Small Cap Value Report (16 Jun 2014) - FLYB, BEG, CBUY, UBI, MYSL

16th Jun '14 by Paul Scott

6 comments 16850 reads

Good morning! Another day, another computer - so today I'm staying with family, and am using an Apple Mac. So anything could happen with the formatting, but hopefully I'll nail it today!

Flybe (LON:FLYB)

Flybe's new Chief Financial Office (CFO) is starting work with them on 19 Aug 2014, and has just bought £98k worth of shares in the market (72,000 shares at 137p). That's a meaningful financial commitment with his own money in my view, and much better than holding out the begging bowl for a load of free share options, which is what usually happens at most companies.

Begbies Traynor (LON:BEG)

I'm impressed with the terms of a small acquisition announced this morning by insolvency accountancy firm Begbies Traynor. The consideration has been mostly loaded as deferred, based on performance, which largely de-risks the acquisition;

"In the year to 31 May 2013, the firm reported revenue of £1.5 million and a pre-tax profit (adjusted for partner remuneration) of £0.3 million. The acquisition is for an initial consideration of £0.6 million, to be satisfied in cash. Under the terms of the acquisition, there is a deferred consideration of up to £1.4 million dependent on financial performance over the three years from completion, to be satisfied in cash. The acquisition is expected to be earnings enhancing, both initially and after any additional consideration is paid."

Cloudbuy (LON:CBUY)

This company has today issued a statement concerning its falling share price, which has halved since the spikes last autumn. The company says;

"The Board of cloudBuy plc (AIM:CBUY), the eCommerce marketplace, notes the recent downward trend in the Company's share price, and is not aware of any business reason for the drop in value. The Company is performing strongly and is ahead of plan in terms of prospects and leads."

So not ahead of plan in terms of actual sales then presumably, or they would have specifically said so. There are various other bullish noises made, about big contract wins in the pipeline, etc.

Personally I think this share price went up on a speculative frenzy last autumn. Hence it coming down again now is probably just the unwinding of that speculation. Which is a very clear reason for the share price falling, but not one that any company will give you! We have to…

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janebolacha

16th Jun '14

Paul, good morning.

Yes, the new Flybe FD shows commitment, how very refreshing.
Contrast that with the money the GKP FD will walk away with,
having just resigned. Well, what to expect from GKP?

nathanx

You could invest in a laptop. :-)

AnonymousUser39518

Paul, you've been a bit contradictory this morning. In November you said this at 200p

"Anyway, rightly or wrongly, I decided to push the button & have bought a small quantity of shares in Ubisense (LON:UBI) this morning, on the back of this announcement, which announces an order of E0.7m from a large European automotive manufacturer for a Ubisense Smart Factory System"

but now you have absolutely slashed your buy-in target to under 100p?! Why the change of heart??

Investor2015

serg

On a slightly related note regarding airlines, Wizz Air scrapped flotation for now citing "market volatility in the airline sector".

"The outlook for Wizz Air's business remains extremely positive and unaffected by the decision not to proceed with an IPO; the board will continue to focus on executing its strategy of driving growth and value," the company said.

Paul Scott

Hi Investor2015,

Re Ubisense (LON:UBI) - I should emphasise that my views on any small cap are not set in stone. They can & will change, depending on all sorts of factors - discussing the share with other investors, doing more research & finding things I don't like, pondering existing research and changing my mind, and most importantly overall market sentiment.

Six months is a long time in small caps investing - so in Nov 2013 I was happy to take a bit of a punt on a few growth stocks, riding the euphoric market mood at the time, but now we've had a big correction in the market pricing of growth stocks, I'm being way more sceptical about valuation.

Also, specific to UBI, the more I've pondered the company, the less excited I've got about the potential for the company, as they seem to be struggling to translate that into profits. Growth companies like ASOS have been smashed in valuation terms, and hence this market is not going to price things to perfection any more, nor assume that profits will inevitably flow. Hence a £50m market cap company that can't move into profit, and is reporting relatively small contract wins on RNS, is going to be viewed a lot more sceptically now.

Also broker forecasts have come down a tremendous amount for this stock, as you can see from the Stockopedia chart to the right.

At 5p EPS, you might forecast 10p or more for the following year, hence a 200p+ share price would make sense.

However, with EPS forecasts now reduced to negative, then all bets are off really. Is it a growth stock at all any more? Hence now why I would need a much lower price (sub-100p) to become interested, as it's a far worse proposition on forecast levels of profit/losses than it was 6 months ago.

So bottom line is this - if the facts change, then I change my view.

Regards, Paul.

Thanks Paul. The stockopedia graph is great

Small Cap Value Report (16 Jun 2014) - FLYB, BEG, CBUY, UBI, MYSL

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Paul Scott

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