Small Cap Value Report (16 Dec) - CHRT, HSP, IPEL, SEE, VNET

Monday, Dec 16 2013 by

Good morning! Defence contractor Cohort (LON:CHRT) has published its interim results to 31 Oct 2013. This is a company that I liked earlier this year, when it was below 150p, but the price has since re-rated to a level where it's probably fairly valued. Bear in mind that the nature of their work (e.g. supply of communications equipment to the Astute class submarines) is bound to be lumpy, as large contracts come and go. Therefore I would always be wary of the likelihood of a sharp reduction in profits. For that reason it seems to me that the forward PER of 12.7 is probably high enough a rating.

As you can see from the graphical history below, EPS has really shot up in the last two years, so if profits fell back to 2010-2011 levels, then the share price would be much lower than the current price of 214p, which factors in EPS holding up above 15p.

The PER chart has been thrown out of kilter by a spike in 2012. I wonder if they could be adjusted to use a logarithmic scale, which might help soften such spikes? Or perhaps they could be adjusted to allow extreme spikes to go off the page?

Their interim results today are quite soft in profit terms - adjusted operating profit is down 45% to £1.8m (2012: £3.3m), with adjusted EPS down from 6.97p to 3.97p. The phrase "as expected" is used, but I'm not sure whether investors will have been expecting such a sharp fall in profit? So we could see a wobble in share price today if they were not prepared for earnings falling.

However, the outlook is more positive - with order intake up 20% at £35.7m, taking the total order book up to £98.2m, of which £25.5m is deliverable in H2, together with "encouraging" prospects for further order intake in H2. The key part of the outlook statement says;


The second half of this year is already well supported by the October order book and recent contract wins and we expect a much stronger performance than in the first half.

On balance we expect that Cohort will continue to make progress in the current financial year and beyond.


Generally speaking I very much dislike situations where a…

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Cohort Plc is a holding company. Its business segments are Chess, EID, MASS, MCL, and SEA. It provides a range of services and products for the United Kingdom, Portugal and international customers in defense and related markets. Chess Technologies, through its operating businesses Chess Dynamics and Visoin4ce offers systems and technologies for detecting, tracking, classifying and disrupting naval, land and air threats. EID designs and manufactures advanced communication systems for the global defense and security markets. MASS is a specialist defense and technology business, focused mainly on electronic warfare, information systems and cyber security. MCL is engaged in sourcing, designing and integration of communications and surveillance technology, as well as support and training for end users including the Ministry of Defense (MOD) and other government agencies. SEA is an advanced electronic systems and software house operating in the defense, transport and offshore energy markets. more »

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Hargreaves Services plc is engaged in sourcing, producing, processing, handling and transporting carbon-based and other bulk materials throughout the United Kingdom and Europe. The Company's principal activities are the provision of haulage services, waste transportation, mineral import, mining and processing, together with specialist earthworks and related activities. Its segments include Coal Distribution, Industrial Services, Logistics and Specialist Earthworks. The Coal Distribution segment provides coal, coke, minerals, smokeless fuel and biomass products to a range of industrial, wholesale and public sector energy consumers. The Industrial Services segment provides contract management services to clients in materials handling and a range of other industrial sectors. The Logistics segment provides bulk logistics to customers across the United Kingdom. The Specialist Earthworks segment provides earth moving, civil engineering and infrastructure services across the United Kingdom. more »

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Impellam Group plc is a holding company that provides strategic planning and management services to its portfolio of subsidiaries. It is engaged in the provision of staffing solutions, human capital management and outsourced people-related services in the United Kingdom, Ireland, North America, mainland Europe, Australasia, New Zealand, Singapore and the Middle East. It’s segments include Managed Services-UK, Europe and Australasia; Specialist Staffing-UK, Europe and Australasia; Managed Services-North America, and Specialist Staffing-North America. It operates various supply models within its Managed Service Programs (MSP), including Neutral vendor, Master vendor and Hybrid vendor. It also offers Recruitment Process Outsourcing, which refers to the outsourcing of permanent, temporary and contract recruitment. It offers staffing services for specialties, such as Healthcare, Legal, Engineering and technical, Construction, Catering, Driving, Office and Industrial. more »

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23 Comments on this Article show/hide all

Paul Scott 16th Dec '13 4 of 23

In reply to post #79972

Hi Delpher,

Sorry, my mistake. I added the Vianet (LON:VNET) comments as a Stop Press, after main article had already been filed, and I forgot to update the disclosures section, will do so now. Thanks for being eagle-eyed & alerting me to this error.

Regards, Paul.

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intuitive6191 16th Dec '13 5 of 23

we could even be facing power cuts in future, if the wind doesn't blow enough to get the wind turbines spinning


The wind could never blow enough. The whole wind energy project is an expensive subsidised fiasco. If it generates enough for us all to make a cup of tea it will have exceeded my expectations.

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Fangorn 16th Dec '13 6 of 23

"Could be?"

I think it's a near certainty due to the misguided energy policies of successive governments., most particularly the last Labour one with its ludicrous Ed Milliband inspired "Green Dealt". Unfortunately this lunacy has inculcated the current coalition,in thanks, to a large part, of having to have the LiB Dems in govt.

Too much generational capacity has/is being taken off line, what capacity exists is being hit with massive green taxes hence the uproar about every inflation busting increases in utility bills (Profit margins are 5%, similar to Supermarkets - where's much of the money from your bill going - Green subsidies),and no sensible plans have been implemented for the replacement of capacity we've lost, nor have there been for the last twenty years.

Ever increasing population, ever increasing demands on power consumption meets dwindling and more expensive supply. Quite obvious how that pans out - and wind/solar/tidal certainly wont fill the void. Even if it does work for the Orkney's with their 22,000 population!!!!

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cig 16th Dec '13 7 of 23

"our crazy Govt policy here lumbers industry with excessive power costs to fund green energy"

Do you have a source for that claim? Standard practice internationally is to exempt industrial users of green levies, precisely to avoid making them uncompetitive. Quick google shows UK industrial electricity prices close to EU median, with a low tax load, which seems to hint the green funding comes from elsewhere.

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Paul Scott 16th Dec '13 8 of 23

In reply to post #79979

Hi cig,

Well it's self-evident surely, and is an EU-wide problem.
So if we had a sensible energy policy, we would be using cheap, plentiful coal and gas to generate cheap electricity in the UK. Because of EU policy, we're having to close down perfectly good coal-fired power stations, and the end result is our electricity costs a lot more to generate than it otherwise would. That's the point I'm making. Hence countries like China & India, which are building numerous coal-fired power stations make themselves more competitive.

Regards, Paul.

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cig 16th Dec '13 9 of 23

As Michael Bloomberg says, "in God we trust, everybody else bring data". I don't even trust God, but were they to exist they'd rank above unsubstantiated claims of self evidence. I found some data here, unfortunately a couple of years old:

as you can see the premium for retail energy compared to industrial use is 60%+ on average (2x in Germany, 3x in Denmark), with the UK close to the average. This is a huge premium, and thus while abandoning green electricity production subsidies would certainly reduce retail electricity prices, it seems improbable it would have much of an impact on industrial prices which are probably already close to the non-green production costs. So I think your original claim that green subsidies are charged to industry is weak.

As for "because of EU policy", I was under the impression that there is an indigenous, and cross-party, consensus to manage emissions in the UK, that is I suspect the UK leaving the EU would not change energy policy that much (and things like the Kyoto Protocol are not EU things). It's a cheap shot to blame an impersonal external entity for decisions that seems to come from you and your fellow voters via the politicians you send to Westminster. See for instance a survey of your fellow voters here:

The sorry thing with environmental policy is that it seemingly can't help turn, from proponents and opponents alike, into an ersatz-religion debate where people totally disregard the facts we do have (there's unfortunately many unknowns in this field, but discarding the facts we do have is unfortunate).

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fek47 16th Dec '13 10 of 23

Just be slightly careful about Seeing Machines (LON:SEE) . As far as I'm aware, a number of car manufacturers are already starting to equip cars with 'fatigue detection' systems. Unless these systems are already being supplied by Seeing Machines (LON:SEE) (and I don't claim to know either way), it suggests their technology is far from unique to the company, and rather less hard to replicate than might be imagined...

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Paul Scott 17th Dec '13 11 of 23

In reply to post #79986

Fair point fek47. SEE say there are about 30 companies active in this area, but the exclusive Caterpillar deal reinforces SEE's claim that their algorithms work better than alternative systems. The way I look at it, SEE seem to have first mover advantage, and hence the recent fundraising and the decision to fast-track development in other sectors gives them a shot at becoming dominant in this sector. Aviation, coaches, cars & consumer electronics are all in the pipeline, and they have key development partners helping to fund those programmes too. Big name development partners. So it's not a case of a small company trying to break into new markets, it's joint development with major players. That why lots of people are getting excited about this company. No guarantees it will succeed of course, but they've nailed the mining sector, which isn't a bad start!

Cheers, PP.

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marben100 17th Dec '13 12 of 23

In reply to post #79985

Also worth reviewing the facts concerning China's use of coal:

Singapore (Platts)--7Oct2013/233 am EDT/633 GMT


The Chinese capital of Beijing is looking to phase out all its coal-fired power generation capacity by the end of next year, the official Xinhua news agency reported Saturday.

According to municipal authorities, the city is planning to build four power generation bases that will include 40 utility-related projects to replace existing coal-fired plants with gas-fired generation, Xinhua said...

...Early last month, the Beijing government issued a directive for combating pollution and pledged to cut the city's coal consumption by 8 million mt/year by 2015 and 13 million mt/year by 2017. This compares with total consumption of 23 million mt last year...

It's not just "naive lefties" that find the reduction of coal usage an imperative. The severe effect of pollution on China's population is pushing the government there to make drastic cuts to coal fired generation. NB it's not just Beijing where substantial investment is being made to reduce pollution. Unlike us, however, decisions are implemented within a couple of years, whereas it takes us 20 years of enquiries & consultations to get any projects implemented.

Always easy to blame "Johnny Foreigner", based on popular perceptions & flimsy evidence.


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muckshifter 17th Dec '13 13 of 23

Well said Mark! From a believer in global warming, and the need to do something about it, for more than 50 years.

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Fangorn 18th Dec '13 14 of 23

"It's not just "naive lefties" that find the reduction of coal usage an imperative. The severe effect of pollution on China's population is pushing the government there to make drastic cuts to coal fired generation. NB it's not just Beijing where substantial investment is being made to reduce pollution. Unlike us, however, decisions are implemented within a couple of years, whereas it takes us 20 years of enquiries & consultations to get any projects implemented.

Always easy to blame "Johnny Foreigner", based on popular perceptions & flimsy evidence."

"The Chinese capital of Beijing is looking to phase out all its coal-fired power generation capacity by the end of next year,"

Hmmm what of the rest of China then Mark when the construction of Coal power stations continues at frenetic pace! This is just Beijing, no mention of Guanzhou, Guangdong,Lanzhou for example where the pollution is worse. Not cherry picking info are you? :)

It's only due to it's massive mainly agricultural inclined population that China's pollution is lower than the US. In notional,not per capita terms, the PRC pollutes far more than the US..and it will worsen as China shifts to become far more inclusive a society for its 1.6 billion populace...The evidence is not flimsy either.

I have fond memories of living in Hong Kong in early noughties where a walk through Wanchai was the equivalent of smoking 7 cigarettes - didn't help I was already a smoker. I gather it's alot worse these days.

Global warming??? Hasn't that farce been relabelled global climate change because there has been anything but a significant warming of global temperatures.

Presentation Prof. Murry Salby in Hamburg on 18 April 2013

It's a scam this global warming malarkey. The biggest influencing factor on the temperature of this planet is that big fiery spherical object in the sky - you know, the Sun!

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marben100 18th Dec '13 15 of 23

In reply to post #80031

As I said, it's not just Beijing:

Still a long way to go, but prograss is being made:

...China’s State Council has announced that it is banning the construction of new coal-fired power plants near Beijing, Shanghai and Guangdong. The goal is to cut air pollution in the country’s eastern megalopolises. The hope is that by 2017 Beijing residents will be breathing in 25% less fine particulate matter than in 2012...

...By shifting new power plant construction to natural gas, nuclear and solar, China hopes to bring its reliance on coal down below 65% of total power generation, from about 70% today

The last time the concentration of CO2 was as high as it is now was 10s of millions of years ago, when average temperature and sea levels were much higher. You can choose to ignore the evidence & logic (which is very convenient for fossil fuel dependent industries), and allows you to feel comfortable about doing nothing, I do not. I prefer to trust, for example, the Royal Society, whose members include the most eminent and reliable UK scientists, rather than a small minority, much of whose material is misleading and many of whom are (often covertly) funded by those with an interest in "doing nothing".

Anyhoo, I don't propose to get into a fruitless debate on climate change here.


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Fangorn 18th Dec '13 16 of 23

"You can choose to ignore the evidence & logic (which is very convenient for fossil fuel dependent industries), and allows you to feel comfortable about doing nothing, I do not."

The evidence though points to no man made global warming, despite what those naive lefties you mention would have us believe.


The second of the two youtube videos I linked shows you for the farce that it is. The biggest determinant of global temperatures is not the amount of CO2 humankind emits, but that big ball of fire we traverse around.


Have you not asked yourself why it is no longer referred to as man made global warming but now "climate change!"

Quite simply because the premise they tried to prove was utterly false. There is no man made global warming so they've now moved the goal posts and termed it climate change - so they can include colder periods as well in their argument. Whilst I wont dispute we might add to the problem, we certainly are not the cause.

"I prefer to trust, for example, the Royal Society, whose members include the most eminent and reliable UK scientists, rather than a small minority, much of whose material is misleading and many of whom are (often covertly) funded by those with an interest in "doing nothing"


Material is misleading because many of them are covertly funded by those with an interest in doing nothing...See you and raise you the explicit funding of all those "most eminent and reliable" scientists you refer to who tow the "party line" comrade, who's sponsors have pretty obvious goals.


Is one of your reliable and eminent contributors a certain "Dr David Viner" - a senior research scientist at the climatic research unit (CRU) of the University of East Anglia???

If we've global warming how do you explain the facts that contradict the BBC headline in 2007 -

"BBC reported in 2007 global warming would leave Arctic ice-free in summer by 2013


Yet we have -  "Record return of Arctic ice cap as it grows by 60% in a year"

Got that spectacularly wrong didn't they.

I'm sorry Mark but I believe you're very wrong in this regard and I'm certainly not ignoring the evidence, or logic as you suggest. Whilst I don't think sitting still is the way to go, I certainly wouldn't tax consumers and industry into oblivion to subsidise green policies that provide limited benefit at the best of times - even less so when you consider the amount of pollution the likes of China are churning out compared to the UK...

Given the immense economic cost,and the multitude of nefarious propaganda(couple to the lack of a honest dicsussion in the public arena) I'd warrant such a discussion is extremely fruitful! 

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kenobi 19th Dec '13 17 of 23

of course these systems are really complex and you have to look at the long term trend, not one years ice changes, and when you do .... you find that the daily mail story, like so much in the daily mail, is nonsense and half truths. I wish there was no climate change, I wish we could burn all the coal and gas with no consequences, but deep down we all know it's not true. Very convenient to not believe and then not have to take responsibility. I have a friend, a professor of climate sciene, I don't think he's involved in a conspiracy, I think he's doing work to try to understand, they're not always right, and obviously the worst case scenario is the one that always makes the news. But his best guess is that it's happening and it's serious, given we have no where else to live, perhaps we should err on the side of caution, and either prepare and adjust to climate change or try to counteract it.

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Fangorn 19th Dec '13 18 of 23

I don't think I linked the Daily Mail kenobi. Of particular interest is a very credible piece I linked by

Presentation Prof. Murry Salby in Hamburg on 18 April 2013

Not the scribblings of half truths but actual scientific analysis. The pro "Global Warming" lobby have lost all credibility as their leaked emails and the infamous "hockey stick" amply evidence.

Personally I see little point hiking green levies in the West, to the detriment of pensioners specifically,but the less well off generally, who are unable to afford to heat their houses, just so the rest of us came bask in a warm glow that we tried ( but were clearly unable to offset the massive pollution emanating from China and their new coal power stations, despite this supposed move to Green technology Mark is talking about).

It's insignificant and , as the pollution in China shows, has such a long way to go to make any impact that the Economic cost of a proper move to Green technologies is unquantifiable. It's also one that even China can't afford, despite keeping 90% of its population in absolute poverty - do you think that kind of outcome would be acceptable here, with much of the country adamant it is their entitlement to welfare of one sort or another?

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kenobi 19th Dec '13 19 of 23

sorry fangorn, I searched the fact that you quoted and saw the daily mail headline, don't know where you read it, but as shown by the graphs in my links the story although factually correct ignores the clear trend.

I agree with a lot of what you've written re what we can do in the west and how that is completely wiped out by letting developing countries like china do what they like, I've already posted about this earlier in the thread saying that we effectively out source our emissions and that it's mad and an ilusion. If we import stuff, all the emission generated in creating them should count as ours. The reason china gets away with it I guess is that it quiet suits the west to be able to export it's emissions like this. I haven't seen your link and will do, thanks


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Fangorn 19th Dec '13 20 of 23

There are things we can do, but I'd prefer them to be evolutionary rather than so front ended - as an example of the former I'd suggest all new builds have solar panels as mandatory. This way we gradually reduce our energy consumption whilst slowly increasing our green power(at an affordable rate!) I certainly don;t believe wind turbines are the solution, not only are they inefficient,costly and requiring great subsidy, they also harm the environment(they disrupt the balance of the eco system both by being a direct danger to the wildlife, but also, via their noise a disruption to the habitats of birds,bats , Owls etc, all of which play an intricate part in maintaining an environmental balance) And that's when they working! Wrong wind, no wind, no energy generation. Sounds efficient doesn't it and well worth the billions being spent,and the pensions freezing to death because they cant afford to have the heating on!

Current green taxes are smothering entrepreneurialism both small,medium and big business alike, ramping up costs due to the necessity to maintain large compliance departments, putting many of the less well off into hardship and all for what?

To make a minor reduction in C02 emissions, which are offset almost immediately by industrial development in China for starters - lets not even talk about similar moves in India and all the other less developed parts of the world. This highly publicised China move into Green power is a farce, over exaggerated, and merely a publicity stunt to hide the actual amount of pollution the PRC is responsible for.

The link between C02 and global warming(or is it global climate change) has not be proved incontrovertably either. It is the latter which leads to the former, or the former resulting in the latter as claimed.

What is very clear though is that there hasn't be a suitable debate, with both sides given adequate air to put across their lines of argument. There was a time when being a global warming denier was akin to be a Nazi courtesy of our highly objective British Broadcasting Corporation - post the leaked dodgy emails,and the Hockey stick incident, it's now quite clear where the facts(and the science) actually lie!

It's certainly a controversial topic :)

Personally, the solution to this problem, if indeed the global warming/climate change/earth life cycle or whatever you want to call it, is simply- there are too many people on this planet. So time to have a cull. :)

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Fangorn 20th Dec '13 21 of 23

"It marks the first time that major media enforcers of the orthodoxy — the Economist, Reuters and the London Telegraph – admitted that the science was not settled on global warming, the Economist even mocking the scientists’ models by putting them on “negative watch.” Scientific predictions of global cooling – until recently mostly shunned in the academic press for fear of being labeled crackpot – were published and publicized by no less than the BBC, a broadcaster previously unmatched in the anthropogenic apocalyptic media"

Must be in the pay of Big Oil...

"Lawrence Solomon is executive director of Energy Probe, a Toronto-based environmental group. "

Perhaps Not!

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DJLJ23 23rd Dec '13 23 of 23

Seeing Machines (LON:SEE)
Directors selling
20 Dec Seeing Machines Ltd SEE Alex Zelinsky 842,266 @ 8.60p £72,392.76
20 Dec Seeing Machines Ltd SEE David Gaul 466,978 @ 9.00p £42,028.02

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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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