Small Cap Value Report (10 Dec 2015) - SNX, LAKE, POS

Hi Paul

Thanks for the write-up of Lakehouse (LON:LAKE). Note 3 to their accounts provides a summary of the exceptional items. As you say half of these are related to amortisation of acquired intangibles and half of the remaining exceptionals relate to IPO costs. I agree we should be critical and sceptical of new floats but each one has to be assessed on its own merits.

Disc: I have a long position, and am surprised the SP hasn't really moved, so suspect there is an overhang. The strong cash generation is what first attracted me and they've made a couple of acquisitions since they've been listed.

Regards,
Imran.

Paul, Thanks for the Lakehouse (LON:LAKE) report. I do have a holding in them, the figures looked good, surprised the shares went down. I think they are a different company from ISG (LON:ISG) who were more shopfitters. I don't know their margins, will see when Stockopedia updates its figures, the nearest company to them I would say is Bilby (LON:BILB) but they are more private sector. Yes things can go wrong, I believe thats what happened with the Hackney council contract. Anyway thanks for the insight into the balance sheet. I will hold for now.

I wonder if this great turnaround for synectics means anything for IND which has been in the doldrums for some time ??

Paul, I think you need to look at the acquisitions that Lakehouse (LON:LAKE) has made since IPO to fully understand the investment proposition - and to bear in mind the clear intention to continue making bolt-on acquisitions in the future indicated by the £45m revolver facility with is referred to in the accounts.

In reply to post #114498

Hi fek47,

The company making debt-fuelled acquisitions is not something I see as a positive at all, quite the reverse, as it will just mean that NTAV slips into the red, and net debt rises (it's already in a debt position, if you treat deferred consideration as debt). Who knows what skeletons the acquired companies will have in their closets? Problem contracts could reside in those, which might then trigger problems with the group.

If & when it does run into some problems, there won't be any balance sheet strength to steady the ship.

You've got to remember that the people selling their companies to Lakehouse are only doing so because they (the vendor) think they're getting a good deal. It's unlikely that both the buyer and vendor are both getting a good deal.

Overall, I'm very sceptical of groups that grow by acquisition, because in most cases, it ends up going wrong. Although there can be a honeymoon period when the shares are fashionable, and there might be an opportunity like that with Lakehouse, i.e. to buy now whilst they look cheap, hold for a while, then sell up before the wheels come off.

It would be good to meet management, and ask them all about risk control, etc.

I can see the attraction of the low PER, and the forecast divi yield. I hope it works out for you, and I might yet be tempted to pick up a few as a small position, but I would never have a contracting company as a big holding - they're just far too risky.

Regards, Paul.

HI Paul.
Regarding Plexus
I see that you have a long position in this and I am keen to understand you rationale for holding a share with
Stockrank of 16
p/e ratio of 81.7
div yield of 0.8
and operating in the oil and gas sector
This isn't intended to poke a hole in your strategy but I am genuinely interested in the reasons you see for holding this share if I might ask. Thanks

In reply to post #114510

Hi Grout123,

I'll defer to Paul to give you a direct answer, but if you look at his write up of October 28th you'll see why notwithstanding the Stockopedia rankings, Paul rates it as a speculative super stock.

Gus

Thanks Gus. Yes good idea to wait to see what Paul says. But while we are waiting and as you are picking random comments out of his commentary I will do the same then;
1-Overall, I think it's entirely possible that this share could drop more, maybe considerable more, who knows? But personally I'm happy to hold it for the long-term,
2-Speculative to a certain extent, but a very interesting share for the long term, in my view.
3-how on earth do you value it? PER isn't particularly helpful, given that the company is serving a sector which is enduring a very low oil price - which must have some negative impact on Plexus.

In reply to post #114534

Indeed. I'm not sure conventional valuation metrics do it justice.

I guess the $64m question is "have they invented (and patented!) a better mouse trap" that will clean up in the O&G sector as and when Capex inevitably starts to flow again. If they have then you could maybe try and ascribe some kind of DCF to guesstimated future sales and margins using a pretty hefty risk adjusted discount rate but hardly an exact science.

Alternatively, take a speculative and affordable punt, lock them away in a bottom draw and hopefully get a nice surprise sometime in the future.

I may also put a few bob of my "mad money" in and see how it goes.

Gus.

Re. Plexus Holdings (LON:POS) Plexus have been trying to flog their POS-Grip product for as long as I can remember, certainly over 2 years. The fact that customers haven't exactly queued up to place orders doesn't fill me with confidence.

In reply to post #114543

I like the ticker, POS. Maybe it's trying to tell us all something about the product :-)

In reply to post #114546

Ha. !