Small Cap Value Report (15 Feb 2017) - TRCS, ANCR, HSP, QQ., KOOV, RFX

15th Feb '17 by Graham Neary

19 comments 19095 reads

Good Morning,

Today, I intend to cover:

Tracsis (LON:TRCS)
Animalcare (LON:ANCR)
Hargreaves Services (LON:HSP)
Qinetiq (LON:QQ.)
Koovs (LON:KOOV)

Cheers,

Graham

Tracsis (LON:TRCS)

Share price: 402.5p (-13%)
No. shares: 27.8m
Market cap: £112m

Trading Update

This is a profit warning that's not a profit warning - an announcement that there might be a profit miss, depending on H2, after a tricky H1.

But the market's reaction tells us that plenty of investors think that the risk of a H2 miss is now pretty big!

Overview:

Group revenues for the six months to 31 January 2017 were c. £15.5m (2016: £13.1m*), and EBITDA is expected to be slightly ahead of the previous period (2016: £3.2m*) as is Adjusted Pre Tax Profit (2016: £2.9m*).

Rail Tech & Services

The key warning is as follows:

Due to longer sales cycles associated with higher value products combined with changes in the Department for Transport's franchise bid timetable, some sales anticipated to take place in H1 are now expected to take place in H2 which is supported by our current pipeline.

Traffic & Data Services

We are reminded that the SEP business is busiest in the summer months, and also:

...the Traffic & Data Services division is trading well albeit within competitive market conditions, which has led to increased price competition and associated gross margin pressure.

I always applaud companies which admit that competition is tough, but of course the question of competitive advantage is critical to the investment case.

The Traffic & Data Services Division (follow link) operates in the following sectors: Traffic Survey, Passenger Surveys, Data Capture and Event Traffic Management.

The technologies involved there are Bluetooth Sensors, Number Plate Recognition, Anonymised Mobile Network Data and Automatic Traffic Counting.

Given the steady rate at which these technologies are improving, it must be tricky to stay one step ahead of the competition - not impossible, but requiring constant innovation.

Summary

H2 "is expected to be significantly stronger" than H1.

And here is the confirmation that it's just a semi-profit warning:

The outcome for the full year remains subject to the timely conversion of new sales for our various software products and services, supported by the improvement in…

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Ramridge

15th Feb '17

Hi Graham - today is the first day of dealing of RFX Ramsdens Holdings an established pawnbroker and foreign currency dealer in the main.
Two reasons for mentioning it. First, to request if you could cover it, please. Second, to draw it to the attention of other investors who may want to look at it.
Declaration. I went long this morning. IMO there is sufficient value to buy but it is unlikely to soar. Just my view.

FREng

Ramridge. £RFX doesn't seem to be on the UK Stockopedia yet.

Yes, this is common with an IPO. I have noticed Stockopedia takes 24 hrs to reflect a new issue.
If you use ADVFN you will find it there, but it is still under a previous name Reflexion Cosmetics !

paraic84

I've noticed in the last few days there are a lot of stories in the press raising concern about the potential impact of business rate rises on businesses. This isn't something i've looked into but wondering if others have a better understanding? Is it something we should all be aware of especially for high street businesses or chains like £RBG? I imagine some of the articles are groups lobbying ahead of the Chancellor's Spring Statement in March.

fdthomas

This comment has been moderated

-18

bobo

Hi Graham and Paul, this douible act seems to be coming together well and I look forward to it every morning.

Is there any chance that you could start hitting a fixed time of publication? Noon used to be great but it is now stretching out into sometime during the afternoon with a general "read later" comment attached. When would you recommend reading?

Keep up the good work

Bill

andyi

I would certainly appreciate Paul's views of the likely impact of business rate rises on Revolution Bars (LON:RBG), any comments Paul?

best regards
Andyi

ANCR, I used to work with these guys and always very impressed at how they have turned around an also ran into a growing business. As long as they keep the same chairman I'll keep investing. He does'nt worry about the short term but focuses on the long term and does what he says he will do.

HSP, i wrote a dissertation on this business when I did my MBA, with a series of structural changes it was ever only going to be an also ran, it has nothing outside a cashcow and dog business. Avoid.

bestace

The increase in business rates certainly will be a factor for Revolution Bars (LON:RBG). I've tried to do some 'back of the fag packet' calculations based on their existing estate, the rateable value of which is around £9.2m based on the 2010 rates listing (i.e. pre-increase) and around £11.4m based on the 2017 rates listing (i.e. post-increase).

That doesn't mean their business rates charges are increasing by 24% as the multipliers used to calculate the actual charges are also changing, and there is the impact of transitional relief which means the increases are phased in over a number of years.

Based on the 2016/17 multiplier of 0.497, their rates charge is around £4.6m for the current tax year (which is only 3.8% of last year's turnover). For the 2017/18 tax year I have seen a figure of 0.48 for the multiplier (not sure if this has been confirmed officially yet), which would imply a rates charge of £5.5m, so a notional increase of around £0.9m (c.20%) on the rates charge, not taking into account transitional relief. To put this in context, PBT last year was £7.1m.

I'm not sure if final details of the transitional relief have been released yet (there is a consultation document here) but it looks like for 'large' properties, which means any with a rateable value over £100k (this includes nearly 90% of the existing RBG estate) the increase will be 45% in the first year and the total increase will effectively be in place by year 2.

There are other complications which I have not tried to take into account such as Scotland having their own process (I've assumed the same multiplier as for England) and London/Crossrail supplements which may increase the multiplier for the London sites by a couple of pence in the pound. Also I think around one fifth of the estate will see a reduction in rateable value, but I've done the above calculations on an aggregate basis.

As ever, DYOR etc.

Graham Neary

Hi Bill, thanks for the comment and your support - yes, I'd like to get things done a bit earlier in the day but as you can see I do tend to have it all done by mid-late afternoon. I'll discuss with Paul.

Cheers

Graham

cholertonandrew

Personally I think that's fine and I tend to check back three or four times during the afternoon also to read through the comments and discussions that follow.

Appreciate all the work.

Regards
Andrew

£RFX thanks for the coverage, Graham

This is very helpful thanks. Not an insignificant amount which is presumably why some small high street companies are worried. I wouldn't be surprised if there's some kind of Government change on this.

It's not insignificant, but then again a 2% LFL increase on the topline amounts to roughly £2.4m which more than covers the increase in business rates. Granted there are other cost increases which also have to be covered, but I don't think the business rates issue blows a hole in the investment thesis for Revolution Bars (LON:RBG).

No probs RR

jonesj

Hi Graham & Paul.

Please continue as you are. Publish the articles when you are ready.

There is plenty of stuff rushed through to meet deadlines in traditional publishing, but the quality is not the same.

I would rather read the kind of high quality analysis written here, on companies the author is interested in & when the author is ready.

JohnEustace

Thanks for the Animalcare write up. It looks very promising -just the sort of business I like.

Trigger14

Yes echo that I like the look of Animalcare (LON:ANCR) just my sort of business too. Good margins, defensive and looks like its got a pretty solid growth runway. Momentum pretty great too.

matylda

16th Feb '17

Agreed - If you want quick rubbish rushed commentary go and join a bulletin board - Its actually better to read the next day with other comments to be honest - Its not as if you have to react today to any update from either - Relax!

Small Cap Value Report (15 Feb 2017) - TRCS, ANCR, HSP, QQ., KOOV, RFX

Tracsis (LON:TRCS)

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Graham Neary

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