Small Cap Value Report (1 Feb 2016) - LAKE, SAL, ISL

Monday, Feb 01 2016 by

Good morning! I'm writing this on my laptop in a hotel room in Vienna, having decided to grab a cheap deal for a few days' change of scene, with friends. Things got off to a rather painful start when I had an allergic reaction to some radox shower gel, and ended up enduring the flight with my nether regions stinging very badly!

To make matters worse, I hardly got any sleep, due to one of my party turning out to be a human foghorn in the snoring department (a small group of us hired a family room, to save money). Never mind, it's all part of life's rich pageant I suppose!

Lakehouse (LON:LAKE)

Share price: 38.4p (down 54.3% today)
No. shares: 157.5m
Market cap: £60.5m

Profit warning - bad luck to any readers who got caught on this one. I reported on the company here on 10 Dec 2015, concluding that it looked an accident waiting to happen - a low margin group of contracting businesses, with little balance sheet strength, and growing by acquisition. The worst aspect was that it's a recent IPO (Mar 2015) and the original shareholders cashed out some of their chips in the IPO - it's rarely a good sign if the people who know a business best are cashing out.

Today's profit warning mentions several headwinds - e.g. that social landlords are being required to reduce rents by 1% p.a. for the next 4 years. That's the first I'd heard of this, which has led to a reduction in orders for Lakehouse, as you would expect. It would be interesting to find out when this lowering of rent requirement was being mooted - before or after the IPO?

Insulation, and smart meter contracts are also coming through at a lower level than expected. So all in all, a series of unfortunate headwinds, all of which were no doubt completely unforeseen at the time of the float in Mar 2015.

Quantifying it is rather difficult, as the company's last results had so many adjustments. Today it says;

In light of the above headwinds the Group now expects the financial outturn for the current year to fall short of its previous expectations and to see a reduction on last year's profit level.

Current year forecast is for 12.5p EPS, so the actual result (y/e 30 Sep 2016) is going to be below…

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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SpaceandPeople plc is a United Kingdom-based media specialist company. The Company is engaged in marketing and selling of promotional and retail licensing space on behalf of shopping centers and other venues throughout the United Kingdom, Germany, France and India. The Company's segments include Promotional Sales, Retail, Head Office and Other. The Company markets, sells and administers promotional space in a range of footfall venues across the United Kingdom, including shopping centers, theme parks, garden centers, retail parks and airports. The Company offers a service covering from consultancy services to the provision and management of retail merchandising units in shopping centers. It enables venues to market, administer, promote and sell their promotional space. Its subsidiaries include MacPherson & Valentine Limited, SpaceandPeople GmbH, Retail Profile Holdings Limited, POP Retail Limited, Retail Profile GmbH, SpaceandPeople India Pvt Limited and S&P+ Limited. more »

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D4t4 Solutions Plc, formerly IS Solutions Plc, is a United Kingdom-based company, which focuses on data solutions for its clients to provide end-to-end management of the entire data lifecycle, from its initial creation through the manipulation, analysis and management of the data all the way through to its eventual retirement into industry-compliant archives. Its segments include License sales, Project work and Recurring revenues. Its market focus areas include Data Collection, which captures data from any digital channel through its division, Celebrus Technologies; Data Management, which includes the secure storage and management of all forms of data, either in the cloud or on client premises, for presentation through multiple devices and applications; Data Analysis, which focuses on delivering value through analytics capabilities, and Data Solutions, which includes areas, such as Web and mobile application development, systems migrations and upgrades, and Software-as-a-Service. more »

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

26 Comments on this Article show/hide all

imranawan 1st Feb '16 7 of 26

Hi Paul

According to a broker note issued from Peel Hunt they are forecasting a reduction in PBT from £25.2m to £20m to give EPS of 9.9p. The divi is projected to come in at 3.5p as opposed to 4.2p. Thanks to Davidosh on the ADVFN thread for the revised figures.

As a holder I'm unhappy, but we are where we are.

Best wishes,

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it_trader 1st Feb '16 8 of 26

In reply to post #120173

On that basis very cheap at these low levels.

I think it's pretty hard to tar Lakehouse (LON:LAKE) with other recently IPO'd businesses and the usual pulling wool over retail investors eyes.

For one it's on the main market, not the AIM-casino, and it already has an impressive roster of investors.

The market and twitterati are making out this is a new profit warning, but anybody reading the last full results will see that they allude to potential social housing cuts throughout, and why they are diversifying regionally and more into the private sector, and why they have acquired certain businesses to offer a one-stop shop for landlords in any sector.

I think this is a good low risk level to buy in, and have done. In my opinion!

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bsharman 1st Feb '16 9 of 26

I'm lucky that I didn't invest in Lakehouse (LON:LAKE) as I have been burnt in these type of stocks before - remember ROK... They have extremely low margins and are very exposed to changes in regulation. The brief point I want to make is this: However strong the shareholder list seems to be - it doesn't make an investment risk free. I got caught out badly by DX (Group) (LON:DX.) and it had a incredible list of investors. What chance do us PI's really have if institutions and savvy investors such as Mark Slater also get it wrong. He has the resources and direct communication links to such businesses and probably frequent meetings with management but I'm finding that this happens quite a lot, which leaves me scratching my head.


P.s I hold Spaceandpeople (LON:SAL) and am very pleased with their statement today.         

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hayashi22 1st Feb '16 10 of 26

Yes getting off to a poor start post listing is not good. I vaguely recall an Israeli company having a profits warning a couple of weeks after listing. That was a few years ago. BOO is certainly an exception. The worst floats are nearly always associated with the same broker/NOMAD groups so anyone investing on IPO should carry a mental check list of where to be more cautious. I could easily name names but probably won't!

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Ramridge 1st Feb '16 11 of 26

Re. Lakehouse (LON:LAKE) before today's announcement broker forecasts were eps 12.5p & div 4.2p. Broker forecast today has assumed a 20% fall giving eps 9.9p and div 3.5p.
On a current price of 38.3p that translates to PE 3.9 and div yield 9.2%.
Assuming a worse scenario of a 30% fall, the corresponding numbers are PE 4.4 and div yld 8%
On balance I see this as an investment opportunity, so have taken a medium size stake.


ps. here goes my first new year resolution, never to catch a falling knife again...

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JDW72 1st Feb '16 12 of 26

Last year I did an ultra marathon and despite deploying Vaseline suffered some serious "chaffage" in a certain area.

When I was in the shower afterwards and the radox showergel hit the affected area I screamed so loudly they heard it at the finish line which was about 100m away. The whole thing was enough to put me off radox for life. (It was either that of the ultras and I quite enjoy them!).

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Ramridge 1st Feb '16 13 of 26

Re IS Solutions (LON:ISL) Edward Roskill was keen on this share November last...

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vik2001 1st Feb '16 14 of 26

hey paul any chance you can look at GTS Chemical Holdings if you ever get the chance, they had a great trading update and it looks like a great buy, but perhaps some heft debt..

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Stegrego 1st Feb '16 15 of 26


It's Chinese and has a million red flags to boot.

It's an auto bargepole from Paul, so I doubt he will even look.

Fwiw it's probably a fraud, just like nearly all other Chinese AIM co

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vik2001 1st Feb '16 16 of 26

In reply to post #120200

thanks for this. something in the telegraph today they discovered the largest Ponzi fraud in China today. 21 people arrested. wasn't aware how dodgy Chinese cos can be ..

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Damian Cannon 1st Feb '16 17 of 26

Not to worry Paul - it could have been worse than Radox:

NB. The reviews on Amazon are rather, shall we say, eye-watering.......(not to say disturbing for those of a delicate nature)!

Blog: Ambling Randomly
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marben100 1st Feb '16 18 of 26

Just want to flag up one of my favoured smallcap shares: Keywords Studios (LON:KWS) - once again delivers a forecast busting trading update:

"The Group is pleased to announce that it expects to report revenues and adjusted PBT* comfortably ahead of consensus market expectations, when it announces its final results for the year ended 31 December 2015 on 5 April 2016.  This performance has been driven by ongoing strong pro forma organic growth, with the continued robust performances from our existing service lines complemented by positive contributions from our newer service lines, customer support and art creation."

Whilst the shares have never looked cheap, now trading on an 18x multiple of 2016 earnings, that rating is wholly merited IMO. Bear in mind, though, that Keywords has a good track record of beating forecasts, so that forecast multiple may well reduce as the year progresses. This is a company operating in the right area at the right time: the burgeoning electronic games market, offering localisation and other services to the leading games vendors to match the rapidly growing geographical penetration of games and the proliferation of supported platforms (especially mobile). To successfully address those markets, games must be localised to an ever growing number of languages and cultures, and tested in those environments. This is a chore than the games vendors prefer to outsource (and which a specialist like Keywords can perform more efficiently). Keywords is the leading provider of such services in a broad range of geographies.

This market growth has enabled strong, cash generative, organic growth, complemented by a rapid pace of acquisitions in a highly fragmented industry. Overall this has led to a roughly 60% CAGR of both revenues and profits over the last 5 years. Keywords has a strong balance sheet (net cash), offering reassurance to investors. By making a small placing recently @ 190p, it has further bolstered its "war chest" for the next round of acquisitions, with targets indicated to be in sight in today's announcement.



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Damian Cannon 1st Feb '16 19 of 26

In reply to post #120209

I rather like the look of Keywords Studios (LON:KWS) Mark, although I don't own any yet, but I do have a question regarding broker forecasts. On the Stocko page it looks like the forecast dropped from 9.95p down to 9.11p late last year - do you know the reason for the downgrade? On the face of it this isn't the type of trend that I'm looking for but maybe there are extenuating circumstances?



Blog: Ambling Randomly
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Firtashia 1st Feb '16 20 of 26

With respect to IS solutions. "The company name isn't looking too attractive in the current environment - maybe they could consider a re-branding? "

Peter Lynch's preference was for investing in companies with boring names. I think he said something along the lines of "never invest in anything with an X or a Z in it" :-)

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marben100 1st Feb '16 21 of 26

In reply to post #120212

Hi Damian,

I would guess that EPS downgrade was simply due to the dilutive effect of the placing conducted in late November. I don't have a note from that time to confirm.

Don't forget that today's "comfortably exceed" statement is likely to put the EPS back on track, when results are published, and the revenue and net profit charts will rise even more steeply than they currently show.



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drvodkaquickstep 1st Feb '16 22 of 26

Very pleased to see the ongoing progress being made at IS Solutions (LON:ISL) - they attended a ShareSoc event in London back in July and it was clear to me that Celebrus offered huge potential with respect to Big Data and analytics and clearly this is starting to show through. A few snippets worthy of note:

1) Peter Simmonds now on the Board - well respected and knowledgable
2) Celebrus had around £4m of tax loss on acquisition hence low tax rate initially
3) They own freehold property and plan to improve their balance sheet as a priority
4) Solid historical performance and divi payer - cautious and trustworthy Board (no mega salaries and tons of options)
5) Recurring revenue growing
6) Value of Celebrus (bought as part of SpeedTrap Holdings) potentially significant

They are my second largest holding as a sign of my conviction.

Good luck to all.

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Damian Cannon 1st Feb '16 23 of 26

In reply to post #120221

Hi Mark,

That makes sense thanks as 11.4% of additional shares were issued and on a pro-rata basis that would have brought a pre-placing eps of 9.95p down to just over 8.9p. On that basis the actual forecast of 9.11p represents something of an upgrade!

Also, as you say, these forecasts will now be hiked and perhaps by 10-20% given the 'comfortably ahead' statement. So a projected eps of over 10p seems quite plausible.



Blog: Ambling Randomly
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Richard Goodwin 1st Feb '16 24 of 26

In reply to post #120215

I suspect that the issue is less that it is boring and more that it sounds like something from a somewhat war torn part of the Middle East!

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Ramridge 1st Feb '16 25 of 26

A headline from the Daily Mail :
"Over 270 businesses and trademarks with the name 'Isis' are fighting their 'unfortunate' brand image"   Daily Mail  Oct 2014

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cyberbub 1st Feb '16 26 of 26

Never mind companies, a friend of mine named his daughter Isis! :-o

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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 on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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