Small Cap Value Report (16 Aug 2016) - UBI, CGS, SSY

16th Aug '16 by Paul Scott

13 comments 11751 reads

Good morning!

Ubisense (LON:UBI)

Share price: 29p (up 7.4% today)
No. shares: 55.9m
Market cap: £16.2m

Interim results to 30 Jun 2016 - interesting company, but when is it going to make sustainable profits? The trouble with permanently loss-making companies like this, is that they need refinancing every now and then, to keep the wolves from the door. That usually means dilution for shareholders, and a relentlessly falling share price.

Punters hope that one day there might be some game-changing news that leads to a vertical share price move upwards. That's a hopeless way to invest - as I've learned from experience. Being an optimist can be a huge impediment to investing success, if you repeatedly buy into jam tomorrow stocks. They practically all fail to deliver on what is promised, so risk:reward is just terrible with this type of share.

That said, it is a proper business, generating real turnover. It just never seems to make sustainable profits. So the danger is that management & staff are perhaps just busy fools? After all, customers are usually happy to buy products or services which are being sold at below the overall cost of providing them. That's a nice subsidy.

The Stockopedia graphical history doesn't exactly fill me with confidence;

Thomson Reuters doesn't seem to have any broker forecasts, so I've asked my broker to have a dig about to see if he can find any research on the company.

H1 figures out today don't look particularly good. Key points;

Turnover is up marginally at £10.7m (up 3.1% on H1 2015)
Adjusted EBITDA -£637k loss. If they can't get this, the most flattering measure of profitability, into the black, then that's a poor show.
Loss before tax of -£897k looks a dramatic improvement (H1 2015 loss of -£7.5m), however H1 2016 is flattered by a net profit of £1.5m from non-recurring items (mainly a £1.65m forex gain), so the business is still loss-making on an underlying basis.
Overheads have been reduced in a restructuring - which has reduced losses. Maybe more cost cutting is needed?
CEO left (probably pushed, given the poor financial record) in May 2016. It is seeking a new CEO, the Chairman is currently in charge. Not good, but if they find a decent new CEO then that could be a catalyst for a share price rise, perhaps?
Placing in Apr…

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andrea34l

16th Aug '16

Good looking results from car dealer MMH this morning... IMHO.

Whitbourne

Thanks for the write-up of Ubisense (LON:UBI) Paul. This made me smile:

we continue to invest in next-generation platforms and applications that deliver strong ROI to our customers

But not, sadly any ROI for Ubisense (LON:UBI) shareholders. As you said earlier, customers are usually happy to buy products or services which are being sold at below the overall cost of providing them. It's surprising (to my mind) how many times such companies are able to return to their shareholders for successive fundraisings before patience runs out. The triumph of hope over experience, perhaps.

Howard Adams

Paul

Will you cover £HAT interims, released this morning by any chance? (I hold)

Regards
Howard

bobo

Castings will be laying in more machining capacity to get the maximum return on their customers that they can and continuing to upgrade casting/salt pattern production capacity. They like long term contracts, they work well with customers and we should look on this drop off as a trigger to buy.

The only trouble I have with this very conservative company is that while they sell throughout Europe there is only so big a UK based market, it really needs someone like the Oxford foundary to fall over to allow them to gain market share.

tabhair

Regarding Castings (LON:CGS), I imagine the gain they derive from selling into foreign markets is mostly offset by the increased costs of raw materials. With the loss of a major contract last year, and the apparently slow progress in making in-roads to replace this work, I can't help but think there might be more bad news to come.

I hold no shares, but would get very tempted if we had a profit warning and a 10% correct to below 400p.

Buckingdog

Hi Paul,
Have you got time to make a comment on Dart Group (LON:DTG)accounts?

sher3141

Hi Paul, can you check your email please 'kindred spirits' titled. Want to give something back rather than just being a lurker!!
cheers
Stephen

-3

FREng

I'm long SCISYS (LON:SSY) and I respect the company and its management. It's rare to find a UK company run by engineers (even Chris Cheetham, the FD, has an engineering background). Mike Love, the non-exec Chair, has been around for decades (ex Logica). In my view they are a sound and conservative company in an industry that has a lot of companies that talk about sexy technology but that cannot deliver consistently (and too often not at all!). SSY have recovered from the overrun in a big FP project two years ago. They seem to have handled that problem professionally and ethically and to have learnt some important lessons.

Mike will probably retire soon and holds a lot of shares.

Jeremy Caton

About 80% of Castings production is exported;particularly custom made parts for European based truck & engine manufacturers,so it rather looks if the slow down is European wide fall off in demand rather than Brexit related.

I assume the company has currency hedges in place but longer term a lower exchange rate should favour the company;as although raw material costs will increase I doubt if they constitute more than 25% of total selling price.Castings has around 1000 skilled employees & substantial investment in plant so there is significant added value.

17th Aug '16

17 Aug. Interims from Capital Drilling (LON:CAPD) Finals from Newmark Security (LON:NWT) - the market seems to like these though the headline figures look poor. US contract RNS from Tracsis (LON:TRCS) . Anything else of interest?

rhomboid1

Just listened to the earnings call on Capital Drilling (LON:CAPD) , I've rarely seen a more bullish set of outlook factors, H2 is going to be very strong and they have good forward visibility , tendering activity picking up strongly 100% of production rigs are now under contract, explo rigs only 40% so plenty of capacity there. 8% yield , USD denominated. Net cash & cash generative.

dangersimpson

Capital Drilling (LON:CAPD) textbook example of how to run a business for cash during difficult times. Market focused on positive cash generation not earnings at this stage of the cycle.

Newmark Security (LON:NWT) management speak seems more positive than in the last trading statement. Lot's of work on product enhancement and strong pipeline. Remains to be seen if this will end up as orders but they do seem more positive in general, dividend held and only c£3m EV.

Can see how both are going up on what on the surface are not great earnings - I guess it's all to do with comparison to expectations not previous FY.

Laura Ashley Holdings (LON:ALY) finals today. Good LFL, particularly online but lower cashflow from operations. Also maybe held back by still struggling to justify the rationale behind buying a Singapore property - raises the risk profile due to debt and doesn't seem to have reduced group costs.

Imaginatik (LON:IMTK) reported today. I think Paul would have some strong words to say about the accounts. Personally, I find the directors' justification for the going concern basis of the accounts unconvincing.

Bargepole for me.

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Small Cap Value Report (16 Aug 2016) - UBI, CGS, SSY

Ubisense (LON:UBI)

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Paul Scott

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