoke at a lunch for PIs (Scisys have held these regulatly) and they explained that they had audited all their major projects and found no similar issues.

My current strategy is to hold if the problem looks short term and if I understand the business well enough to have confidence in the management, but to sell unless both these criteria are met.

I'm still holding Somero Enterprises Inc (LON:SOM) on that basis - time will tell whether that is a good decision!

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Wimbledonsprinter 14th Jun 15 of 24

Graham as an ex risk arb, I can unfortunately think of many recommended deals across the globe that have not concluded (that is why there is a business for risk arbs). There are always the one-off bizarre situations, but generally they fall into 4 categories: 1) shareholders of target./ bidder (if required) do not approve/ tender - like Revolution Bars (LON:RBG); 2) anti- trust issues (I don’t know Scisys -but can’t see that would be an issue here); 3) where the target triggers a Material Adverse Change (MAC) clause - the worst possible scenario and 4) where a bid is conditional on financing (usually with a PE bidder) and the financing market dries up.

This is not a comment on Scisys, which I do not know. It is definitely true that the vast majority of UK recommended deals close - but there are still plenty of examples of ones that don’t.

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sharw 14th Jun 16 of 24
3

In reply to post #483986

I see that Frontier Smart Technologies (LON:FST) is registered in the Cayman Islands and so the PTM codes do not apply. That is a red flag for me.

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Graham Neary 14th Jun 17 of 24

In reply to post #484016

Wimbledon - thanks for the input and yes, I totally agree that there are other examples of recommended deals that have fallen through, especially on a global basis. I was just making the point that most recommended deals go through, and off the top of my head I couldn't think of any that failed apart from £RBG!

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mammyoko 14th Jun 18 of 24
3

Great coverage this week, Graham. Thank you

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fwyburd 14th Jun 19 of 24
5

Sterling work this week Graham (and Paul's additions), thank you and have a great weekend.
cheers
Francis

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Gromley 14th Jun 20 of 24
6

I put Walker Greenbank (LON:WGB) on my watchlist back in September following an interesting summary by jonno

In fact perhaps I wasn't watching closely enough as with the benefit of hindsight April looked like being a good time to buy!

I have been doing a lot of work recently that all seems to come back to "don't buy into a downtrend". On reflection I have been somewhat subjective in my definition of "downtrend" and looking at the WGB chart I can't quite decide whether I would say it is still in downtrend or not.

Had today's announcement caused the share price to crater I would have probably let confirmation bias convince me it was a downtrend and vindicated not holding on the day of this announcement. On the other hand share-price is up only a fraction on today's statement so this would hardly be "one that got away". (Although the 30%+ rise since April is a bit more disappointing to have missed.)

Anyway, I have now decided to buy - Walker Greenbank (LON:WGB) is categorised as "contrarian" Q:88 V:95 M:43 (Momentum rank was only 4 back in September).

I think momentum is on the turn here, not so much in the share price direction (although April could have been a bottom) but in the reaction to news.

Whilst on the back of the 10th Feb trading update the share price was down 20% within a few days and c. 35% by the day before the 10th April results. There has been a good recovery since those results and today's announcement is therefore the second in a row that has not caused the shareprice to head South.

That may sound pretty flimsy, but in the current market (especially in relation to this sector) that is not bad going imho. The trading statement in itself seems pretty reassuring and there is a potential that the ongoing strategy review may unlock added value.

Of course a disorderly Brexit or a further bout of Trumponomics could batter consumer confidence, so this is not without risks  and I will be looking out for these, but for now I have been happy to take a small position today.

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JonBirdy 14th Jun 21 of 24
2

Thanks Graham for your reports this week. And for your additions Paul. Found them all very interesting reading. Jon

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nquaile875 14th Jun 22 of 24
1

In reply to post #483846

I'm a holder in Safecharge as well so very happy at the moment! To be honest the offer is a guaranteed $5.55 at the prevailing exchange rate on completion so I don't see any harm in seeing this through to completion. You never know who might be lurking out there for a counter offer but if not I'll be happy with this deal.

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ACounsell 14th Jun 23 of 24

In reply to post #484001

FREng

Appreciate your input and guess it comes down to belief in the management that it is a short term problem. I would argue that you have to be pretty close to them to have that confidence. I too am still holding some Somero Enterprises Inc (LON:SOM) to see if I can get it right this time though fortunately I did take some profit before the profit warning. Hopefully it will stop raining in the US (and here as it happens!).

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shanklin100 2nd Jul 24 of 24
1

So, after more than three weeks, Stockopedia is finally showing the 2018 results for Mountfield (LON:MOGP). Stock ranking up from 60 to 83. Whatever service agreement Stockopedia has with Reuters, it certainly does not require them to be anything other than tardy in terms of small Mkt Cap companies.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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