Small Cap Value Report (11 Sep 2014) - SAL, DEMG, NPT, SEA

Thursday, Sep 11 2014 by

Good morning!

Spaceandpeople (LON:SAL)

Share price: 43.5p
No. shares: 19.5m
Market Cap: £8.5m

There are two announcements from this company today. It operates the kiosks in shopping malls & other spaces (such as railway stations), and is the market leader in the UK and Germany. It also does face-to-face marketing campaigns in similar venues.

As you can see from the share price below, it's been a disaster this year - due to a profit warning that came completely out of the blue in Apr 2014, following several years of excellent performance, rising earnings & dividends, etc. Profit warnings are an occupational hazard with small caps - you can't avoid them, so there's no point in getting stressed, you just have to weigh up the new information and make a decision whether to stick with the company (knowing that a recovery might take 6-18 months), or to just bail out - if you can, as liquidity often dries up on bad news.

After an initial bounce, the share price has continued to grind down, because of a complete information blackout from the company. No news is ALWAYS bad news, so I've been expecting another profit warning, but balancing that up with the fact that the market cap has now fallen so low, that anything other than disastrous news has already been priced in.


Profit warning - sure enough we have the next profit warning today. Helpfully, the company gives its best estimate of profit for the current year. Brokers were expecting profit of just under £2.2m for calendar 2014 before the Apr 2014 profit warning.

(Hint: you can look back in time by clicking on the "Print" button on the StockReport, and a drop down menu appears which allows you to select a previous StockReport - so in this case I can check the StockReport in Apr 2014 to see what the forecasts were before the profit warning).

The warning in Apr 2014 guided the market down to £1.65m pre-exceptional profit for 2014. This has turned out to be too optimistic. Today the company guides the market down again, as follows;

We now forecast 2014 profit before tax and non-recurring items to be £800k, with an upside of potentially a further £200k, and profit before tax but after non-recurring costs of between £500k and £700k. We are providing a range at this point…

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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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Deltex Medical Group plc is a United Kingdom-based haemodynamic management company, which manufactures fluid management devices. The Company's segments are Probes and Other. The Company's Esophageal Doppler Simulator (EDS) enables clinicians to practice probe insertion, focussing and waveform interpretation outside of a patient setting. The Company's CardioQ-EDM and CardioQ-EDM+ esophageal Doppler monitors (EDM) are designed to allow clinicians to guide fluid and drug administration during surgery. The Company's oesophageal Doppler haemodynamic monitoring (ODM) uses ultrasound to measure blood flows in the central circulation of patients, and allows doctors to fine tune the circulation. Its probes include surgical probes, such as I2S and I2P, and critical care probes, such as I2C and EDP240. Its I2S and I2P are used in patients who are anesthetized, sedated or awake. Its EDP240 is used in patients under anesthesia or full sedation. It has operations in Spain and Canada, among others. more »

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NetPlay TV plc is a United Kingdom-based online gaming company. The Company operates various interactive gaming services under an Alderney gaming license. The Company operates through two segments: Business-to-Customer (B2C) and Business-to-Business (B2B). B2C consists of various online products and ancillary income. The brands operated in this division are, and These brands operate online gaming and betting products. B2B relates to the online marketing, product development and technology business. The Company allows its customers to interact with its games on various platforms, such as television, Internet, mobile and tablet from a common integrated wallet. Its SuperCasino offers slot machine games, live dealer blackjack and baccarat, card games, a selection of casino table games, video poker and instant-win arcade games. Its Jackpot247 hosts games in the Playtech Latvian studio and their online casino games. more »

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

27 Comments on this Article show/hide all

matt_smith101 11th Sep '14 8 of 27

I have to say I have little faith in Spaceandpeople (LON:SAL) doing a Zytronic (LON:ZYT). I think these could be two good examples between a blip in trading and indications of something more serious, despite the companies promising track record until recently. Even accepting that there is potential for things to improve and the share price to recover, surely better opportunities exist in the market regarding risk/reward.

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cycle 11th Sep '14 9 of 27

In reply to post #86092

On the positive side, the new director they have appointed is the CFO of Scottish Television Group, described in this article as the CEO's right-hand man:

STVG have been through a restructuring turnaround which is what I expect SAL are in the process of doing.

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purpleski 11th Sep '14 10 of 27

I sold out this morning in Spaceandpeople (LON:SAL) for my largest ever loss (percentage and pounds). Maybe I am displaying naive newbie behaviour but actually think buying it in the first place was that mistake.

I heard somebody I respect (can not remember who though, it may have been Buffet) say that one does not have to make a loss back in the same share and that is what I have decided top do! Though management took the time to return my call (and I have a minute holding) just after the last profit warning, not to issue any further news since just feels like one is being hung out to dry.

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Boltonreddave 11th Sep '14 11 of 27

Mixed Opinions here, not sure if i want to ask the question 'How low can it go', as we all know the ansere but a bit of me is tempted to take a small position here.

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loudenr 11th Sep '14 12 of 27

In reply to post #86099

Purely on a technical analysis level SAL is basically close to its all time low (at close) - this morning it dipped below it and has now bounced above it. The low was at the peak of the bear market in 2009. The RSI is also incredibly oversold. I usually find it takes an awful lot to go below all time lows given that EPS are forecast to come in around 3.5p ish.

If I had some spare cash I would probably dip my toes in at this level.

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matt_smith101 11th Sep '14 13 of 27

I couldn't agree more in regard to the forecasting. I was very tempted to buy in after the initial profit warning, assuming that if management had any sense the new forecasts would be suitably conservative and give room to be beaten, thus restoring confidence! However, to miss forecasts again is the nail in the coffin for me. A very good summary of events though and as ever we all appreciate your views each morning.

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Dennism 11th Sep '14 14 of 27

Can anyone explain to me how the cost of sales has increased by an amazing 71% on a like for like basis? Even if one adjusts 2013 costs in proportion to increased revenues and adds on non-recurring costs (which I assume should be in the overheads rather than CoS), it doesn't seem to add up to me and I can't find a clear explanation anywhere but I might be missing something?.

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Damian Cannon 11th Sep '14 15 of 27

I think that it's always good practice to ask whether you would buy any shares in a company if you didn't already hold some. There's a definite cognitive bias at play here personally. Sadly I hold Spaceandpeople (LON:SAL) rather than Zytronic (LON:ZYT).

While I think that management are taking all of the right actions with Spaceandpeople (LON:SAL) I do wonder why they haven't put their hands in their own pockets if we really are at a turning point. My feeling is that they're waiting for a concrete upturn in trading and that we're not there yet. So the prudent thing to do would be to wait.

That said I'll be very interested to learn what you discover from meeting the management next week Paul.


Blog: Ambling Randomly
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Dennism 11th Sep '14 16 of 27

I'm obviously going blind as I've just noticed the non-recurring costs are indeed a separate line item in the P&L so I'm still struggling even more to understand the massive increase in cost of sales.

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johnrosier 11th Sep '14 17 of 27

I know one has to look at current value and prospects but I am amazed how many people are being so forgiving of SAL in their comments. I met the management on 25th March this year. I came away thinking it looked reasonably interesting but was not cheap enough or growing fast enough to merit buying. I thought I had missed the boat but would keep a watching eye on it. To be honest I struggled to fully understand how they made their money. Anyway that was a lucky escape as out of the blue three weeks layer we had the profit warning. That was enough for me to put it in the "bargepole" category. In my view it looked like management did not have a full grip on what was going on. We now have a further profit warning which probably should not be a surprise; its human nature to try and be optimistic and not fully appreciate how bad things are. Are people buying now convinced that's it and there won't be another one?

So this could be the biggest buying opportunity ever but why bother? There are plenty of other attractive investments out there without the risk that management are still not fully on top of the problems.

Website: JohnsInvestmentChronicle
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Commanderbox 11th Sep '14 18 of 27

Good afternoon. Boring question: can anybody explain SAL's operating lease commitments (£9m odd over five years at 2013 year-end)? Perhaps lease payments can partly answer the COGS question above?

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kenobi 11th Sep '14 19 of 27

What is it that space and people do, and it is really a viable business in the long term ?

I understand it's doing business in shopping centers, is it possible that the novelty of some of these things is wearing off, or some of the things they have been trying to do haven't been working and people have pulled out ?
If you go to a busy shopping center and you're trying to get to some shops, do you want to be stopped and asked to do a survey ? If you do how likely are you to buy from someone like this ? It's possible that there's a novelty value to this initially, but I'm questioning exactly what they do, who do they promote/sell space to, and is it viable long term ? I'm not saying it is or isn't just asking the question. Could it be that this is starting to stutter as the economy recovers because either people have a bit more money or less time and just go to a shop ? or the people who were using this kind of thing, have opened shops or got their products into shops ?

If you can get past the is this a viable business, then it seems like a snip. I don't really understand what has caused the sharp drop in sales, (lfl), can anyone who has spoken to the management try to give a summary please ?


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Cisk 11th Sep '14 20 of 27

Personally, a business renting out space in shopping centres to stands selling (mostly) a load of tat would never float my investment boat.

However a company which is on the verge of breaking into the largest medical market in the world (where sales are up 20% and running ahead of expectations), and has an overwhelming body of clinical evidence supporting the adoption of the technology (saves lives and reduces cost), sounds far more interesting. That company is Deltex Medical (LON:DEMG).

Paul, I think you may have got your proverbials mixed up ;-)

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rick 11th Sep '14 21 of 27

Regarding (LON:SAL)

Retail UK was down 31.7% and Promotions Germany was down 45.1%, and Promotions UK down 14.0%.

This is not just a small miss, where investors have over reacted. I am concerned that these falls came out of the blue and look like something serious has impacted the business which is not being communicate (e.g. cost of sales).

With these sort of falls you have to question if the business model is viable going forward. In the light of the lack of information we have from the statement I think it is one to avoid as experience has taught me that these sort of situations often do not recover or take many years and a change of management to do so.

Plenty more (attractive) fish in the sea.

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melody9999 11th Sep '14 22 of 27

Paul - I am really surprised it is (still?) one of your biggest holdings. I get the value concept of buying low - even if the SP is not rising. But this one is in freefall. I wish I had your financial knowledge and could then apply it to my stop loss poilcy! Might be a great combination.

Regardless of value and possible recovery, the market is voting very clearly on this one at present - and in my view don't try to buck the market!

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Splode 11th Sep '14 23 of 27

Spaceandpeople (LON:SAL) - The 36% drop from the dead-cat-bounce peak after the first profit warning to yesterday's close was a huge red flag. I got out in July just before my top-up became red. I think the turnaround scenario is weak and the rest of the pre-April board should be removed. Hopefully the third profit warning (next year) will be the last. 

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Jardine 11th Sep '14 24 of 27

I don't hold Spaceandpeople (LON:SAL) and decided not to for these reasons.

Firstly, Paul mentioned a while back that their biggest competitor had gone bust. Now that ought to have improved the trading position for Space and People but it hasn't. Could it be that the market is contracting? Also, how on earth do you go bankrupt in this business. You have people and an office as you are simply the middle man between the shopping centre owner and those who might want to rent space on a short or long term basis. I suppose they may have had a bad debt or is it that this business is a lot harder to make money in than it might seem?

Secondly, one of their RNS's mentioned a drop in trade as a shopping centre owner now wanted to reduce clutter. It made me think that if one does perhaps others do too. Maybe during the dark days of the recession shopping centre owners looked at anything which would help footfall and retain people in their sites. Now that things are improving they are looking to get rid of the clutter. Is this perhaps a counter recessionary business?

Lastly, there was some selling last year by, as I understand it, people who had been former directors of the business and were now retired. It made me think that perhaps they were the people who really had the skills to run this business (and knew more about it than we will ever do) and the new management were not as experienced. Perhaps the former managers knew that things could only get worse?

Hope these points might be of use to some of you.


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qvg 11th Sep '14 25 of 27

In reply to post #86112

Non Execs have bough a few, but not many ...

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TMFMayn 11th Sep '14 26 of 27

It made me think that perhaps they were the people who really had the skills to run this business (and knew more about it than we will ever do) and the new management were not as experienced. Perhaps the former managers knew that things could only get worse?

i just wonder if SAL bought a pup back in 2010:

Firm spent £6m on Retail Europe a short time after reporting operating profits of less than £500k. So a very substantial deal relatively speaking, and of course any large deal always runs the risk of over-paying or simply buying a dud, and/or it signals the core business has run out of steam, or the management badly needs somebody else's talent to move things along.

In the next annual report, Retail Europe I think contributed £1m to group profit and thereafter I reckon it is likely a material part of the wider group's subsequent sales and earnings progress was down to Retail Europe management, rather than the actual group executives. 

From that acquisition RNS:

Julia Langkraehr, the founder of Retail Profile will continue as Retail Profile's International Development Director.

A quick search gives this:

I founded Retail Profile Ltd in 2001, starting off with a shared computer and just one member of staff. We grew quickly and in 2003 won the Small Business of the Year Award in the London Business Awards.

The following year, the company faced financial problems and went into receivership,

It is not clear whether Julia Langkraeh is still employed at SAL, but judging by her website and twitter feed, I think she has either left or has at least significantly wound down her involvement at SAL I note the former chairman of Retail Europe stepped down from the SAL board last year and sold a lot of shares. Maybe SAL's current predicament is due to such departures.

I was at the AGM this year and I was put off by the woolly answer to why the (then) forecast net cash position would be £1m when post-dividend net cash was already £1m and a pre-tax profit of £1.5m was (then) expected. The figures just did not seemed to add up in my view -- and today it seems they haven't.


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intuitive6191 11th Sep '14 27 of 27

Businesses have been using temporary retail and promotional space for many years and it’s not a new concept SAL has muscled in on the supply chain by apparently signing advance contacts with the venues and then looking to find clients to fill the space? I would imagine that its key selling point to venues would be that they can generate revenue from void units as well as manage kiosk and promotional space.

Profit for 2014 is now forecast to be £800k which is apparently generated from 700 sites? This indicates that each venue generates an average of £1142 in profit per annum?

For me it doesn’t seem a lot of money for what looks like a lot of hard work. Presumably SAL started the business by picking the low hanging fruit e.g. busy shopping centres which had voids that it felt it could fill and also had good promotional space. I don’t know where SAL are in the UK but it could be that they have secured contracts on many of the prime sites and are now faced with that age old business problem of how to continue growth in a constrained market.

As well as signing new venues SAL might be struggling to get better utilisation from its existing venues. This means that the promotional space is filled every week and that the kiosks and pop up shops fully occupied
Clearly this is difficult. The main problem is that there are a number of important constraints. A shopping centre will have some strict rules about temporary retail and promotion – the key one being that they don’t conflict with existing occupants. This is why temporary is mainly Cars, Windows and Brand Awareness. Kiosks will often be craft based or seasonal. In short, getting full utilisation of temporary space isn’t as easy as it first might seem due to the restrictions of who can use it.

From all this it’s a bit difficult to see where the recurring income is generated from. SAL should be getting a cut from temporary rents and may even be getting a small retainer from the venues but if each temporary retail contract is only 2 to 4 months then the animal needs to be fed quite often.

I guess it all depends on what you class as recurring income. For the purists it is generated by a once only activity and is collected in perpetuity. Clearly SAL doesn’t look anywhere near this definition which might explain why the recent profit warnings have come as a shock to those who thought that they were investing in a recurring income business.

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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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