Small Cap Value Report (16 Dec 2014) - MYSL, OPAY, REDD, AVS, 888, GVC

Tuesday, Dec 16 2014 by
23

Good morning.

I'm taken aback by just how far & fast MySale (LON:MYSL) has fallen from grace. As reported in yesterday's report here, the company issued a nasty profit warning, due to flat sales in its core market. Just look at the chart below - it's crashed from about 175p to only 73.5p in a little over 24 hours.

548ff8e1cb2abmysl_chart.PNG

With 150.6m shares in issue, I make that a market cap of £110.7m - still hardly a bargain, although it did report cash of £33.5m yesterday. Am not sure what level I'd start to take an interest - possibly sub-40p? I'm convinced there will be plenty more large falls from over-priced early stage growth companies - it very rarely pays to chase fancy valuations in trendy sectors, especially when a lot of the hype rests on having a big name backer - that's no guarantee of commercial success.


Optimal Payments (LON:OPAY)

Share price: 324p
No. shares: 162.6m
Market Cap: £526.8m

This stock is a bit larger than the usual stuff I look at, but I must mention it as extreme volatility has once again hit the company - which could be either a worry, or a buying opportunity, depending how you look at it.

I've marked on the 6-month chart below two events which triggered a substantial fall in share price. The first one was when news broke of the CEO having used the now discredited EFH facility to sell/buy back part of his personal holding, which was dressed up to look as if it was a purchase of shares, to uproar from investors (rightly so!). There were about 5 companies where Directors did the same thing, and their share prices were whacked to varying extents.

548ffe896a395opay_chart_marked.PNG

A number of people, including myself, saw this as a buying opportunity, and it was a successful trade, as the shares almost immediately recovered by about 20% over about a week, in late Nov 2014. The company issued a positive trading update at the time, which helped propel the shares back up again.

Well, a similar thing has happened again! It was announced on Friday that the CFO is leaving. That can rattle investors, especially (as in this case) where there has been some other cloud over the company. People start worrying whether there is something amiss…

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MySale Group plc is engaged in operating online shopping outlets for consumer goods, such as women, men and children's fashion clothing, accessories, beauty and homeware items. The Company's segments include Australia and New Zealand, South-East Asia and Rest of the world. It operates with flash sales Websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom. Its Websites host time limited flash sales in each of its territories. These flash sales are focused on fashion, apparel, health, beauty and homeware categories and are undertaken on a consignment inventory basis. Its retail Websites also focuses on these product categories using drop-shipped inventory. Its flash sales brands include OzSale and BuyInvite in Australia, NzSale in New Zealand, SingSale in Singapore, and MySale in Australia, New Zealand, Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong. more »

LSE Price
7.35p
Change
 
Mkt Cap (£m)
11.3
P/E (fwd)
6.5
Yield (fwd)
n/a

Paysafe Group plc (Paysafe), formerly Optimal Payments Plc, is a United Kingdom-based provider of digital payments and transaction-related solutions to businesses and consumers across the world. The Company's segments are Digital Wallets, Payment Processing and Prepaid. The Company's Digital Wallets segments' fees are generated from transactions between members and merchants using the NETELLER service and Net+ prepaid cards, and the Skrill and Skrill prepaid cards. Its Payment Processing segments' fees are generated through the PAYSAFE and PAYSAFE Asia straight-through processing platforms, where customers send money directly to merchants, as well as Payolution's online payment services, and the FANS Entertainment Inc. (FANS) white label technology solutions and consulting services. Its Prepaid segments' fees are generated from merchants accepting payments made using paysafecard prepaid vouchers. Its brand portfolio includes NETELLER and Skrill, paysafecard and payolution. more »

LSE Price
590p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

Redde plc is a holding company. The Company is engaged in providing non-fault accident management assistance and related services, fleet management and legal services. The Company offers a range of motor claims accident management services, including vehicle replacement and repair management together with full claims-handling assistance, as well as legal and other personalized services. The Company manages its own fleet of approximately 7,000 vehicles and has access to over 50,000 vehicles through selected rental partnerships. It also provides specialized large fleet accident and incident management services through the FMG group of companies with over 300,000 fleet vehicles under management. It provides accident management services from operational call center sites in Peterlee, County Durham, Huddersfield and Croydon, as well as solicitors' services through Principia Law Limited from Northwich and NewLaw Legal Limited from Bristol, Cardiff and an associated office in Glasgow. more »

LSE Price
100.8p
Change
 
Mkt Cap (£m)
309.2
P/E (fwd)
7.6
Yield (fwd)
12.1



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15 Comments on this Article show/hide all

FREng 16th Dec '14 1 of 15
3

Paul

Interesting placement at no discount by Digital Barriers (LON:DGB) today (I'm neither long nor short), to cover current trading losses and "strengthen balance sheet" whilst delaying break even for a further year.

Throwing good money after bad, by current shareholders?

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Ramridge 16th Dec '14 2 of 15

Re Digital Barriers. I am in principle wary of placings with the purpose of patching up balance sheets. It is the case of treating a rash and not the cause of a rash.

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Cisk 16th Dec '14 3 of 15
3

Paul, interesting comments re: the EFH arrangements. Fortunately never held shares in Quindell, but had a very small hoodng in IGAS which I subsequently sold. It's such a red flag - you have to question the integrity, honestly and, let's be honest, the judgement of any CEO or board member entering into such arrangements.

The market rout has served up such interesting bargains amongst quality companies that, personally, I don't see the need to trawl the bottom feeders of the stock market to get a bargain!

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sminers 16th Dec '14 4 of 15

Come on Paul,

You know perfectly well that Redde are not just 'ambulance chasers' as you so disparagingly put it.

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Paul Scott 16th Dec '14 5 of 15
3

In reply to post #88886

Hi sminers,

I don't really understand the sensitivity over describing Redde (LON:REDD) as ambulance chasers? That's how I would describe the whole sector that they operate in - i.e. companies which get involved after an accident, to make money from providing various services (e.g. car hire, submitting personal injury claims - very big business in whiplash particularly) & getting payment from insurance companies.

Regards, Paul.

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jimbobjames2002 16th Dec '14 6 of 15
1

Hi Paul, any thoughts on Synety's latest product announcement - Cloudcall Chrome? Seems to have been well received thus far by reviewers and investors alike.

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AnonymousUser39518 16th Dec '14 7 of 15
1

AVS might be on a PE of 6.1 today, but they are forecast to be on a PE of 36 in 2015!?

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herbie47 16th Dec '14 8 of 15

Re Redde, I had a look at them used to be Helphire, provides hire car and car repairs following accident, if that is so, I think Paul's comment is a bit misleading, so I presume NARS is very similar. The rival he refers to I presume is qpp which I believe is somewhat different?

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Paul Scott 16th Dec '14 9 of 15
3

In reply to post #88898

herbie47,

Nationwide Accident Repair Services (LON:NARS) is a chain of car repair workshops. So they're not ambulance chasers, they just repair cars.

Redde (formerly HelpHire), Quindell, and others, are essentially personal injury ambulance chasing firms - that's where the bulk of their profit comes from. They have various other bells & whistles, but their core business is intervening between individuals who have had accidents, and the insurance companies, and charging the insurance co for various services provided to the person involved in the accident.

I don't see why this point has been contentious, it seems pretty obvious to me what their activities are. "Ambulance chasers" is just a loose term given to any firm that involves itself into situations where there has been an accident & injury.

Regards, Paul.

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intuitive6191 16th Dec '14 10 of 15
1

I think that there is a subtle distinction here. My own view is that any company who gets a tip off about an accident via dubious means (police backhander) can legitimately be called an ambulance chaser.

If however you own insurer instructs you to use one of these companies then I am not sure that ambulance chaser is the correct phrase to use.

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herbie47 16th Dec '14 11 of 15
1

Paul, thanks for explaining, I thought Redde mainly were involved in car hire and repairs, if it's personal injury claims then that is different and yes one I would avoid.

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carmensfella 17th Dec '14 12 of 15
1

For those of you interested in the Redde debate... (at the bottom of the RNS)


Founded in 1992 and working predominantly with insurance companies, insurance
brokers and prestige motor dealerships, the Group provides a range of accident
management and legal services. The Group also deals directly with large
national fleets providing incident management and mobility continuity. In
February 2014 the Group acquired the NewLaw group of companies, primarily based
in Cardiff and Bristol, and the Group's activities now encompass a range of
legal services designed to assist claimant parties in partnership with leading
insurance companies, brokers and other bodies.

The Redde group of companies is one of the market leaders in its fields of
business; it delivered accident management solutions to over 115,000 motorists
in 2014, ensuring that they remained mobile until their own vehicles were
repaired or until they were put in a position to obtain a replacement and it
provides legal services to over 30,000 claimants a year, ensuring they are
properly compensated for their injuries and losses.

The name Redde is associated, in Latin, with the concept of restoration.

I guess the key question is...What percentage of turnover and profit is actually derived from the proportion of the 30000 claimant cases that are due injury compensation and may be challenged rather than automatically provided for by the insurers ? In other words is the client of Redde the insurer looking for outsourced assistance or an insured individual looking for a specialist claims handler ??

The latter could take much longer to be profitable if at all...

That said I am invested in Redde but would like to meet management so I feel a Mello appearance in the early new Year would be useful.

David

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mikehunt 17th Dec '14 13 of 15

I see OPAY is down 11% this morning - any ideas why Paul?

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Ramridge 17th Dec '14 14 of 15

In reply to post #88922

Questor article says 'sell'

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intuitive6191 17th Dec '14 15 of 15
In other words is the client of Redde the insurer looking for outsourced assistance or an insured individual looking for a specialist claims handler??



This is a good question - but one that the company should be able to answer quite easily? There are other issues which concern me from the "outsourced" business model. The main issue is that these companies pay a claim on behalf of the insurance Company and then proceed to work for many months in order to try and get some return?


Apart from the huge drain on cash there is an unquantified level of risk here that there might be little return. As a PI, this lack of visibility of earnings and open ended cash requirement renders these companies largely uninvestable.


If such companies do hit the jackpot and manage to find a very profitable niche, the next question is will the Insurance Companies seek to renegotiate their contract? It has to be remembered that giants like Aviva etc. are many times the size of Redde and Quindell and clearly hold the whip hand in any bargaining position.


For the same reason I don't see how a claims handler working on behalf of (and reliant on) these Insurance Companies can suddenly pop up as someone working on behalf of the claimant. How exactly do you go about claiming against a company that also might be your biggest customer? Quite bizarre.


To my mind the size and profitability of these claims handling companies depends entirely on how large and profitable the Insurance Companies are prepare to let them be. Very similar to being a supplier to Tesco. If they don't like what you are doing there are many ways to squeeze you into submission.


It would be most interesting if Redde could present at Mello and offer some clarity and reassurance on the above points.





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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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