Small Cap Value Report (13 Feb 2017) - CALL, EGS, VCP, PLA

Hi,

Paul has sent in comments on four companies, which I've pasted below.

Graham

Cloudcall (LON:CALL)

Share price: 84.5p (+10%)
No. shares: 20.1m
Market cap: £17m

Update on Bullhorn Strategic Partnership

(PS: at the time of writing, I hold a long position in this share)

Looks a bit of  a non-announcement. We already know that Cloudcall (LON:CALL) has a close relationship with Bullhorn. So announcing that it is expanding that to cover Bullhorn's US operations is no great surprise. Actually I thought this was already the case.

No financial details are given, and no comment is made about overall company performance versus market expectations. Therefore this announcement goes into my mental dustbin.

eg Solutions (LON:EGS)

Share price: 49p (+20%)
No. shares: 22.7m
Market cap: £11m

Trading update 

This reads positively, with a strong H2 performance now in the bag (for year ended 31 Jan 2017);

Trading in the second half of the financial year has been strong, generating record revenues for the six months of not less than £5.69m (H1: £2.50m) and yielding adjusted EBITDA of over £2.0m (H1: loss of £0.89m). Cash at the end of the period was at least £2.40m. 

Accordingly, the Board anticipates that the Company's financial results for the full year will be in line with market expectations on revenues of not less than £8.19m and an adjusted EBITDA of over £1.20m. 

Mind you, it's only in line with expectations, so therefore in theory should be neutral for the share price.

A few comments from me;

1) EBITDA means nothing for software companies, as it excludes the costs of capitalised development spending. So I would want to see what the proper profits are.

2) This company tends to operate with large lumpy contract wins (licences). So performance has tended to yo-yo between good & bad half years. Therefore I wouldn't get too excited about one strong half year. There's no way of knowing if this stronger performance is likely to continue, or not.

3) The controversial CEO has been the big winner financially from this company in the past, extracting outrageous remuneration. Whilst shareholders have only put money in, and not received anything in dividends, as far as I am aware. Does that sound like a good investment proposition to you?

4) Despite all the negatives, this company has won a series of impressive client contract wins. Therefore it presumably must have a product which is good, and is operating in an interesting space (back office optimisation) which is very topical.

Can the company achieve a sustainable level of profits which would re-rate the shares? That I do not know. Given its history, I wouldn't make a leap of faith, especially as this share is so illiquid. However, it does look potentially interesting, if sustained profits can be achieved.

Victoria (LON:VCP)

Share price: 467.5p (+1%)
No. shares: 91m
Market cap: £425m

Acquisition of Avalon BV & GrassInc BV

(PS: I have a long position in this share)

Another sensible-looking bolt-on acquisition, of a profitable Dutch artificial grass manufacturer. The price looks a very low multiple of profits, so I am assuming there must be some debt being taken on as part of the acquisition?

Plastics Capital (LON:PLA)

Share price: 123.5p (+1%)
No. shares: 36m
Market cap: £44m

Trading Update

An in line update for Q3. I can't get excited about this share. The balance sheet isn't brilliant, and it makes lots of adjustments to profits each year, which makes me wonder how real the adjusted figures are. Not bad divi yield though, around 4%.