Small Cap Value Report (1 Jun 2015) - PLUS, TRB, MLIN, GBG

Monday, Jun 01 2015 by
52

Good morning! I'm back after a week's holiday, bright-tailed and bushy-eyed! It was my first week off since starting this column in 2012, so it felt strange not having to compose my thoughts every morning and type them out into an article. It's good to be back though, so here goes.


Plus500 (LON:PLUS)

If you thought there was an odd smell in the air this morning, you've probably detected the smell of burning bears! Yes the shorters have taken a spanking on this controversial CFD provider (CFDs are a leveraged way to buy shares, a bit like spread bets, but taxable), since very surprisingly a bidder has appeared.

400p cash takeover bid - Playtech is the bidder, and they are paying 400p per share, all in cash. The deal is expected to complete by the end of Sep 2015, subject to a shareholder vote, and regulatory approval.

PLUS shares are currently 385p in the market, so there's a potential 15p profit to be had, 3.9%, by holding the shares for four months. However, set against that is the risk of the deal falling through (e.g. if Playtech find more skeletons in the cupboard), so if I still held, I'd have gratefully taken the 385p that is currently on offer, in order to have certainty.

Sadly, I sold my shares for about 302p last week, as various comments made at the AGM sounded disingenuous to me. Pity, but never mind.

This has been a fascinating share to follow - and a good example of how bear raids are carried out. Bears (shorters) are generally shrewd and experienced investors, so they find companies with some sort of serious weaknesses, open short positions, then shout from the rooftop about all the things that are wrong with the share.

The latest method of doing this is by posting a dossier of allegations and revelations online. An individual calling himself Gotham City did this last year, with a devastating dossier revealing the many shortcomings at Quindell. He wiped £1bn off its market cap in one day, and the shares never recovered to anything like their previous highs of over 600p.

In the case of PLUS500, the usual suspects (UK bloggers such as Evil Knievil) posted alarmist comments about the company. I think there was a grain of truth in some of the comments, although they seemed to be wildly exaggerating the downside case,…

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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. ?>


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Plus500 Ltd is an Israel-based company that develops and operates an online trading platform for individual customers to trade contracts for difference (CFDs). Its online trading platform allows its customers to trade CFDs on over more than 2,200 different underlying global financial instruments comprising equities, indices, commodities, options, exchange-traded funds (ETFs), crypto currencies and foreign exchange. The Company enables individual customers to trade CFDs in more than 50 countries. The trading platform is accessible from various operating systems, such as Windows, iOS, Android, and Surface, as well as Web browsers. more »

LSE Price
767p
Change
0.1%
Mkt Cap (£m)
859.9
P/E (fwd)
6.3
Yield (fwd)
9.1

Tribal Group plc is a United Kingdom-based company, which provides software and services for education management. The Company's segments include Product Development and Customer Services (PD&CS), Implementation Services (IS), Professional and Business Solutions (PBS) and Quality Assurance Solutions (QAS). The PD&CS segment represents the delivery of software and subsequent maintenance and support services. The IS segment represents the activities through which it deploys and configures software for its customers. The PBS segment represents a portfolio of performance improvement tools and services, including analytics, benchmarking and transformation services, and the QAS segment represents inspection and review services, which support the assessment of educational delivery. Its products and services include license and development, implementation, maintenance, professional and business solutions, quality assurance solutions and other systems related. more »

LSE Price
66p
Change
1.9%
Mkt Cap (£m)
131.5
P/E (fwd)
14.2
Yield (fwd)
1.9

MPAC Group PLC, formerly Molins PLC, is a United Kingdom-based technology and services company. The Company is engaged in providing instrumentation, machinery and analytical services to the fast-moving consumer goods (FMCG), healthcare and pharmaceutical sectors, together with aftermarket support. The Company’s Packaging Machinery segment supplies automated product handling, cartoning and robotic end-of-line packaging machinery and systems, and operates from three locations, in Mississauga, Canada; Wijchen, the Netherlands, and Singapore. The Packaging Machinery segment provides technical consultancy and machinery to solve packaging and processing challenges from its base. more »

LSE Price
201.5p
Change
 
Mkt Cap (£m)
40.6
P/E (fwd)
7.3
Yield (fwd)
n/a



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


33 Comments on this Article show/hide all

Roger Lawson 1st Jun '15 14 of 33
4

Well I for one will be pleased to see Plus500 disappear from AIM. The ethics of the business looked questionable, and accepting clients without doing KYC checks up front is astonishingly dubious. The more I learned about the company, the less I liked it.

Website: Roliscon
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tiswas 1st Jun '15 15 of 33
1

Paul

You said:

It also confirms my view that stop losses are best avoided. If you've done your research properly, then a deep drop is actually a buying opportunity, not a time to sell.

Would you have thought the same way about stop losses if you had been holding the stock at 770p before the proverbial hit the fan?


Never sure of the right answer myself!

Regards

Rob

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pka 1st Jun '15 16 of 33

In reply to post #100065

Roger Lawson wrote:

"Well I for one will be pleased to see Plus500 disappear from AIM. The ethics of the business looked questionable, and accepting clients without doing KYC checks up front is astonishingly dubious. The more I learned about the company, the less I liked it."

I agree with that sentiment. However, as a shareholder of PlayTech (bot not of Plus500), I wonder what effect PlayTech's proposed takeover of Plus500 will have on PlayTech's own business practices and future prospects.

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Roger Lawson 1st Jun '15 17 of 33
1

Playtech might be able to handle the potential problems - see this blog post I just wrote also: https://sharesoc.wordpress.com/2015/06/01/plus500-the-last-word-hopefully

Website: Roliscon
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herbie47 1st Jun '15 18 of 33
3

In reply to post #100068

Yes but could you have sold at say 650p often drops are very quick and there will be no maket at your stop loss price. I used to use stop losses but now don't, as too many quick falls caused me to sell at bottom of market, ie Hunting, as said its often the time to buy not sell, look at all the companies that have bounced back like Xaar, Asos, QPP. Several shares I have bought after a 20% drop which are now more than the original buy price, latest one is Solid State, now up about 30%. I sold my original shares for about 10% profit so now I'm up over 30%. Yes it does not always work, you need to review each share thats why auto stop losses don't always work. Market makers shake sellers out to buy cheap shares.

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DanielRudd 1st Jun '15 19 of 33

Does anyone have some stats on how often takeovers fall through?

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pka 1st Jun '15 20 of 33

In reply to post #100075

"Playtech might be able to handle the potential problems - see this blog post I just wrote also: https://sharesoc.wordpress.com/2015/06/01/plus500-the-last-word-hopefully"

Roger, I think that's an excellent blog post.

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Paul Scott 1st Jun '15 21 of 33
6

In reply to post #100068

Hi Tiswas,

"Would you have thought the same way about stop losses if you had been holding the stock at 770p before the proverbial hit the fan?"

Well, people who held Plus500 (LON:PLUS) at 770p clearly got their research wrong - they had chosen to ignore the warning signs about the company - the main one being that it is an Israeli company listed on AIM! But also that its results were flagged by me & others as looking too good to be true (or at least too good to be sustainable), a business model that was opaque, quite a lot of bad customer reviews online, etc.

Personally I don't like stop losses, as they act as a target for shorters to aim for - so it's too easy to be stopped out of a position right at the low point, when you should have been buying, not selling.

That said, if a share I hold has dropped (say) 20%, then I use that as a trigger to re-do my research, as something is obviously going wrong that I hadn't taken into account properly. Or it could just be market volatility - look at how Zytronic (LON:ZYT) wobbled a few times in recent months, and people started selling because they thought a profit warning was coming. However, the results & outlook were actually good.

The above comments are for long term investing. However, for shorter term trading, then I think stop losses are probably a good idea. Most professional traders do use stop losses, and often quite tight ones, so that their losses are small, but they run their winners, so the gains should be large.

There are many different ways to make money from the market. For me personally, I pay much more attention to fundamentals, than to market sentiment. Hence I'm prepared to take short term losses, if I think the position will come good in the end. That's my mentality though, and short term losses don't cause me the severe anguish that they seem to cause other people. Providing the company is good value on fundamentals, then I'm happy to wait maybe 6-12 months for it to recover. Other people often aren't, and that can create good opportunities, as impatient people throw away a good share at a low price.

We could discuss this forever, it's an interesting topic, and everyone has their own approach. As a wise friend of mine says to me, "Just do more of what works!"

Regards, Paul.

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Welshborderer 1st Jun '15 22 of 33
2

Well that was brief, bought $plus on Wednesday and sold this morning making £3,500 after costs. What was noteworthy was the inability to get a trading price from my broker. I had to put my faith in the firm and wait, sure enough the selling price was nothing like the one being shown on Yahoo, nearly 10p less.

I suppose one lesson to draw from this is to try to buy and sell quiet stocks but I have to say riding a punt was quite an exciting feeling though not one I want to do often, my heart rate should be more stable at my time of life.

I am not going to justify my actions in buying into a stock others consider to be to have moral issues, the opportunity was there, the commentary surrounding it full of heat and more potential upside than downside. I suppose basically what I would like in a calmer way on all my holdings.

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purpleski 1st Jun '15 23 of 33

In reply to post #100056

Firstly thanks for the insights to the whole Plus500 (LON:PLUS) affair. Fascinating and educational. I have sold this morning as it was a punt for me and would rather have the small profit (all be it 25%).

I am too inexperienced to short but using the spreadsheet you mention it is interesting to see that Sophos Capital Management, L.P. shorted on 18th May which would indicate shorting (0.61% of the company) from a price between 400p and 750p. I assume they will have made a tidy profit.

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purpleski 1st Jun '15 24 of 33

In reply to post #100098

Heck of a punt (depending of course on your overall portfolio size) but congratulations. I bought Wednesday and sold today making £200!!

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aiminvesting 1st Jun '15 25 of 33
4

Hi Paul, Hope you enjoyed your well-deserved holiday, and welcome back to your column! 


I must admit I really missed having you around last weekto comment Porta Communications (LON:PTCM) 's results ! I know it's a share on which you commented in the past, and remember than you said you would wait untill the real results were out when they commented on trading a couple of months ago. Porta Communications (LON:PTCM) went back to "adjusted headline EBIDTA" when they have been brawling about "positive EBIDTA after all costs" since the last quarter of 2013! Despite all the noise, they are still not able to make a profit, but seem reluctant to say it. The thing that most annoyed me (but I am sure there would be more if I understood all their accounting tricks!) is that they managed to present growth at all levels (gross profit, EBIDTA, reduced net loss) by treating one of their loss-making company as discontinued although they didn't close it untill after the year end (TTW). Is that even allowed? I am long on this share, and I am ready to be patient, but I feel turned down every time I see one of their accounts. I would sure love to read your illuminating thoughts on this, if you have the time to catch up! Anyway, thanks for your reports, they are always a great read!

Thomas

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iwright7 1st Jun '15 26 of 33
1

In reply to post #100111

Paul,

Yes welcome back and hope the break was thoroughly enjoyable. Missed the discussion board structure last week and look forward to your Small Cap reports for the rest of the week. Ian

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Paul Scott 1st Jun '15 27 of 33
1

In reply to post #100111

Hi Thomas,

Yes, I still hold Porta Communications (LON:PTCM) . Their results are usually presented in a highly elaborate way, clearly designed to convince investors that everything is going great, when in reality, as you say, the company struggles to make any real profit.

Having said that, Directors have been heavy buyers of the stock, and they waded in again last week with purchases totaling a 6-figure £ sum. So I find that encouraging.

I'm not buying any more PTCM, and am well underwater on my original purchase at around 15p, but for the time being I'm happy to sit tight - mainly because of the large, repeat Director purchases. Also, the Directors are very experienced guys, with a track record of having built businesses before.

So overall, it's probably my long term holding that I'm least confident about, but am prepared to continue running a small position for another year perhaps. I think there might well turn out to be a better price to sell at, in future, but time will tell.

Regards, Paul.

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aiminvesting 1st Jun '15 28 of 33
1

In reply to post #100117

Thank you very much for your comments Paul. Funnily enough, it describres exactly the position I have at the moment: small position, more than 50% underwater, holding but not adding, not that confident but waiting to see what happens... Good luck to all other unlucky holders, and let's hope that the Directors can actually make a profit in the years to come! I don't know if I will make any money on this one, but for me Porta Communications (LON:PTCM) has been yet another reminder not to invest in companies that don't pay divis!

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herbie47 1st Jun '15 29 of 33

Thanks Paul, I'm a long holder of Porta as well, although I did buy in at around 8p so I'm hoping the sp with continue to rise a bit more then I will sell half and keep the rest for a while, heard good things about the management so hopefully they will produce.

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marben100 1st Jun '15 30 of 33
1

Hi Paul,

FYI the principal behind Gotham is believed to be Daniel Yu. See http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10963645/Gotham-City-Research-who-is-Daniel-Yu.html

You  may also be interested to know that he is on twitter as @LongShortTrader ;0)

Cheers,

Mark

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janebolacha 2nd Jun '15 31 of 33
1

Paul, now 11% return to be had on Plus500 (LON:PLUS) if held to the expected bid completion date.
It looks as if the market believes the deal may well not go through.
I assume Playtech would have a Material Adverse Change clause to invoke,
should a whole load of nasties come out of the woodwork at PLUS.














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Ramridge 2nd Jun '15 32 of 33
2

In reply to post #100164

According to the Times this morning, Playtech has a Material Adverse Change clause and a £20m break clause. Plus500 's situation is still too toxic for my liking.

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LeeWilliam25 2nd Jun '15 33 of 33

Welcome back Paul, this was a good read and I agree with pretty much all of it, learnt a couple of things here too. I value your value reports!

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

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