Small Cap Value Report (11 Jul 2014) - PURI, ALLG, COMS

11th Jul '14 by Paul Scott

8 comments 13218 reads

Good morning!

PuriCore (LON:PURI)

There's a profit warning from this disinfectant company. Having recently disposed of its endoscopy business, Puricore now has plenty of cash. At this morning's share price of 36.5p (and with 50.1m shares in issue), the market cap is currently £18.3m. This compares favourably with net cash of $3.9m at 31 Mar 2014, plus $25.3m cash (after costs) of the disposal, giving $29.2m, or £17.1m net cash before taking into account any trading losses since 31 Mar 2014. Or in other words, the company had 34.1p/share in net cash if you adjust the 31 Mar 2014 figure for the disposal. That price should provide a fairly firm floor for the share price in my opinion, and means that downside risk is limited from this point.

The business is more-or-less thrown in for free, which given its historic performance is probably sensible. However, markets look forward, not backwards. So with some big name clients in their supermarket focussed business, buying a consumable product, it seems to me that there is a viable business in here somewhere. Perhaps it needs a change of management to strip back costs, and have a sharper focus on sales growth?

Encouragingly, today's announcement repeats the previous possibility of a partial return of cash to shareholders, which would be an excellent move in my opinion. I don't like the idea of £17.1m burning a hole in their pockets, so shall be writing to the company to express this preference, and suggest other shareholders follow suit. I feel that a 20p per share cash return (about £10m) would be the best course of action.

There is some good news in today's announcement, with demand for consumable products strong;

In-market demand for consumable implementations has been encouragingly strong with existing and new customers signing on for the new products. Meeting this demand in a short timeframe has resulted in higher than expected service costs during the period, which is being addressed as an operational priority. The Board remains confident that with enhanced investment in sales and marketing resources, accelerated market share can continue to be achieved.

So taking that at face value, it means increased losses in the short term, but problems caused by demand being strong are the best type of problems to have, as they are fixable, and should lead to higher profits once fixed.

The disposal of the endoscopy business is described…

Unlock with Email

Unlock with Google

Already have an account?
Login here

beatingmrindex

11th Jul '14

I was pretty annoyed by the wording of the PURI RNS - there may have been the same effect but they could be a bit more bullish. One thing I am worried about is the salaries for the senior management stay the same and eat away at profits even though its a smaller business now...

Excellent reports every day from you Paul, I am big fan even though I dont post very often!

bsharman

Many small caps are being hit very hard at the moment and it's difficult to see if this is another market correction (5-10%) before the market (FTSE 100) makes another attempt at 7000, or that the bear has woken from his five year slumber?? indicating a longer period of decline.... Companies such as Norcros (LON:NXR) have come down a long way from their highs in January and offer perhaps a good entry point based on the fundamentals. the PuriCore (LON:PURI) statement was disappointing, and the board really need to come up with a credible plan to grow the business using the cash from the sale of the endoscopy business. I would like to see a 15-20p return to shareholders in the form of a special dividend. I would really like to hear the management present the strategy at a investor event such as Mello, Sharesoc or BIG. If they are basically trading at net cash, could they also be a takeover target at these levels?!
Thanks again Paul for your daily report, which is the first thing I read each morning!

Braam53

I have a few small caps in Europe which I consider value as well, the last month or so have had them drifting lower too

@paul - why does David Breith comments make you nervous?

Bezhe

In relation to Coms (LON:COMS), you said: "This is a problem that bedevils many fast growing companies - the original medium to senior management usually lack the experience to handle their existing job once the company becomes much larger."

But when you look at the company info, you will see that the the FD was recruited in May 2013 and promoted in October 2013, having worked in a previous company with the current CEO. One wonders about the CEO!

AnonymousUser37607

I wonder if Sue Alexander (now the former FD) will still retain the 4 million options that she was granted as she is staying with Coms - as mentioned previously she seems to have been granted these options with a grant date before she actually joined Coms. Not sure how that works.

In addition, the fall of the FD here does not reflect well on DB's judgement - they had worked together in the past so presumably he, more than anyone else, knew her capabilities before bringing her on as FD, and also onto the Coms Board. She basically fell at the first hurdle.

Given the number and scale of certain acquisitions Coms has made there is still a question mark over the robustness of financial controls / processes etc and this is a concern - the fiasco with the accounts mistake, FD now stepping down and no replacement yet, ongoing review of audit processes etc. Were certain acquisitions rushed into or was the appropriate level of due diligence undertaken in all cases? If DB is serious about where he wants to take Coms he may also want to consider upgrading the current external auditor (Jeffreys Henry) as part of the overall financial / audit process review.

Ramridge

Hi Paul.
Re. Coms. This co. has been on my radar for a while but always stopped short in investing. As I see it now, it is basically believing that Coms can go from £14m revenues in FY14 to £47m projected revenues for FY15.

They went from £1.6m rev in FY13 to £14m FY14 on the back of 10 acquisitions. Some of the consequential integration pains are just being felt and faced now by management. So the picture looking ahead is more acquisitions of the same order or more, in order to reach £47m whilst facing back office integration and restructuring issues. Can do? Well if Dave Breith pulls it off then I will gladly join the front rank of his not inconsiderable band of enthusiastic followers.
Regards, Ram

Delpher

Hi Paul
PURI - Sorry for coming in very late. Today's announcement is indicative of a board that doesn't know where to turn next. It's sold half the company and the other half is losing money - they don't seem to have thought about what to do with the cash - they admit to having been caught with their pants down with unforeseen orders - so at the eleventh hour they decide to review what's left and the choice's available - I wonder whether the CEO, who is 68, is running out of steam -maybe they will sell what's left - now that could have been the reasoning behind investing £700k!

Small Cap Value Report (11 Jul 2014) - PURI, ALLG, COMS

PuriCore (LON:PURI)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

8 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...