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

Friday, Jul 15 2016 by

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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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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System1 Group PLC, formerly BrainJuicer Group PLC, is a United Kingdom-based company, which is focused on marketing and brand consultancy, with proprietary market research and advertising solutions grounded in the principles of behavioural science. The Company’s services include System1 Agency and System1 Research. System1 Agency is advertising agency, that creates advertising proven to translate emotion into profitable brand growth. System1 Research produces the FeelMore50, an annual ranking of the world’s 50 TV and digital ads. The Company offers its client create 5-Star, fame-building communications. The Company operates in the United Kingdom, the United States, Continental Europe, Brazil, China and Singapore. more »

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The Stanley Gibbons Group plc is engaged in trading in collectibles; dealing in antiques and works of art, auctioneering; the development and operation of collectible Websites, philatelic publishing, mail order, retailing, and the manufacture of philatelic accessories. The Company's segments include Investments, Philatelic, Publishing and Coins & Medals. The Company's Flexible Trading Portfolio (FTP) allows users to invest in rare tangible assets. It allows users to discuss their options and objectives with one of its Investment Portfolio Managers. more »

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  Is LON:DOTD fundamentally strong or weak? Find out More »

33 Comments on this Article show/hide all

tabhair 15th Jul '16 1 of 33

Any thoughts on Stanley Gibbons (LON:SGI) another ugly trading statement, shares down well below placement price of 10p.

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andrea34l 15th Jul '16 2 of 33

Thanks for DOTD update... kicking myself for not buying them at 41 only last week :-(

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Paul Scott 15th Jul '16 3 of 33

In reply to post #142794

Hi tabhair,

Yes, I'll have a look at Stanley Gibbons (LON:SGI) next.

Regards, Paul.

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cic 15th Jul '16 4 of 33

Paul, everyone. Comment not directly related to today's companies - a request for general comment from you/others. I use Morningstar as an important source of info, especially for Broker forecasts for which it has been very comprehensive, giving individual broker data, as well as summary. Recently the data disappeared from their website. Today they have told me told that they have had to remove it, permanently, as the EU Market Abuse Directive deems that all forward looking data, including forecasts is deemed advice and they are no longer allowed to provide it (from 3rd July). Other websites are stlll providing it but I am not aware of one as comprehensive. For example Stockopedia provides a one line summary. Simple summary can be very misleading because of the algorithms used to calculate them may include inappropriate weightings. I use the detail to help make my own assessment of future performance, which may be rather different from the simple published summary. How long will it be before Stockopedia and other websites are stopped from providing a summary. You have railed, quite rightly, against companies that simply report expected earnings in line with expectations etc, without saying what those forecasts are. How are investors going to make any sensible investment decisions if we are to be denied access to information. This is a complete nonsense. All forward looking information and analysis is essentially opinion - and there is massive difference between opinion and advice. I would be grateful for your/others opinions/comments on this. I have not been aware of the Market Abuse Directives contents, but it seems to me that it may contain stuff that is going to be very disadvantageous to investors. Can anyone suggest other alternative sources of detailed forward looking information? Thanks.

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epson 15th Jul '16 5 of 33

Hi cic I'm not sure Morning star are using this as an excuse I had noticed all the broker data disappearing but had never heard of the EU Market Abuse Directive, lets hope Brexit is going to bring a positive change to all this garbage.

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ls2g08 15th Jul '16 6 of 33

Hi All
It's actually the EU Market Abuse Regime (MAR) which came into force on 3rd July. This sounds petty but there is a very big distinction between a Regime and a Directive. The Market Abuse Directive (MAD) is the old regulation that EU MAR is replacing, [source:].
Your reply from Morningstar is very odd, for my role at work I have had the pleasure of reading the new regulation in full, there is no mention of advice and forward looking statements in the text, nor have I seen it mentioned in any summaries. I feel you have got some bad information. The focus of the regulation is Market Abuse - insider trading and the like. The changes focus on Disclosure procedures, PMDR transactions, expanding the markets which are regulated and changes to the DTR rules in the FCA handbook. Here is a good summary from Slaughter and May of how it effects issuers, [source:]
Epson - lots of these changes were decided globally after the GFC. The FCA have actually been reigned in by the EU and if you look at the changes many are a "watering down" of existing rules or changing them to a broad brush approach from specifics. 

In my opinion, UK Regs will actually become stricter post Brexit; the FCA tends to like gold plating things. However little of that will effect smaller PI's.

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John Cannadine 15th Jul '16 7 of 33

An interesting couple of days for SEPU (LON:SEPU). It seems a huge chunk of the recent raise ended up with the underwriters. Then today news of a big contract win and shares up make strong gains.

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Ramridge 15th Jul '16 8 of 33

In reply to post #142818

Hi cic - Yes I noticed this tab (Broker Forecasts) disappeared a few weeks back. I used to look at it simply to double check against Stockopedia.
However if you subscribe to Morningstar you can see this information. So it is market abuse if it is freely available, but not if you pay for it. You figure out.

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simoan 15th Jul '16 9 of 33

It's becoming increasingly clear that companies which have a diversified spread of business across sectors and geographies, are weathering the current uncertainty the best. In some companies they are even benefiting from weaker sterling, if they have mainly overseas earnings.

This is one of the key filters I'm using at the moment. I bought more Empresaria (LON:EMR) last week when it just looked too cheap at 72p, Somero Enterprises Inc (LON:SOM) still looks good value though I already have quite a few, and this week I've been nibbling at XP Power (LON:XPP). 

The latter has half year results soon, the last trading update in April was nicely positive and it should be a net gainer from recent Sterling devaluation given it's geographic spread with over 50% of revenue from the US. Revenue is also nicely diversified across different sectors, it has cracking margins (operating >20%) and a 4.5% dividend. I keep kicking the tyres and can't see anything wrong. Even the management seem sober and competent!

Have a great weekend, Si

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crazycoops 15th Jul '16 10 of 33

You might want to take a look at Research Tree which is a subscription service that provides
PIs with access to the full research notes. At £40 pm I feel it is a little steep but they have advised they will brining out a silver/lite membership in the near future, so that might be worth taking a look at.

This said, did you read Ben's recent article about not relying on forecasts?

Blog: Share Knowledge
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Duncan Robertson 15th Jul '16 11 of 33

SGI - I used to collect stamps - GVI & QEII engraved Commonwealth, as well as French classics to 1900 + air mails. I can't imagine my 18 y o kids having the time of day for this!
I look at auctions & prices for fun (like Wikipédia) but how SGI value their stock?
I know from experience that if you buy from a stamp dealer you pay double what you do in auction.
SG's catalogue prices are usually 3 or 4 times that! Admittedly this is for perfect examples, but in the case of a fire sale, SG's stock is worth half catalogue AT BEST, without counting the effect of flooding the market, as SG have a huge stock.
IMO you're right - this market is not self-renewing & the value of a Victorian stamp is a moot point in this day & age. They don't pay interest or dividends & have no practical use. Just an interesting insight into history & geography, but you can get that on the internet with a lot more détails.

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jonesj 15th Jul '16 12 of 33

There are too many of these stupid EU directives. Investors should be treated as responsible individuals who check the risks before they purchase.
I've been buying stocks for about 30 years and do not need to be told what to do by some unelected jobsworth in the EU commission. These people interfere with our basic freedoms.

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pastybap 15th Jul '16 13 of 33

In reply to post #142818

Damn EU! I think we best have a vote to get out.... :)

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 Are LON:DOTD's fundamentals sound as an investment? Find out More »

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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