Small Cap Value Report (15 Dec 2015) - UTW, TSTL, CFHL, PRES

15th Dec '15 by Paul Scott

21 comments 23265 reads

Good morning!

A fairly short report today, as I've just had news that Mum is coming out of hospital this afternoon, so I've got lots of tidying up to do at her flat, to make it nice for her return.

Utilitywise (LON:UTW)

Share price: 168p (up 20% today)
No. shares: 77.2m
Market cap: £129.7m

AGM statement - the market really can't decide whether the glass is half full, or half empty with this share. Nor can I actually, as my last comments on the company were that the bull and bear case both seemed equally valid to me, hence the logical thing to do was sell up at 195p, and sit on the sidelines.

Today's update sounds reassuring, saying;

We are pleased to announce that the Group has made a solid start to the year, with trading during the period in line with expectations. The pace of recruitment is picking up and we anticipate our position continuing to improve, as per previous market guidance, as the year progresses.

Customer numbers as at 30 November 2015 were 28,507 and our secured future pipeline was £27.7m at the same date.

Broker consensus is for 19.3p EPS this year (ending 31 Jul 2016), so even after today's 20% rise to 168p, the PER is only 8.7, which looks good value. However, it's cashflow that is the big issue with this company. As has been discussed many times before, the company's aggressive accounting treatment means that it books profits often a long time before the cash comes in.

On 27 Oct 2015 the company announced that it had significantly improved cashflow, by renegotiating payment terms with one large utilities supplier. Today, another announcement says this has been extended to a second supplier. More are likely to follow, which should be a good catalyst for the shares to recover further, perhaps?

My opinion - the shares would have made a cracking buy when they recently plunged to about 120p. I was really tempted, but unfortunately didn't have the conviction to buy, as you always worry that a precipitous fall like that is because insiders are bailing out ahead of a profit warning.

To my mind, there are just too many uncertainties around the accounts for this company, and I'm not really keen on the business model of hard selling via call centres, and the obvious…

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gus 1065

15th Dec '15

Hi Paul,

Most importantly, fingers crossed for your mum and her safe return home today.

One observation on the morality or otherwise of the Utilitywise (LON:UTW) business model. While I agree there is inevitably a conflict of interest between commission based agents and a broker's responsibility to their customer to secure the best deal, is it not the case that their role is to present a customer with an alternative to their current arrangement which they can either accept or reject.

Presumably, and perhaps on the naive assumption that these agents have a duty not to misrepresent the products they sell, any transaction that UTW agents offer a client will only be accepted if it is better than the cleints' current position. These deals might not be the best available option in a world of perfect information flow, but are presumably at least better than the customer's existing deal?

Like you I prevaricated on this share. I took a small position which I extended slightly on the recent lows. Still not entirely comfortable .....

Gus.

Ramridge

Hi Paul -
Re. Utilitywise (LON:UTW) One discipline which I am sticking to no matter what is:
trying to catch a falling knife + Aim share = a big no-no
I have looked back over the past nine months and reviewed the stocks where I was tempted. A rough calculation showed that so far I would have notched up over 20% net loss.
Regards, Ram

apad

TSTL:
Has some interesting products in the pipeline and some very encouraging technical reports on the efficacy of its products - made a big thing of it being a french report because the french only take notice of their own research :-)
Doesn't negate your view of the current valuation, but it is on my 'increase' list.
apad

Paul Scott

Hi apad,

Indeed, I think if you take a long term view with a share like Tristel (LON:TSTL) and believe that the growth justifies the high rating, then that's a perfectly valid stance to take. Often to get the really big multi-baggers, you have to ignore an over-valuation, as it can keep rising, and earnings then rise, and grow into the valuation. So I perfectly understand, and respect your point of view.

Regards, Paul.

Rusty2

Just lost my reply as internet went down.
Anyway I do hold Tristel (LON:TSTL), long. Only a small holding, I will probably hold and if it falls then top up. Further looks promising if they can expand into new markets such as USA and China.

Camtab

I hope your Mum continues her recovery. Have a good Xmas Paul.
Norcros. I am coming to the view that the sacking of the Finance Minister could be a big issue. There was some confidence in him and he seemed to do his job well. It was recently uncovered that Zuma has been having an affair with a senior woman at South African Airways which is struggling and Nene's unwillingness to fund further investment did not go down well. I am always nervous of conspiracy theories but there does seem to be some substance here. Zuma has done some strange things and appears a real egotist, not dissimilar to Mugabe all those years ago. Does this spell disaster for Norcros - unlikely, but it will hang over their share price and I am wondering if there are better returns to be made elsewhere for the forseeable.

simoan

apad,

I'm in the same boat. Tristel is already profitable, has good management, already pays a 2% dividend (if you discount the special dividend), and has great products with excellent future growth potential. It's a core long term holding for me and at the top of my "buy on weakness" list. It does look expensive but I've resisted top slicing.

And, all of course thanks to one of Paul's investor interviews which brought the company to my attention. I owe Paul and said interviewee a pint or several!

Cheers, Si

jimbobjames2002

Regarding Tristel, according to one report this morning the opportunities in the US and China represent an equivalent of another 100p added to the share price. As a 3 to 5 year long term hold one could do a lot worse than this company IMO. I only wish I'd got in earlier - but very tempted to add on any dips in the future.

I also echo the sentiments of others - good news about your mum Paul. My mum went into hospital for an op last week, thankfully everything went okay and now she home again, but it does definitely put everything else into perspective.

Piedro, on the ad*fn board is worth reading on TSTL. Ignore the Tintin's comments on the future and China - it all depends on how many chicken entrails are stirred.
apad

cig

Re shares not moving on a positive update, it could be more a market-wide thing than stock specific news being priced in. It seems consistent to me with current market mood where anything with a profit warning gets completely crushed... It seems value stock pickers are outnumbered at the moment.

PFhunting

Totally agree on the need to change the way placings are conducted. In my opinion it would be significantly better if a company suspended it shares when it is looking to do a placing. This would stop PIs buying in what is effectively a false market and would also ensure the share price is stabilised for the fund raising rather than being forced down by less scrupulous holders selling whilst being "inside" on the deal.
If you look at the deal done by Benchmark this week where the shares were suspended whilst the raise was done the discount was small

nigelo

It seems odd that pre-emption rights are enshrined in company law yet it is allowed for companies to disapply pre-emption rights if their shareholders so vote and even more odd that companies routinely have these votes and that they are invariably passed. Perhaps it is something to do with the fact that the institutional shareholders control most of the votes and that they and their private clients can get in on the discounted placings.

If a client participates in a placing they can short sell shares (at the current price) and take up placing shares (at the discounted price). If someone did such a thing they would not even need to be (or even become) a shareholder to drive down the price in advance of a placing and guarantee a profit.

I have noticed a lot with good news, shares either drop or don't move, then later usually the next day or so the price picks up. It seems unless the news is unexpectedly good some investors sell. There also seems to be a lot of selling in the days leading up to the results coming out.

MrContrarian

Fundraisings/false markets: Better ask Sydney. Trading halts on the ASX are no big deal and are used for fundraises and secondary placings http://www.claytonutz.com/publications/news/201103/09/the_known_unknowns_trading_halts_made_easier_by_asx.page
The City will resist the regular easy pickings of course.

andrewjames

Paul, all the best with your mother; parents are a worry!

I went to the Tristel AGM today and I really like this company, although I got in much later than I should have done, having tracked it for ages and done nothing until a few months ago. Very annoying. I actually topped up materially again today after the meeting, which is clearly a big punt on further growth. It is expensive, but it could have some way to go.

I liked the responses from the board (CEO in particular) and the new info (via the Equity Development broker note that I read whilst waiting for the AGM to start) that the company is looking hard at the domestic cleaning market. The development costs linked with expansion also seem quite low. The next couple of years should be interesting.

melody9999

Paul - I think you do UTW an injustice re "business model of hard selling via call centres". This is not about 'I can get you a lower p /kWh. When you consider the complexities of the electricity market... with spot prices changing quite dramatically intraday. There was an event only a few weeks where - if you had the right partner - the price per kW from the National Grid went up 10X for a few minutes and the spiked down again. Also 'hard' selling in B2B markets unlikely to be successful. Disclosure - I have no position in UTW but have some understanding of the electricity industry. .

oscar247

Paul

Good to hear your Mother is on the mend.

I share your scepticism regarding Utilitywise (UTW). Although the market has reacted positively to today's figures, questions remain, regarding the long term viability of the business model and the companies overly aggressive accounting policy.
There are hundreds of independent energy consultants (B2B) dedicated to achieving best forward prices dealing directly with suppliers. Utilitywise enjoys no USP and I can only see their margins being squeezed harder and harder as competition grows more severe.

This one could unravel quite quickly in my opinion.

ridavies

16th Dec '15

No comments on PRES so far! I am very suspicious about the comments made by the senior management this company, especiually the Chairman. I was very impressed by the presentation at Derby last November and for some time PRS was one of my more profitable shares. I should have been more sensitive though to the reference in the later financials made by the Chairman that the company could feel some slight effect from the reducing oil price on their predominant cylinder business. The collapse that followed is well documented. I think that the other comments that Paul has made relating to the effects of takeovers on the balance sheet, the debt etc are very telling. I believe that it will be some consierable time for the oil price to recover significantly and we could be talking about 2018 or beyond before this company rises from the ashes. In the meantime, I think there are a lot of people hanging on every slightly positive word mafde by the ingenuous - dare I say misleading = senior management and the share price has risen accordingly. I for one will not be tempted by this one for a very long time, if at all.

Monty9

Thank you for your comments above Paul, and yes, I am fuming!

Around July 2014 I attended a presentation by CFHL at FinnCap and listened to Greg Mesch presenting the company. I came away with the impression that he had a good track record, a good business plan for the mid/long term. I also felt the project would be beneficial to the community at large. I did not expect quick gains but felt confident there would eventually be a decent return and invested. Embarasingly I also encouraged my wife to buy some.

Then this - PI's have some 25% of their holdings confiscated and given to the institutional holders, who, for the most-part already had what they want and simply tipped the stock into the market. The pre-announcement price action also suggested some cosy insiders did not suffer the same fate as me. My attitude to the company has changed 180 degrees, and not for the better. Mr Mesch, you should be ashamed of yourself - might I suggest you make a meaningful apology and take a one off reduction in your remuneration this year of the same percentage - 25%

I don't know how much the investments of PI's is valued by such companies (at least enough to spend an evening at Finncap it seems) but unless the rules are changed to prevent this daylight robbery there will be no more such investments for me.

Pity the regulators don't seem interested in such abused - what ARE they for? (but this is for another rant). As far as I can see the only forum taking up this kind of issue is ShareSoc, and I will look to them to find out what I can do to lobby for a change.

19 January 2015

Pressure Technologies plc
Property Acquisition

Pressure Technologies plc (the "Company") is pleased to announce that it has completed the acquisition of the freehold land and buildings at Meadowhall Road, Sheffield (the "Property") where the Company's subsidiary, Chesterfield Special Cylinders has been operating since July 2005 and where Chesterfield Biogas is also based. The Company has paid £3,360,000 for the Property, inclusive of £160,000 stamp duty which is funded from the Company's exisiting debt facilities.

Small Cap Value Report (15 Dec 2015) - UTW, TSTL, CFHL, PRES

Utilitywise (LON:UTW)

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Paul Scott

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