Small Cap Value Report (15 Jul 2016) - DOTD, BJU, SGI

15th Jul '16 by Paul Scott

33 comments 17102 reads

Good morning!

dotDigital (LON:DOTD)

Share price: 47p (up 5.6% today)
No. shares: 294.1m
Market cap: £138.2m

Trading update - an impressive update today from this provider of email marketing software. This update covers the y/e 30 Jun 2016.

Key points;

Revenue up 26% to £26.9m - the growth is all organic too (i.e. no acquisitions have been made to boost the numbers), so very impressive. Most revenue is monthly recurring, giving a very stable & predictable revenue base.

EBITDA will be "slightly ahead of market expectation". Note that the company capitalises about £1.6m p.a. into intangibles, so EBITDA figures should be treated with care. Also note that EBITDA excludes remuneration in the form of shares, so again that would need to be checked.

Average revenue per client has risen by 29%, from £445 to £575 per month. That's great, but this suggests that the increased revenue has come from squeezing more from existing clients, rather than winning new business? I have queried this point with the company's PR person - will come back with an explanation of this.

Update - I've had a response from the PR person, very helpful. I'm dashing for a train now unfortunately, but am hoping to have a chat with DOTD's FD early next week, just to clarify the mix of growth which is coming from new client wins, and the element related to existing clients spending more.

Cash - the balance sheet is positively groaning with cash, up again to £17.2m. This is the real litmus test of a business - if the cash pile keeps growing, then it's a decent company.

International revenue is still small at £4.9m (18% of total revenues), but is growing fast - up 58% year-on-year. This could drive the stock to a higher rating, if investors become excited about international growth potential.

Brexit comments sound encouraging;

The Board has assessed the impact of the decision from the UK referendum on EU membership, and continues to monitor the effects of the decision. Whilst still in the early stages, the Board's initial view at this time is that it will not have a material adverse impact on dotmailer's ongoing business. This is primarily due to a diverse spread of clients across many sectors and geographies.

Based on experience of the market, the Board also believes that the long term effects of Brexit will be limited as clients and prospects will continue…

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ls2g08

15th Jul '16

1. It's not a directive, 2. If you read it, it will not affect you as "responsible individual" but hey that would involve research or "listening to experts" before spouting off some utter crap.

andrewdb

There is a viable future for stamps at the very top end of the market.
Not least as they are small and transportable....

Whether SGI can build a viable business there is another question.

As others have said, most people (under 60) do not collect things anymore.

Frankyboy

Quote:
"A lot of us probably over-trade our portfolios, and miss some good opportunities by selling things like this through boredom or nervousness, that we should have just held for the long-term."

How true Paul!

rhomboid1

Hi Andrew

People do still collect , just not the same things, for instance my wife collects designer & vintage handbags and there is a thriving secondary market , in rare cases she even makes a profit, however all this market is peer to peer via eBay.

Re Stanley Gibbons (LON:SGI) I cannot conceive of any circumstance whereby there isn't a ginormous stock writtedown looming that could sink the ship entirely...imho with no specialist knowledge or research

Rusty2

Re dotDigital (LON:DOTD) I used to hold this one, I sold out following the large directors sales back in March 2016.

IR35

Ramridge
It isnt available if you subscribe to the premium service - the consensus and individual brokers forecasts disappeared a few weeks ago. I raised a fault report and have been told their developers are treating it as high priority. That doesnt give me much hope as I have raised fault reports several times before and had some pretty stupid responses.

jonesj

Whether it is a directive or some other kind of legislation is irrelevant.

What is relevant is the EU and where applicable, our own government interfering with our basic freedoms.

Brokers should be able to publish reports and we should be free to read them. Without hinderance from the law.

spaceinvader2

16th Jul '16

Hi Paul not a small cap issue more a investor strategy/time to change your view or end up out of money.Bill Ackman is a character I love watching because he seems incapable of budging all the way to zero with Herbalife and Valeant-I am losing fortunes but I won't sell out or cut my positions even though rightly or wrongly things are going against me big time.I am right and I'll be there to the end even if it bankrupts my fund.Things go the wrong way for all of us as investors but at some point maybe too late we ALL realise enough is enough and we bail out this guy never bails out he just watches his shorts or longs go the wrong way continually and is like a rabbit in the headlights.You're not like him as you consistently reassess your strategies and viewpoints thus preserving yourself to fight another day.Bill Ackman stays put I'm right the market. Is wrong.What do you think or what do your contributors think?????

Santawani

Hi Cic
Thank you for bringing this up. I have been wanting to and hadn't worked out quite how to. I have always used Morningstar as my main source of Broker Forecasts as they updated pretty promptly with good details. I too contacted them and got the same sort of feedback as others here. I then went back to them to ask A) what they were doing to comply with the new regulations (you have to name the people who give forecasts not just the company?) to be able to put it back on the website and B) who we can write to to give feedback on this and call them to account for neutralising yet another aspect of PI investing.
Needless to say, despite chasing for an answer I have had no reply (Morningstar certainly don't do customer friendly like Stockopedia, but I'm not meaning to turn this into a rant against MS).
I am on holiday this week so not very effective, but if there were other people out there interested in bringing pressure to bear on Morningstar and the powers that be to reinstate the forecasts I would be up to supporting that. A new thread maybe? Names / addresses of who to email or write to - I find that in cases like this the power of a letter or three is required.
Apologies for appealing for help rather than leading the way but feeling there will be those out there with more nous than me as to what to do. Hope I'm not too late as only posting Saturday morning and everyone might have moved on, but was travelling the length and breadth of England yesterday
Santa

Ramridge

Hi IR35 - if you click on Stock Profile PDF in the premium service, you get forecast data in the last two columns on the right. But of course it is not the detailed breakdown that was available before for free.

Hi Ramridge
Thanks - i hardly ever use the PDF as it takes so much time to load. Will take a look.
Will also chase up Morningstar when I return from holiday.
My annual subscription was taken last week - maybe that is why I got the story about it being fixed

cic

Many thanks to all who have responded to my original comment re Morningstar (#4), especially Is2g08 - really helpful. A number of points to add:

I think there is a real developing issue around regulation and provision of data. The regulations are not always clear to interpret, and different organisations seem to interpret them differently. The problem is potentially made worse, in my opinion, by possible draconian penalties on organisations that breach compliance, so that they play safe. Companies like Morningstar are not really that interested in the piddling subscriptions that us small investors may pay them - not worth taking the risk. Those who go to ShareSoc meetings at Finncap will be aware that they have commentary on companies on a rack. When I first went to a Finncap meeting I asked if I could have some copy. I was told that they were not allowed, by regulation, to make them available to PIs, but that if I wanted to just take them they turned a blind eye!.

It is interesting that we are being told different things by Morningstar. I would like to make direct contact with others in the same boat, perhaps form some sort of informal action group. As Santa says, combined response may be better than individual ones. I am reluctant to post a personal email address in this public place, but it does occur to me that perhaps it would be helpful if Stockopedia could provide a contact service to so individuals could make direct contact. Perhaps they already do this but I am not aware. I will contact Ed on this.

In reply to crazycoops (#10) - thanks for the pointer to Research Tree, and the pointer to Ben's article, which I have just read this morning. Probably a bit late to respond to that article but I think it all depends on what you mean by rely. There is a world of difference between relying on information and using the information to make your own assessment. I use Morningstar's facility to download summary P&L, BS etc into Excel. I would then compile my own forecast pro-forma forecasts which expand on the simple summary broker forceast data I have. The process enables me to assess whether I think I can believe forecast figures. For companies that I am following I compile my own historical data on broker forecasts that I can compare with outcomes. I have an average holding period of more than 5 years and I may have been monitoring a company for several years before I first buy, so that for a few companies I have some data on how reliable forecasts are (or I should say, have been) and which brokers tend to give more reliable forecasts.

Again, many thanks to everyone for your comments.

MichaelFBS

Hi all

I consider myself pretty much a beginner but I have formulated a method as to how I invest though I sometimes don't stick to it (why did I buy £TSLA !!).

But I have never understood (since I started investing properly about four years ago) what purpose broker forecasts serve. What do they add to the process of selecting stocks for investing. What do they have that we (PI's) can glean for ourselves from the various resources out there - not least company accounts, RNS's and AGM's? I certainly have never looked at them because I have always assumed they would be biased in some way either promoting or dissing the company.

Do they have information not available to the general public and if so how/why?

I am about read Ben Hobson's article on "Why relying on broker forecasts can only end in disappointment"

http://www.stockopedia.com/content/why-relying-on-broker-forecasts-can-only-end-in-disappointment-142379/

I am hoping this might give me some insights but any from commenters here would be most welcome.

Thx.

janebolacha

@cic, #25:

" There is a world of difference between relying on information and using the information to make your own assessment. "

Exactly. Brokers' price forecasts generally mean nothing.

What can be useful is the analysis and commentary, not for it to be swallowed verbatim
but instead because one can often pick up information which helps in making
up one's own mind about the company. Often, one can have a kind of dialogue
by proxy with the analyst, contrasting one's own view with his or her take.
This is so even with "commissioned research" of the kind published by Edison.
What matters, imo, is to simply view these brokers' notes as one more source
of information, to be weighed up and tested and fed into one's own analysis and research.

I looked up the Research Tree site. Many of the sources they offer are available for free, anyway,
such as Edison, Beaufort, Hardman, Equity Development, etc. The broker commentary
that would, imo, be of real value would be that from top-line sources such as Goldman,
Crédit Suisse, private brokers, etc. That would seem to be beyond most PI's since their
business is not of the scale that would interest these people. Obviously, this puts PI's at
a disadvantage. I can see this when I do pick up odd but useful scraps of broker commentary
in the ""grey" included in FT Alphaville Markets Live.

Whether it is a major problem, I don't know. The big names I mentioned have very often
come up with spectacularly wrong forecasts!

cig

Sometimes financial institutions blame regulations for commercial decisions, where no actual regulation exists or is applicable. Maybe it's worth fact checking before shooting the dog who ate the homework.

Fegger

My understanding was that house brokers forecasts were frequently based on internal forecast information supplied by the company. Therefore they were based on information not available to the public

19th Jul '16

Thanks Fegger. If that is the case surely this should be available for free rather than to only those who can afford to pay for it or deemed sophisticated enough to read it.

I have looked at (and signed up to the lite version) of research tree. There maybe useful stuff there but my main concern would be:

1. Dangers of confirmation bias. i.e. reading articles that help to confirm the view one already holds and of course may be wrong.

2. Some of the "research" put out seems to be more of a promotional nature where the broker has an interest in spinning the story.

Still very wary.

hayashi22

Some of these analysts are useless. Apparently one from Libertum published a sell note on ARM saying it was worth only 650p and this a few days before the bid. He may have have been sacked though.

gus 1065

Notwithstanding the apparent doom surrounding the recent RNS, Stanley Gibbons (LON:SGI) is now up 54% at 14.5p over the last two trading sessions on about three times typical daily trading volume. Looks like someone thinks there is some hidden (albeit very well hidden) value to be had.

Gus.

rpmeurope

Kicking myself now on Stanley Gibbons (LON:SGI). Yes, it's true to say that collecting is a business in decline, but I don't think people realise just how big a name SG are in the biz. Even with the massive inventory write-down to come, I think for the scraps and the brand you have a business that is surely worth more than £10M.

There an interesting discussion going on regarding SG's woes on a philate forum - http://www.stampboards.com/viewtopic.php?f=13&t=41139&start=400

Small Cap Value Report (15 Jul 2016) - DOTD, BJU, SGI

dotDigital (LON:DOTD)

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Paul Scott

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