Small Cap Value Report (11 Sep 2017) - ITQ, UPGS, LUCE, XLM, EKF

Monday, Sep 11 2017 by
86

Good morning!

Seems busy in RNS-land, so I might make each comment a bit more concise, to extend coverage.


Interquest (LON:ITQ)

  • Share price: 28.5p (suspended)
  • No. of shares: 38.7 million
  • Market cap: £11 million

AIM: Suspension

Update on Nominated Advisor and Suspension

I'll start by bringing this recruitment company's story (scandal?) up to date.

In a late announcement on Friday, Interquest released an "update" saying among other things that when it fired Panmure Gordon, it believed it was going to be able to find a replacement within the required notice period to avoid suspension.

But since it unfortunately (!) failed to carry out due diligence in time, the shares have been suspended as of today.

It also said the following:

The Company is actively working to engage a replacement nominated adviser and broker and expects that an appointment of a replacement nominated adviser and broker will be completed within one month of the suspension. Any appointment of a new nominated adviser and broker is subject to the satisfaction of due diligence and therefore, whilst the Company does not foresee any circumstances at this stage which would lead the admission of its AIM securities to be cancelled, there can be no guarantee that such due diligence will be completed satisfactorily.

No reason has been given for firing Panmure Gordon in the first place. So one is left with the conclusion that the powers that be simply don't want to have a stock market listing.

The risk of de-listing is particularly high with smaller companies, for investors who need liquidity.

If you don't need liquidity, then there is nothing wrong with owning shares in private companies. Most companies aren't listed publicly, after all.

What makes this particular episode a bit distasteful is that there hasn't been a positive rationale given for choosing to be a private company rather than a public one. Unless there was some specific problem with their existing advisor (and we have no reason to believe that there was), then it looks as if the company is being taken private on a technicality, deliberately. Which isn't in the spirit of how the stock market is supposed to work.




UP Global Sourcing Holdings (LON:UPGS)

  • Share price 117.8p (-44%)
  • No. of shares: 82 million
  • Market cap: £97 million

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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InterQuest Group plc is a United Kingdom-based specialist technology recruitment company. The Company offers permanent and contract recruitment in various markets, such as digital, information security, analytics, telecommunications and change management. Its segments are Niche, which includes recruitment practices focused on analytics, business intelligence, cyber security, Internet of things, telecommunications and risk; ECOM Recruitment Limited, which is a recruiter in the digital market space; Enterprise, which includes Recruitment Process Outsourcing services together with legacy client relationships with customers in the financial services and retail sectors; Public sector; Business Change, which is a candidate centric spot business focused on change management and providing the Company with an alternative route to market, and Other. The Company's subsidiaries include InterQuest Group (UK) Limited, Contract Connections Limited, Contract Connections B.V. and InterQuest Asia Pte. more »

LSE Price
13p
Change
8.3%
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

UP Global Sourcing Holdings plc is a United Kingdom-based owner, licensee, designer, developer and manager of a series of brands focused on the home. The Company develops, designs, sources and distributes a range of consumer products, focused on six product categories: small domestic appliances (SDA), housewares, audio, laundry, heating and cooling, and luggage. Its owned brands include Beldray, intempo, Constellation and Progress, and its brands under license include Salter and Russell Hobbs. It also offers products under brands, such as American Originals, George Wilkinson, Giles & Posner, Inspire, Portobello, Prolectrix and ZFrame. It products are sold to a cross-section of both national and international multi-channel retailers, as well as other national retail chains. It sells its range of products to over 300 retailers across approximately 40 countries. The Company caters to retailers, supermarkets, general retailers and online retailers. more »

LSE Price
86p
Change
1.3%
Mkt Cap (£m)
69.8
P/E (fwd)
11.2
Yield (fwd)
4.5

Luceco plc offers a range of brands, including Luceco, BG Electrical, Masterplug and Ross. The Company's products include Luxpanel, Epsilon and ambient lighting. Luceco light emitting diode (LED) lighting provides commercial and domestic lighting solutions. BG Electrical is a wiring accessory manufacturing brand, which serves electrical trade and specifiers. BG Electrical's products include White Rounded Edge, Nexus Flaplate Screwless, Nexus Metal, Nexus Storm, Nexus Grid and Metal Clad. Masterplug supplies portable power equipment through do-it-yourself (DIY) outlets and street retailers. Masterplug offers products under various categories, including indoor power, such as plugs and adaptors, sockets, chargers and cables; outdoor power, such as case reel, weatherproof box and extension leads, and workpower, such as trailing sockets, inline connectors, cassette reels and cable reels. Ross offers a range of audio visual and home entertainment products. more »

LSE Price
103.2p
Change
-5.3%
Mkt Cap (£m)
175.3
P/E (fwd)
14.1
Yield (fwd)
1.6



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


67 Comments on this Article show/hide all

Lion Tamer 11th Sep '17 48 of 67
5

In reply to post #217558

Maybe if (when) you don't get a reply from the people at aiminvestigations@lseg.com, then the next step is a letter to your PM. If enough people follow up complains via their PMs it might just add some pressure.
(I'm not an Interquest holder myself, but still think the whole affair is a bad show)

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InvestedGeordie 11th Sep '17 49 of 67
5

In reply to post #217348

Whilst I've a lot to learn, one must understand the difference between a trader & investor. Selling an entire holding or 'top slicing' to take a lot off the table is a huge mistake I have made whilst investing. Often my ideas, thoughts, research and 'gut' have been proved right time and again. It is this supposed 'strategy' of taking money off the table that has damaged my returns.

When I invest in companies, i.e. own the stock, I am looking at the next 5yrs minimum. I have learnt the hard way that to try and time the rise and falls is not for someone who wishes to play the long game.

That is certainly not to say money is not there to be made trading, and indeed I use spread betting for this purpose. My strategy, however, often varies dramatically from Mr Minervini. When do I believe there is most to gain on the upside whilst keeping my position open for the shortest time period? Trading updates! However, this requires careful entry, sensible risk management and significant research. This is certainly not for the faint hearted.

One Man's Risk mitigation is anothers diminished returns.

IG

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ed_miller 11th Sep '17 50 of 67

In reply to post #217578

Bizarre is one word, outrageous is another, particularly considering that in a recent vote to de-list the company they failed to secure the requisite minimum 75% of votes for shareholder approval.

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ed_miller 11th Sep '17 51 of 67
3

In reply to post #217588

Yes, I agree, I should follow up, when my expectations of a lack of action by AIM Regulation are shown to be well-founded, with a letter to my useless MP.*


*Who failed to reply to me on the only two occasions I emailed her. Sadly, she is in a very safe seat and won't miss the vote I will never give to her.

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ricky65 11th Sep '17 52 of 67

In reply to post #217338

Hi Lion Tamer

Fair enough, I suppose if you’re a long term investor, short term dips are something you wont be too concerned about. For the most part I’m more short term oriented myself (for better or worse!) and think it’s an opportunity cost to hold while a share drifts downwards or sideways. Bare in mind that having a solid balance sheet wont stop a share from plummeting on say a profit warning.

For long term holds I like to use a back stop just under the 200 day moving average – I note that for MAB1, apart from around the Brexit referendum, it’s been above the 200 MA. Looks good to me. Good luck with it!

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ricky65 11th Sep '17 53 of 67

In reply to post #217348

Hi Ramridge

You’re quite right. I remember reading that section in Minervini’s new book where he mentions it’s a “crapshoot” holding into earnings. I recently sold out Frontier Developments (LON:FDEV) last week at 1090p as I didn’t want to hold such a large gain (over 200%) into results and it looked very extended from the last base to me. If I were psychic I would have held as the shares are now 1300p! Can’t win em all! If it didn’t look so extended I don't think I would have sold the whole position.

The problem is some major events are unscheduled. Unlike scheduled results – some trading updates and other news are unexpected; I wasn’t expecting the UPGS update today and if it wasn’t for my auto stop I would have woken up to large loss!

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ricky65 11th Sep '17 54 of 67

In reply to post #217403

Hi Herbie

Well played on both UPGS and FUL. I’ve removed both from my Minervini inspired fantasy portfolio. FUL shouldn’t have even been included as it didn’t meet his criteria (serves me right for trying to get in early!)

I share your concerns about retailers but the last UPGS results looked like it was performing strongly nevertheless. Incidentally, I was within a whisker of being auto stopped out at 175p back in July and [wrongly] gave it the benefit of the doubt after. At least it was only a few % and some time lost.

I’m still holding FUL in my ISA. It’s the only stock I hold for sentimental reasons (and it shows, being down 30%). I’m Italian and I visit with family who are friendly with the staff. Other members of my family are shareholders too. Long term I hope it will bounce back though I think it will struggle short term.

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doublelutz 11th Sep '17 55 of 67

In reply to post #217618

I don't hold FDEV but if I did I would have looked at the charts. If something is going wrong there is often some selling. There was no indication that anything was amiss in this case so I would have held. That doesn't mean you can't have a stop loss in place.

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Geronimo9999 11th Sep '17 56 of 67
1

Graham, I understand the premise that a minority shareholder in a private company 'simply' (ostensibly) loses liquidity. However, what is to stop majority shareholders devising to use any of the business' profits to increase remuneration to executive management rather than distribute some of same equitably in dividends to all shareholders? When management have had the original capital from their AIM listing, if they delist (however they achieve this) why would they be concerned at all as to the nominal 'value' of each now-private share? Who would want to purchase such powerless shares? It is for these reasons that AIM regulators ought to be concerned since this kind of unscrupulous behaviour besmirches the AIM brand.

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pineapplefritter07 11th Sep '17 57 of 67
5

Looked into ITQ and was half tempted when I saw that Jim Mellon had a load of shares, initially I thought that they must be good if he had bought them, but then wondered if my thinking was flawed. Glad I googled him and found a web of associated companies he was involved in and then concluded I would not buy them after I read a post that he has been known to asset strip companies after they get delisted and sell them for more. I will be steering clear from now on of the likes of Port Erin Biopharma, Manx Financial, SalvaRX et al as I don't want to be working until I am 80 to pay for his high life even if one of his companies may on the off chance be able to rejuvenate me enough to do so.

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lemonjar 11th Sep '17 58 of 67

Another poster earlier mentioned K3C [for some reason the usual pound symbol £K3C trick not working on this one]  their first final results since listing today, and it sounds pretty interesting. Though it only recently listed, apparently (according to these guys http://trendwatcham.com/k3-capital-group-buy-127-5p/) it's possible to look at revenue numbers back to 2014, which shows £2.93m in 2014, 4.94 in 2015, 8.55m in 2016, and now just report £10.8 for 2017 till end of May. Profit before tax is up to 3.7m in the latest results, from 0.4m in 2014. Headcount apparently doubled from May 2016 to May 2017.

With a PER of 13, does this look like good value? curious what others think...

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dunny 12th Sep '17 59 of 67

re UPGS Fall of over 50% seems harsh and I would expect a bounce and perhaps a decent one. Let's see.

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ganthorpe 12th Sep '17 60 of 67
3

Off Topic -Cliches
Did you hear about the dead cat that bounced until it was hit by a falling knife?

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Viz 12th Sep '17 61 of 67

In reply to post #217718

LOL. This is pretty brutal. I hope the directors hang their heads in shame.

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herbie47 12th Sep '17 62 of 67
1

In reply to post #217683

Yes I thought that also but it's down over 10% today.

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ricky65 12th Sep '17 63 of 67

In reply to post #217633

Hi doublelutz

I agree, there wasn't any indication that something was amiss with FDEV. The problem is, I've seen shares gap down 20% or more on results after being so extended. It had ran up nearly 100% from the last base in the 600s. Better to be safe than sorry for me.

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ricky65 12th Sep '17 64 of 67

In reply to post #217663

I think K3C looks good value. It had been on my watchlist for a while and I took an initial position yesterday morning after results; it meets many of my criteria - steady profit, revenue and EPS growth. As the IPO was only 6 months ago, I think it's under the radar of a lot of investors at the moment. Hopefully it will work its way up to finnCap's 160p price target.

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Graham Neary 12th Sep '17 65 of 67
2

In reply to post #217638

Hi geronimo,

Can't majority shareholders with managerial positions in public companies also use their control to pay themselves too much?

Many stock market investors prefer to see a diverse shareholder base, for the precise reason that they don't want to be disadvantaged versus management.

The problem is primarily the power imbalance. Liquidity is secondary, IMHO.

Graham

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Logic 12th Sep '17 66 of 67

Regarding XLMedia (LON:XLM); the way you describe it as "manipulating users" suggests something far more malicious than say a company advertising for gambling companies, or a betting company offering sign-on bonuses (you could argue both are trying to manipulate economic behaviour of others). Seems you have looked into this a bit, could you shed a bit further light on this matter? I'm genuinely intrigued.

Thank you.

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Geronimo9999 13th Sep '17 67 of 67

In reply to post #217753

Yes, they can, Graham - but in that situation a disgruntled minority shareholder at least has a market within which to exit with cash in exhange for having relinquished any vestigial modicum of a say in his/her notional part-ownership of the company.

Moreover, one would hope that the relevant regulatory authorities might exert some statutory (or contractual) constraints to moderate/mitigate the blatant breach of fiduciary behaviour owed by management to their whole constituency, and not merely to the majority shareholders many of whom have an otherwise rewarding vested interest.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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