Small Cap Value Report (14 Aug 2014) - YOU, CAR, SEA

14th Aug '14 by Paul Scott

10 comments 15703 reads

Good morning!

YouGov (LON:YOU)

Share price: 114p
No. shares: 99.3m
Market Cap: £113.2m

There's an in line with expectations trading statement from this company today. The company also reports net cash of £7m at 31 July 2014.

Great care is needed with this share, as in my opinion the reported results considerably overstate profit - this is because a large amount of internal costs by-pass the P&L, and are instead capitalised into intangible assets on the Balance Sheet. See my previous article here for more detail on that vital point. Therefore in my view this share is being priced at an artificially high valuation by the market, and I wouldn't touch it at anywhere near this price.

However, if you're prepared to accept the company's aggressive reporting of profit, then the forward PER is in the high teens, so not good value on that basis even. You usually find that companies which report aggressively on profit tend to have low dividend yields (since they're not actually generating much cash, they can't pay a decent dividend). That's a good indicator, and sure enough the divi yield here is poor at only 0.75% forecast.

I shall look forward to pulling apart the company's accounts for the year ended 31 July 2014. Last year's results were published in mid October, so that's likely to be the schedule for this year too.

Carclo (LON:CAR)

Share price: 158p
No. shares: 65.93m
Market Cap: £104.2m

This is not a company I'm terribly familiar with, but it seems to be a UK-based precision plastics company. There was one division which got investors very excited, but has not lived up to expectations, hence why the share price has bombed out over the last two years;

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I am intrigued by the shape of the chart - as it seems to have bottomed out, and is now rising on more positive newsflow. The shares don't look cheap on current broker forecasts - Stockopedia shows a forward PER of 19.8, which is too high to interest me.

I looked at this share briefly last week, and noted concerns over net debt, a pension deficit, and the fact that some development spending is capitalised (thus boosting reported profits). So I'm flagging those points again here, so that readers don't overlook them when doing your own research.

Anyway, the reason…

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FREng

14th Aug '14

Paul, there was a pre-close trading update from Getech (LON:GTC) yesterday that you might like to comment on.

Carclo (LON:CAR) placed 4% of the company's equity at 431p back in July 2012.

"In order to satisfy investor demand, two directors, who have previously announced their intention to retire, Mr Ian Williamson, Chief Executive Officer, and Mr Christopher Ross, Chairman, agreed on 9 July 2012 to sell 230,000 ordinary shares and 25,000 ordinary shares, respectively."

Private investors were fortunate NOT to be offered the chance to participate in this placing.

Your continued holding of Seaenergy (LON:SEA) seems out of line with your usual views on the balance of risk and reward. Would you buy more, at the current price? If not, then are there no better opportunities for the money invested here?

Cisk

Interesting to see that Outsourcery (LON:OUT) has raised more cash. Not sure how many readers out there subscribe to shareprophets - like or loathe the characters involved, they do seem to make some accurate calls on the more colourful companies on the market. I'm not pro or con shareprophets, just find them amusing sometimes.

Tom W et. al. have been talking down Outsourcery (LON:OUT) for a while now, and it's an entertaining read on the business history of Mr Linney - indeed their predictions seem to be coming true.

Personally, it's not a company which I would ever invest in, indeed I subscribe to the mantra that if a company is heavily mentioned in investor press (thinking here Globo, Quindell etc), I'll steer well clear...

janebolacha

Interesting that Seanergy mention the Mexican oil market. There could be very good potential there for all kinds of UK oil services companies now that Pemex is losing its 70-year-old monopoly on exploration and production as part of the energy reform programme, meaning private sector operators will be able to enter the market.

MrX001

Any chance on commenting on PLUS whose results were out yesterday?

coombe

CARCLO
For what its worth:
The CIT division (just 5% of revenue and smallish net loss) had been driving the price for ages on the hope of rapid growth. After the news announcements on 6th Feb and 1st May sp fell from 260 to 180 then to 130.
After the May news, the market overreacted and CEO & CFO later bought about 74,000 in total at rock bottom prices - about 111 to 114. (18th June).

The other 3 divsions form the backbone of the business. CIT is the cream, now priced in at, in my view, close to zero. If Atmel does well with Xsense, then the sp could move up quickly as this new market has a lot going for it. 'Atmel XSense Recognized as Transforming Industrial and Technology Applications'.
http://www.digitaljournal.com/pr/2016963

As a final point , I think the Board have now reassed their financial PR and are now committed to a policy of 'underpromise and overdeliver' after a period of too much 'jam tomorrow'. In my view the CEO is a wysiwyg and a no nonsense person, right age and experience, motivated with a good team.

I personally invest in businesses with good and agile people. To quote Arthur Rock : : "I invest in people not ideas, because without the right team, none of the other parts really matters”.

After several months watching this company I have taken a small position in it ( 7% of my portfolio) and will hold for a year or so. I hope/ expect a double.

Paul Hill

One important thing to note about YouGov is that it's a much-sort-after trophy asset in the industry. IE. One of the very few independent online market research houses, that has a huge "brand recognition" (aka general elections) which is not reflected in the balance sheet and could be (IMO) much better monetised by a bigger 3rd party

Paul Scott

Hi MrX001,

Plus500 (LON:PLUS) is well above my usual market cap range for these reports, at £565m at last night's closing price.

However I did have a quick look at their results, and I've got serious reservations about this company;

1) It's a foreign company listed on AIM, so that's a big negative for me to start with.
2) The figures don't look right to me - it's too profitable, and the administrative costs to run the company are so tiny, that I'm very sceptical about whether those numbers are both real, and sustainable.
3) I read somewhere that there was a slowdown from Q1 to Q2, and that they are spending more on customer acquisition.
4) There is a concern that the "mug punters" that they target as customers for their CFD operation will only have a very limited life before they blow up their accounts. So profits probably not sustainable, as they need a constant flow of new customers to replace the ones that blow up & disappear.
5) I looked at the customer reviews on Android, and was struck by how young many of their customers are - and how unsophisticated their comments were. So that reinforces that the customers are probably mug punters with a short life as a profitable customer for PLUS.
6) On the other hand, the positives are that the business seems to be remarkably cash generative, and the cash looks real because it's being paid out in dividends. If profits are sustainable, then the valuation looks attractively modest.

I did buy some shares in PLUS after the recent bear raid, and made a nice 15%-ish profit on it in just a few days. However I decided to bank the gains & move on, because of my unease about the company & the sustainability of its profits. The bear raid seemed to have no substance, other than vague allegations of wrongdoing - there were no specifics at all. However, with any company that has a bit of a smell around it, you have to consider the risk of a Gotham City style expose which could smash the share price at any time.

So overall it's on my watch list, but not one I have a strong view on either way at the moment.

Regards, Paul.

Hi FREng,

I had a quick look at the Getech (LON:GTC) trading statement, and they seem to be getting on track.
The problem I have with this company is that it seems to rely on unpredictable, lumpy contract wins. So they can warn on profit at any time. Therefore how do you value it? It's tricky.

The info on tax R&D credits sounded positive too.

Regards, Paul.

Small Cap Value Report (14 Aug 2014) - YOU, CAR, SEA

YouGov (LON:YOU)

Carclo (LON:CAR)

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Paul Scott

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