Small Cap Value Report (10 Sep 2015) - RCDO, HYNS, COG

Thursday, Sep 10 2015 by

Good morning!

I'm starting to notice patterns in market behaviour in these more nervous/volatile conditions of late. Whenever there is a large sell-off in the USA, then the Futures seem to gradually recover the following day. Also, you see very little selling in UK small caps - no sign of panic at all today for example, even though the Dow dropped 465 points from its peak yesterday.

I find that rather encouraging - it suggests to me that UK small cap investors are committed to their shares, and not easily panicked. Although I have noticed very low volumes being traded in small caps on days like today - so it seems that buyers go on strike, rather than there being any meaningful selling on days like today. You can't dip in & out of small caps anyway, as the bid/offer spread will destroy your returns.

With a lot of positive newsflow and results being issued at the moment, this still feels like a bull market in small caps, even if the big Indices are struggling - a lot of which is due to particular sectors, such as oil/resources, and banks. So I think it's best to sometimes detach from looking at Indices, and focus on which sectors are under pressure, or doing well.

Overall, with the economic situation looking fairly positive here in the UK, and in America, and with signs of recovery in Europe, this doesn't strike me as a time to be particularly worried about macroeconomic things, any more than usual anyway. Cheaper oil is great news for most people, and most companies...

Petrol - disposable income

Some interesting read-across from big cap results today. WM Morrison Supermarkets (LON:MRW) interim results are not great, as expected, but I note that fuel sales are down 16.8% to £1.6bn. That is mostly due to the lower price of oil feeding through to the pump. So if we assume say 2% is due to lower footfall (carfall?!) and the remaining 14.8% is price deflation, then I make that a £278m "tax cut" for people who bought fuel at Morrisons in H1, or £556m p.a. I've no idea what market share Morrisons has for fuel, but for the entire market we must be looking at multiple £billions in extra disposable income in the pockets of the UK consumer. This has to be positive for consumer cyclical shares…

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Ricardo plc is a holding company engaged in engineering and strategic, technical and environmental consultancy business. The Company's operating segments include Technical Consulting and Performance Products. Its Technical Consulting segment is engaged in the delivery of engineering programs and technology projects, together with environmental and management consultancy services. The Technical Consulting segment also generates income from independent assurance services provided through its rail business. Its Technical Consulting segment includes engines, vehicle systems, driveline and transmission systems and test services, among others. Its Performance Products segment is engaged in manufacturing, assembly, software sales and related services. Its Performance Products segment includes manufacturing and software and also develops and sells licenses for a portfolio of computer-aided engineering software products. It operates in the United Kingdom, Germany, China and the United States. more »

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Haynes Publishing Group P.L.C. is a United Kingdom-based company, which creates and supplies practical and informative content to consumers and professional mechanics in print and digital formats. The Company operates through two geographical segments: UK & Europe, and North America & Australia. The UK & Europe segment has subsidiaries in the Netherlands and Italy, among others. Its core business is the publication and supply of automotive repair and technical information to the professional automotive and do it yourself (DIY) aftermarkets in both a print and digital format. The North America & Australia segment publishes DIY repair manuals for cars and motorcycles in both a print and digital format. It publishes titles under the Haynes, Chilton and Clymer brands, in both English and Spanish. It has a branch operation in Sydney, Australia, which publishes various products under both the Haynes and Gregory's brands. Its consumer content is delivered via both print and digital channels. more »

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Cambridge Cognition Holdings plc and its subsidiaries develop and commercialize computerized neuropsychological tests for sale, principally in the United Kingdom, the United States and Europe. The Company's segments include Pharmaceutical Clinical Trials, Academic Research and Healthcare Technology. The Pharmaceutical Clinical Trials segment includes products and services for use in regulated pharmaceutical clinical trials. The Academic Research segment includes cognitive test products for researchers working in a non-regulated environment, typically in academia. The Healthcare Technology segment includes medical software for use in healthcare delivery settings. The Company is a provider of validated touchscreen cognitive assessments for clinical trials. The Company's product, CANTAB Mobile is a Class II medical device, used to identify patients exhibiting the early signs of Alzheimer's disease. It also offers Cantab Insight for dementia assessment in secondary care. more »

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37 Comments on this Article show/hide all

Flackwell 10th Sep '15 18 of 37

In reply to post #106210

Purpleski - My comment wasn't directed to you per se as a similar sentiment was expressed by the board's author which I must say took me by surprise

As to your question - I'm not sure that I have the answer but the central belief I hold true to, is that work should pay - if this has to be achieved partly through subsidy then I would accept it.

A friend of mine I believe has the simplest solution to the benefits problem - one which would save on enormous tiers of bureaucracy and that is to give everybody the same tax free flat rate sum each year.

Then if they decided to sit at home (or could not find work for example) then they would have to manage on this .

Alternatively any money earned over and above this is taxed - the beauty being that those who work receive more than those on benefits

As a solution its the best I've heard

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Ramridge 10th Sep '15 19 of 37

In reply to post #106188

I am going to really confuse you. Maybe the wires in your brain didn't get crossed and you typed 21.4p instead of 41.2p, maybe you picked up the number just above the eps forecast of 41.2p in the StockReport by mistake which happens to be net profit forecast of 21.4. :-)

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smythw 10th Sep '15 20 of 37

In reply to post #106214

Flackwell, I'm not sure I understood you correctly regarding the benefits payments.

Did you mean that the best idea you'd ever heard of was to give everyone in the country a fixed tax free benefits payment each year? Did you think how much this payment would cost(individually and as a cost to the country)?

To make it affordable, any fixed and universal benefits payment would need to be so low as to be of no use. So we would end up with a significant number of the population homeless and unable to buy food or clothes.

Given we're in a world-wide market place, I'd argue that as individuals and as a country, we need to sharpen up. Giving everyone hand-outs only makes us lazy and less competitive, globally. What we need to do is figure out a way to have people(and the country) become more self-sufficient, not work out a way to spend more money we don't have.

Regarding minimum wage, like purpleski, I used to be dead against it as I thought it was up to a business how it runs it's affairs. If people want better pay, let them move jobs, or retrain.....but I hadn't thought about how rampant government subsidy was, via the benefits system.

Any company requiring routine long-term subsidy does not deserve to be in business. It's quite scandalous that those on low earnings are indirectly funding dividend payments and millionaire director pay-packages. Not to mention that the debt that is funding this cycle is being passed down to our children.

If I need to pay an extra 20p for a box of eggs so that Tesco can pay it's staff enough to live on, then so be it. If Tesco's business model only works when it is underpinned by government help, then they need to make room for a company with a better business model.

Paul, thanks so much for your reports. When I resubscribe to this site later on this year, my decision to do so will be in part due to reading your informative blog. I hope Ed's giving you a kickback! :-)

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Flackwell 10th Sep '15 21 of 37

In reply to post #106219

Smythw - the NET cost would be lower

It would eliminate all of the duplicated administration that currently takes place and in itself be funded by all the taxes we currently raise

It would minimise fraud as every recipient would also need to file a tax return, thereby becoming fully visible to the state.

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Catstycam 10th Sep '15 22 of 37

One of todays main topics seems to be the minimum wage or soon to be "living wage". Everyone should be in a position where they do not need to receive benefits, apart from in the hardest of cases. Any pay rise should directly help them and not be taken away with one hand what has been given by another. I hear the same story now from employers about how they will not be able to afford the "living wage" and consequently they will have to reduce staffing levels and/or make cut backs elsewhere as I did when the minimum wage was introduced. Would those who are in the position of setting wages like to try and live on £6.50 hr?, have they any idea or interest in what that is like?. Do not those on the minimum wage, who work just as hard, and help make the companies profits and help to finance the huge wages of those at the top not deserve more than having to struggle to get by?. Seems one rule for one and another for others to me. It is a disgrace for companies to winge at having to pay more. Surely the employees should be viewed as the most valuable asset and not inferred the most expensive liability!. Rant (not intended) over.

On other matters - thanks Paul for the hard work you do every day and the time you put in bringing to our attention things which we could easily overlook in companies reports. It is all too easy to read what we want to and not what we need to. I know you take a lot of flack. One of the main dangers we have is getting emotionally attached and become blinkered. Yesterdays report on MONI is a classic example. I know there are many who would be up in arms about the views you expressed. You have saved many investors a lot of money by either NOT investing in a share or selling out, and then again helping to make money by buying in!. I do my own research but value your views as an additional tool.



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Paul Scott 10th Sep '15 23 of 37

In reply to post #106193

Flackwell said;

"I'm surprised at some of the comments on here

Auto-enrolment has been around since 2012 !!!!

This started with the larger companies - which are exactly those that readers of these boards are supposedly following - it's introduction has not only been staggered by size of employer, but also the contribution rates are being phased in."

Err, the clue is in the name, this is the  Small Caps Value Report, so no, I'm not supposed to be following larger companies!

I was already aware of auto-enrolment, but hadn't looked up the details. In all the hundreds of small cap company announcements I've read, not a single one has mentioned auto-enrolment, whereas they are starting to mention Living Wage.

Therefore, as I reported today on Living Wage (because it was topical, with Next mentioning it), I also thought I'd flag up auto-enrolment pensions as a related issue, that investors might want to have a think about. I've not seen this issue flagged up by other commentators, so am unsure why you have reacted in the way you have - it comes across as a bit pointless & haughty actually!


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martinthebrave 10th Sep '15 24 of 37

GDWN profit warning RNS timed at 4.23pm. They just don't care about PI's!!

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imranawan 10th Sep '15 25 of 37

In reply to post #106245

Absolutely agree. Remember looking at the Goodwin (LON:GDWN) results and thinking they weren't too bad - but luckily never bought any shares.

This is taken from the FY results issued on the 24th July:

The Group order workload as at 30th April 2015 was 22% lower than twelve months earlier and stood at £79 million. This level of workload increased in the first two months of the new financial year such that as at the time of writing this report there is a possibility that the performance in this new financial year will not be as bad as feared.

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cyberbub 10th Sep '15 26 of 37

Paul, I meant to ask you yesterday whether you might have the chance to have a quick look at the ATTRAQT (LON:ATQT) interims? You had mentioned them once or twice before. It seems to me that they have managed to squeak through on their bank balance without needing to raise further cash, and are now probably cashflow-positive in H2, with a strong growth profile ahead. Any comments (especially if it's a bit quiet on other companies!) would be much appreciated. I have a holding there. Cyber

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cyberbub 10th Sep '15 27 of 37

In reply to post #106219

The concept of giving everyone a tax-free flat sum per year is known as a "Citizen's Income" (or similar name). It has long been a policy of the Green Party in the UK, and other parties on the Continent, but has always been seen as very 'fringe'.

Interestingly, the Finnish and Dutch government have recently started (or are seriously considering) pilots of exactly this concept in the real world.

It basically sweeps away almost the entire social security bureaucracy, pensions, means tests etc etc, saving huge amounts of administration costs for the Govt. Essentially every adult would be given by the taxman an amount, (say) £150 per week in the UK. If they are happy to sit at home and do not much at all, or are pensioners, or want to do unpaid voluntary work to help their community, or be a stay-at-home parent, or whatever, then they will get their £8K per year and have to live a basic lifestyle on that amount of money. If they want to have a better lifestyle then they can go out to work and earn (at least) the Living Wage, which would be in addition to their Citizen's Income, so a major change to their total income, thus encouraging work.

An income tax rate higher than at present would probably be required to fund this, but (as mentioned) there would also be billions saved p.a. by essentially scrapping most of the enormous social security bureaucracy and the entire concept of 'benefits', including jobseekers' allowance etc etc. The only benefits remaining would be perhaps disability benefit, or assisting other people who need specific help with their health needs. Tax-free allowances would also need to reduce to the level of the Citizen's Income, and tax credits and other in-work subsidies would be abolished.

That's my understanding of Citizen's Income anyway. Here endeth the lesson!

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jonesj 10th Sep '15 28 of 37

Ricardo have been around for years, but as I believe a significant proportion of their work would still be automotive consulting, that's exactly the type of thing that gets cut back when there is a cyclical downturn. So I would price them as such.

As for Haynes, well:
1 A quick trip down to Halfords shows the range of manuals on the shelves covers a lot of older cars and even for some popular 5 year old cars, there is nothing on the shelves. That must hurt sales.
2 I wonder what percentage of their UK sales go through Halfords ? I suspect it is an unhealthy percentage.
3 Over the years, they have dumbed down, so there is less content in the manuals.  They completely deleted certain sections claiming special tools are required, which in some cases is just untrue.
4 People now have the option of using the internet to find information on certain repairs.

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jonesj 10th Sep '15 29 of 37

In reply to post #106251

Able bodied people should not get long term benefits for doing nothing.
If they choose not to get a job, then after 3 months they should be picking litter or doing some other service for 2 days a week, increasing to perhaps 4 days a week after 6 months. Leave them 1 day a week to look for a proper job.
I completely fail to see why we have to pay taxes to fund able bodied people who choose a life of indolence.

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cyberbub 10th Sep '15 30 of 37

In reply to post #106259

I agree there is a question of 'moral hazard' with Citizen's Income. In the Dutch and Finnish pilots, the level of the Citizen's Income is a controversial one, for that reason.

However, £8K p.a. (say... it could be less) for a single person is not really enough to have anything more than a very basic lifestyle of a Council bedsit, food and drink, some budget clothes on your back, and the odd beer if you're lucky. So it's not a strong hazard.

I would be happy enough to see the stipulation that able-bodied people aged 18-65 had to do 2 or 3 days' supervised/verified voluntary work per week to help their community, in order to get their Citizen's Income.

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underscored 11th Sep '15 31 of 37

In reply to post #106261

Also consider it would remove many of the benefit traps currently in place. No taking home less money for doing more work!

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Paul Scott 12th Sep '15 32 of 37

In reply to post #106250

Hi Cyber,

I did look at the interims from ATTRAQT (LON:ATQT) but didn't report on it, because it's too small.

I'm probably a bit biased, because I met mgt on a visit their office last year, and was impressed by the people and the product (merchandising software for websites). So when you meet, and like management, it can cloud your judgment.

Overall, I think it's too small for the time being, but that mgt could & should be running a much bigger company. So it's one to watch, but based on the figures, not one to get excited about at the moment, in my view.

Regards, Paul.

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herbie47 12th Sep '15 33 of 37

In reply to post #106261

It is an interesting proposal however I do think that it will lead to more people not working and maybe more immigrants coming to the UK for the money. Also more people would retire early. Just think you can get minimum wage plus £8k pa. So if less UK residents work and more immigrants work here and send money back home then maybe not so good for UK economy? Yes basic living if you have to rent or buy your own place but if living at home or a student its OK. Other problem would be more tax on those working to pay for it all.

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cig 12th Sep '15 34 of 37

In reply to post #106397

Basic income programmes can be seen as a substitute for the minimum wage and combined with an abolition of the minimum wage. The main problem the minimum wage solves is the power imbalance between desperate low-skill people and employers thereof, which is to an extent also solved by a basic income: it means the workers are not starving so don't have to accept really crap and badly paid jobs just to eat.

Re making a country with a basic income too attractive for immigrants, you can put a citizenship or long term residency condition on it if that's a concern.

"More tax" not necessarily in aggregate: you can introduce a basic income programme in a tax-neutral way: you basically take the current welfare budget and income tax schedule, and redshuffle them so as to have the net cost unchanged (old style welfare cuts = net basic income outlay). You may not quite get 8K that way but perhaps not far off. You also want the programme to be neutral for well-off people, as the point is not to make them richer, so the well-off basically get the basic income in the form of an 8K tax credit matched by a rescheduling of the tax bands to add 8K of tax, so as to make the operation cash neutral for them (which makes the net cost much less than 8K * population).

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herbie47 12th Sep '15 35 of 37

In reply to post #106404

Yes I understand it but you are giving this to everyone not just people on benefits. Re citizen would this be allowed I think the Govt. already want to do that so immigrants can't claim benefits but it seems the EU don't allow it? More tax, I still feel that is a lot to get back in tax (£400billion) so really the workers and the rich will be paying a lot more tax. Less women working?

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Ramridge 13th Sep '15 36 of 37

In reply to post #106387

Cyber, Paul -

ATTRAQT (LON:ATQT) 's chairman is Dan Wagner who has a chequered history since the dotcom boom/ bust days, not exactly a flattering one. I personally would not invest in a company where he has an involvement.
Check out his entry in Wikipedia.

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TMFMayn 16th Sep '15 37 of 37

Re: Haynes

Potential glimmer of hope -- chief exec is to step down:

I note the RNS does not contain any farewell speeches, which tells me the Haynes family has indeed become serious about the 'operational and cost review' and maybe suggested that he retire. Outgoing chief exec has collected c£700k a year for at least the last five years through pay, pensions etc -- a fair whack given the size of business.

This management change does not solve the issue of declining demand for car manuals or the hefty pension deficit, but may indicate the family is (finally) taking some action to restore the group's fortunes.

Either that, or the chief exec knows how bad the situation is and simply wants out...


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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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