Small Cap Value Report (15 Oct) - UTW, LRM, DOTD, CMH, MTEC

Tuesday, Oct 15 2013 by

Good morning! Utilitywise (LON:UTW) issues results today for the year ended 31 Jul 2013. It's a utility cost management consultancy, so it sits between commercial customers, and the utility companies, and negotiates a more competitive tariff for its customers, and is paid a commission by the utility companies. I've written about Utilitywise five times this year so far, and although flagging up the value in the shares at 102.7p on 7 Feb 2013 on "Paul's Picks", have had nagging doubts which prevented me from buying any shares in it personally. That's a pity because these shares have had a good year (but so have most things!), although they have risen so much since the summer that it's difficult to see much more immediate upside. Here is the three year chart:


At 155p the market cap is £108m.

Strong growth has been delivered from a mixture of acquisitions, and organically, with turnover up 73% to £24.8m. Adjusted profit before tax of £7.0m shows both a very strong profit margin, and a remarkable 81% increase against last year. Difficult to argue with that!

As promised yesterday, from now on I'm looking closely at the widely abused adjustments made to reported figures, to ensure they are reasonable. In this case it looks OK. They have treated £800k of costs related to acquisitions as exceptional (which looks reasonable to me), and £0.2m of share based payment expenses (questionable, but it's not a huge amount) by-pass the P&L by being charged direct to reserves (the share premium a/c). It's just another form of remuneration for senior staff/Directors, so I don't really see why share based payments should by-pass the P&L, but that seems to be an accepted accounting method at the moment.

Another £0.2m of amortisation of acquired intangibles is excluded from adjusted profit, but that looks OK to me - it relates to intangibles (described as customer-related, so presumably values put on existing customer contracts & lists at the time the acquisitions were made?) acquired with the three acquisitions totalling £21.4m made during the year, as set out in note 6 to the accounts issued today.

So overall, I'm happy that the 7.9p diluted, adjusted EPS for the year ended 31 Jul 2013 looks OK. So turning to valuation, that puts them on a…

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Utilitywise plc is a United Kingdom-based business energy and water consultancy. The principal activity of the Company is of an intermediary for energy supplies to the commercial market. Its operating segments include Enterprise and Corporate. The Enterprise segment is engaged in energy procurement by negotiating rates with energy suppliers for small and medium-sized business customers throughout the United Kingdom, the Republic of Ireland and certain European markets. The Corporate segment is engaged in energy procurement of larger industrial and commercial customers, often providing an account care service and offering a range of utility management products and services designed to help customers manage their energy consumption. It provides energy management services, including procurement, energy reduction and audit, carbon offsetting, smart metering, water brokerage, design, manufacture and supply of timers, controllers and building management systems, and the Internet of Things. more »

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Lombard Risk Management plc is a holding company. The Company's principal activities include provision of trading, valuation and risk management systems, regulatory and transaction reporting systems and compliance systems to the financial markets, including banks, fund administrators, investment firms, asset managers, energy companies and other firms operating in financial markets and the financial industry. It focuses on collateral management, regulatory and compliance. The Company operates in two segments: Regulatory Compliance software, which is for regulatory, anti-money laundering and compliance systems to financial markets, and Risk Management and Trading software, which provides trading, valuation and risk management systems to the financial markets. The Company's software products include COLLINE, OBERON, REPORTER, REG-Reporter, LISA and ComplianceASSESSOR. It has operations in the United Kingdom, Americas, Asia Pacific, Rest of Europe, Middle East and Africa. more »

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

4 Comments on this Article show/hide all

shanklin100 15th Oct '13 1 of 4


Nice write-up. You've highlighted all the plus points together with all the reasons why its only 1% of my SIPP.

Regards, Martin

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Ramridge 15th Oct '13 2 of 4

Hi Paul
Re. Utilitywise. A balanced asessment in my view, thanks. There are two factors that make me believe there is further mileage with this share.
1. "The market in which we operate remains highly fragmented and we have still attracted only a very small percentage of our addressable market. ", from today's RNS.
2. As energy prices go up , as they seemed to notwithstanding political shenanigans, demand for Utilitywise's services will go up too.
But, yes, with today's rise it looks fully priced.
Regards, Ram

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CantEatValue 15th Oct '13 3 of 4

"So in this case I would be happy to ignore the net debt, since it's just needed to finance a big debtor book, and as long as you account for the interest cost in earnings, then it can fairly safely be ignored in my opinion."

Technically one could have said the same about Albemarle & Bond Holdings (LON:ABM) 's debt - I guess the caveat is that it's probably safe, but check the covenants!

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Paul Scott 15th Oct '13 4 of 4

In reply to post #78127


Maybe on a Balance Sheet basis, but in the case of Matchtech its net debt is only about one year's profits. Whereas with ABM that was looking much worse. So both companies had reasonable asset-backing for their debt, but ABM's profitability side of things seemed to be going haywire.

Personally I don't touch companies with more than 1.5 times EBITDA in debt, and that's a real upper limit for me. Plus, the EBITDA has to be pretty reliable & recurring, not volatile.

Funnily enough, I was discussing this with the FD of Mission Marketing (LON:TMMG) last week, and he said the Banks very much work on 1.5 times EBITDA as being the threshhold where they become comfortable too, where you get normalised terms, and where the answer is yes rather than no, if you need flexibility on anything. Worth bearing in mind.

Cheers, Paul.

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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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