Small Cap Value Report (15 Aug) - DOTD, TRI, LTC, ACM, PVCS

Thursday, Aug 15 2013 by

Good morning. Apologies for today's report being a little later than usual.

dotDigital (LON:DOTD) is an email marketing software company which has been mentioned here before several times by myself, and also Marben100 and StrollingMolby. They presented to investors at the ShareSoc Tech Seminar in the spring of this year, and I remember being impressed with their growth, and a very impressive client list. Although I did have some concerns over the longevity of this type of product.

They have issued a positive-sounding trading update this morning, which has boosted the share price by 12% to 17.88p. The statement says that the company has looked at a number of potential acquisitions, but not found anything likely to create shareholder value. Instead they plan spending up to half their cash pile of £6.1m on driving accelerated organic expansion.

In the core division, turnover grew by 28% to £12.2m for the year to 31 Jun 2013.

As with most software companies, they quote EBITDA, in this case for the full year ended 30 Jun 2013 they expect to be "slightly ahead of the current market forecast (of) £3.8m". Last year they capitalised £1.2m in intangibles, so assuming no change, then profit as I would look at it (i.e. taking out amortisation charges, and adding back capitalised development spending) is probably around £2.6m. Take off tax, and you're in the £2m ballpark. So the £50m market cap after today's rise in share price is an earnings multiple of around 25. That seems very pricey to me, even allowing for the net cash, and the fact that the company has a good growth track record.

It might well grow into this rating over the next year, but personally I don't like paying too much up-front for growth, so the price is too high for me to take it any further. Also, I still have a nagging feeling that email is a bit old hat. Personally I unsubscribe from as many email lists as possible, as so much time is wasted every day constantly reading & replying to emails, it must take up about half my working time at a guess. Other people must surely feel the same, so I think there are better ways for companies to communicate with their customers other than email (e.g. social media). Email just strikes me as a scatter gun…

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dotdigital Group Plc is a United Kingdom-based company, which is engaged in providing software as a service (SaaS) and managed services to digital marketing professionals. The Company offers dotmailer, which provides e-mail and multi-channel marketing automation platform with various tools that enable marketers to create, manage, execute and evaluate various campaigns. In addition to its automation technologies, the Company also provides multi-channel marketing consultancy and services for businesses seeking to manage customer acquisition, conversion and retention. The Company also has pre-built integrations with e-commerce platforms and customer relationship management (CRM) products, such as Magento and Salesforce. dotmailer helps in using contact data to design, test and send automated campaigns. The Company's subsidiaries include dotmailer Limited, dotsearch Europe Limited and dotmailer Inc. Through its subsidiaries, it is engaged in providing Web- and e-mail-based marketing. more »

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Trifast plc is a manufacturer and distributor of industrial fastenings and category C components to a range of industries and customers. The Company designs, manufactures and distributes mechanical fasteners on a global basis to both distributors and to original equipment manufacturer (OEM) assemblers. Its geographical segments include the United Kingdom, Europe, the United States and Asia. It owns a range of fastener solutions for specific industries and applications, including fasteners for sheet metal, fasteners for plastic, security fasteners, thread-locking nuts and micro-diameter fasteners. Its brands include Pozidriv, Polymate, Binx and Hank. Its products are used in various markets, such as automotive, electronics/telecoms and domestic appliances. It operates in Norway, Sweden, Hungary, Ireland, Holland, Italy, Germany, Poland, Malaysia, China, Singapore, Taiwan, Thailand and India. Its subsidiaries include Trifast Overseas Holdings Ltd and TR Formac Fastenings Private Ltd. more »

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Latchways plc is engaged in the manufacture and distribution of safety equipment. The Company's solutions include roofing solutions, industry solutions, utilities solutions, telecoms solutions, ladder solutions, windows solutions and aviation solutions. Its fall protection solutions can be deployed on a range of buildings and structures, including industrial units, manufacturing plants, warehouses, loading bays and office complexes. Its self-retracting lifelines (SRLs) provide a frictionless braking system. Its Personal Rescue Device (PRD) is an integrated harness system for self-rescue. Its offerings include WalkSafe walkways, WalkSafe Fragile Roof Covers, PushLock, WinGrip Single-User System, WinGrip Multiple-User Lifeline System, WinGrip Barrier System, WinGrip Testing, VersiRail and Temporary Rope System. It serves various sectors, including aerospace, power transmission, utilities and telecommunications. The Company has operations in the United Kingdom, Europe and North America. more »

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  Is dotDigital fundamentally strong or weak? Find out More »

3 Comments on this Article show/hide all

rick 15th Aug '13 1 of 3

I agree that PVCS is being valued as a basket case. It appears to be trading at expected cash return to investors at about 11p. i.e. 7.25p soon and about 3 to 4p later after costs of winding up.

Looking at it another way - the market is ascribing zero value to the business, its IP or its future profits & revenue. Also look across the water at US solar chip manufacturers like SunPower Corp, First Solar etc. they have made quit a powerful share price recovery over the last year, albeit under a more protectionist/anti-dumping environment that has protected them from the big state subsidies of the chinese. It is a shame that the EU did not see fit to do the same. Management are playing down future prospects whilst they should be opening sales offices in the US and Japan.

On a contrarian view point all the "bad news" appears to be in the PVCS share price so the downside is negligible, so an interesting risk-reward environment for the value investor.

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dubeye 15th Aug '13 2 of 3

Would agree dotd is now fully valued, but on the subject of effectiveness of email marketing, it's an analytics rich channel, so it's possible to observe with accuracy open rates and engagement, so I would disagree it is a scattergun approach, any more than PPC is, which is Google's bread and butter. On the other hand, I agree email is vulnerable to disruption and I'm an ex holder of this share.

Any thoughts on BLUR?

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dangersimpson 15th Aug '13 3 of 3

Blur (Group) (LON:BLUR) trades on 45xSales, never made a profit, cashflow sufficiently negative that even if they meet consensus forecasts they will need a placing to keep the business going in the next year. SP momentum is good but the value stock rank is 2nd percentile suggesting that it is significantly overvalued. It will make a great short when the momentum subsides imo.

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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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