Small Cap Value Report (17 Aug) - IDOX, MCON, ALM

Thursday, Aug 17 2017 by

Good morning!

Edit: This report is now covering Idox (LON:IDOX), Mincon (LON:MCON) and Allied Minds (LON:ALM).

Best regards,



  • Share price: 62.375p
  • No. of shares: 405.2 million
  • Market cap: £253 million


IDOX provides software & related services, mostly to the public sector. I covered it last in December (link).

There hasn't been any share price progress so far this year, and the dividend yield is slim, but it has been a successful holding for long-term investors.

It's attempting to grow organically and via acquisitions. The last IDOX acquisition I covered seemed to be at an aggressive valuation (EV/EBITDA 35x), which brings us to today's.

It's a £5 million deal for "a supplier of electoral back office software and services to UK local authorities".

IDOX already has an elections business unit, so this sounds like a good fit.

The valuation is also far more modest than last time: 4.5x EBITDA on a debt-free and cash-free basis, with senior management staying on for at least two years.

My opinion

I'm getting more comfortable with IDOX as a potential investment.

Public sector clients can be sticky with their software systems - there is a lot of hassle, risk and uncertainty to change, so they can stick around for many more years than might otherwise have been expected.

There does seem to be a good rationale for putting all these public sector services in the same group. At a group level, IDOX should have a very strong understanding of its clients and of each particular service type (e.g. electoral services).

All the metrics are fairly average at the moment but let's keep it on the watchlist:


Mincon (LON:MCON)

  • Share price: 98p (+9%)
  • No. of shares: 210.5 million
  • Market cap: £206 million (€226 million)

Half Yearly Report

I commended this producer of hard rock drilling tools for playing down its success in Q1.

But now the half-year report is out, and the success has continued:


It's an Irish company, hence the €uro reporting style.

Even better, the…

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All my own views. I am not regulated by the FSA. No advice.

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Idox plc is a supplier of specialist information management solutions and services to the public sector and to regulated asset intensive industries around the world. The Company operates through five business segments: Public Sector Software (PSS), Engineering Information Management (EIM), Grants (GRS) and Compliance (COMP). PSS segment is an application provider to the United Kingdom local government for core functions relating to land, people and property, such as its planning systems and election management software. The EIM segment delivers engineering document management and control solutions to asset intensive industry sector. The GRS segment delivers funding solutions to private and third sector customers. The COMP segment provides compliance solutions to corporate, public and commercial customers. more »

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Mincon Group Plc is an engineering company specializing in the design, manufacture, sale and servicing of rock drilling tools and associated products. The Company distributes precision engineered hard rock drilling tools for a range of industries, including mining, exploration, waterwell, geothermal, construction, horizontal directional drilling, oil-gas and energy. It operates through the business unit that sells drilling equipment, primarily manufactured by its manufacturing sites. It offers five product lines: conventional down the hole (DTH) product; reverse circulation (RC) DTH product; horizontal directional drilling (HDD) product; rotary drilling product, and tungsten carbide product. Its products include DTH hammers, RC hammers, HDD pilot hammer systems, rotary products, DTH drill bits, Drilling Fluids, HDD Pull Reaming Hammer and HDD support equipment. In addition, the Company, through its subsidiary, Marshalls Carbide Ltd, manufactures tungsten carbide powder. more »

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Allied Minds PLC (Allied Minds) is an intellectual property (IP) commercialization company. The Company is focused on venture creation within the life science and technology sectors. With extensive access to hundreds of university and federal laboratories across the United States, Allied Minds forms, funds, and operates a portfolio of companies to generate long-term value for its investors and stakeholders. Allied Minds supports its businesses with capital, central management and shared services. more »

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

23 Comments on this Article show/hide all

InvestedGeordie 17th Aug '17 4 of 23

In reply to post #209399

I hope Paul's not dead! That comment made it sound as if he is beyond the grave - a spector, forever watching over us

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herbie47 17th Aug '17 5 of 23

I had a quick look at Mincon (LON:MCON) but the wide spread put me off, 10% is far too much.

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Collector 17th Aug '17 6 of 23

Graham, I am looking forward to your thoughts on Marshalls, personally I like it when you guys occasionally comment on bigger caps as I have often thought your small cap comment style would be useful with mid / big caps which often seem to get bland analysis in the mainstream.
(FWIW) I do not own any shares in Idox, but probably should have, because for the last 4 years I must have spent 2 hours a day on their software running our database and liked it from day one and have never had any trouble with it, but somehow managed to ignore what was right in front of me.

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dgold 17th Aug '17 7 of 23

Has anyone noticed the very interesting share price movement in Revolution Bars (LON:RBG) ? In particular anyone who has access to the Level 2 order book of the LSE will see there are as I write orders to buy about 300,000 shares at within 2p of the bid price. This is EXTREMELY atypical for this share and to me strongly suggests that someone is either knowledgeable that a bid is about to be launched OR is himself a potential bidder. What do people think?

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paraic84 17th Aug '17 8 of 23

Thanks for covering Mincon (LON:MCON) Graham and for spotting it in the first place. It's a small part of my portfolio after I did some further research and adds some resources to the mix. The SP perhaps reflects the current growth trajectory but I do like the balance sheet and its niche.

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dgold 17th Aug '17 9 of 23

Further to last post, I mean that even since the possible offers emerged recently the order book didn't look anything like this and this suggests something new eg someone has new information.

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Graham Neary 17th Aug '17 10 of 23

In reply to post #209389

Hey fwyburd, I appreciate the suggestion but don't feel like I have any particular insight into IQE at the moment, sorry! I'm sure one of us will cover it on results day though.


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Graham Neary 17th Aug '17 11 of 23

In reply to post #209424

Hi Collector, cheers for that.

Honestly, I didn't realise the Marshalls mkt cap was quite so big, when I first thought to cover it. So I went for ALM instead.

But yes, I'm interested in some big-caps and I do study them, so I might explore some ways I can cover them too.

Interesting that you like your IDOX software too, every little bit of anecdotal evidence is good to hear!

Thanks very much,


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matylda 17th Aug '17 12 of 23

In reply to post #209444

paraic84 - Out of interest how to you manage with a 10% spread - Doesn't it concern you need a 10% rise to break-even? It does me and hence I usually avoid 5%+

Blog: Briefed Up
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paraic84 17th Aug '17 13 of 23

In reply to post #209471

I have a pretty small holding (£1.25k) and managed to buy with a much narrower spread at the time. I'm not as rich as some people on here! I find with small holdings you generally don't have the same level of spread on such small caps and you can often sell quickly on profit warnings etc before others are able to.

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ISAallowance 17th Aug '17 14 of 23

In reply to post #209471

When I first bought Creightons (LON:CRL), the published spread was 7.5p - 9p, that's 18% based on the mid-price. Actual buy price was 8.75p, so probably still greater than 10% real spread.

I sold some recently at 38.9p. That makes the spread fairly irrelevant. I'm not saying I like spread, and I'm not saying it's totally irrelevant, and I don't have an opinion on Mincon (LON:MCON) (yet), but the point I'm trying to make is that unilaterally writing off choices due to the spread seems overly restrictive to me. If I thought Mincon (LON:MCON) was likely to grow earnings 15-20% a year for a few years then I certainly wouldn't let the spread put me off.

I never put a spread constraint in any screen that I run.

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matylda 17th Aug '17 15 of 23

In reply to post #209488

Appreciate that feedback - Thoughtful - Quite fancying Severfield around these levels - Ticks a lot of my boxes except the 5% spread - Anyway feedback on spreads much appreciated and agree with much of the comment from previous experience - Cheers!

Blog: Briefed Up
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herbie47 17th Aug '17 16 of 23

Problem with wide spreads is not so much buying but if everyone is selling spread will be even wider and wide spread shares tend to illiquid, I had a job to get out of some. Now I avoid them apart from Bioventix (LON:BVXP), that spread varies from about 1%-10%.

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cafcash49 17th Aug '17 17 of 23

Re Fwyburd. I too have been building a health position in IQE but got very nervous and sold the lot on Monday 14th. I agree it was just getting way overvalued. Have we done the right thing? Who knows but I had a horrible feeling we could have lost a great deal if the consensus changed. hey, a profit is a profit.. I think it was thanks to Paul or Graham that I bought in the first place, so thanks guys and keep up the great work, you are both much appreciated. Charles

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Gromley 18th Aug '17 18 of 23

In reply to post #209439

Has anyone noticed the very interesting share price movement in Revolution Bars (LON:RBG) ? In particular anyone who has access to the Level 2 order book of the LSE will see there are as I write orders to buy about 300,000 shares at within 2p of the bid price. This is EXTREMELY atypical for this share and to me strongly suggests that someone is either knowledgeable that a bid is about to be launched OR is himself a potential bidder. What do people think?

Imho the fact that someone is looking to buy an unusually large volume at 2p below the current price might be interesting, but I think that the offered conclusions are just plain wrong.

  • If someone was "knowledgeable that a bid is about to be launched" they would surely be buying, not trying to scalp a couple of pence on the price. If a firmer competitive  bid were to surface, the price would rise immediately and those offers just below the bid would never be filled.
  • On the other hand if someone were a potential bidder then yes it might be logical to build a position on the cheap and on the quiet before making a bid. But 300k is only a little over 0.5% of the company, so frankly it would be a bit of a distraction to save a few pence on 0,5% of the company when you still have to fork out on the other 99.5% of the shares.

It would seem to me that it's much more likely to be one or more players trying to take advantage of any dips  - it seems very unlikely to me to be any kind of signal that could be traded.

Just from a personal perspective it also seems a little odd even for a "trader" to be trying to scalp that 2p given that in the event of the existing bid coming to fruition the upside is 10p and in the event of a competitive bid then more than that. Whereas in the event of the bid failing there is a probable short term downside of at least 20p (probably more) and the likelihood that those offers would get filled (at presumably c. 188p) in the event of a no bid being announced.

It is though I think an interesting position for slightly different reasons :

  1. The statement by RBG (31 July) of the potential offer from Stonegate (@ 200p) was made "without the prior agreement or approval of Stonegate." As I understand it (happy to be corrected) unless details of the discussions had begun to leak then RBG were under no obligation to make that announcement but the effect was to give Stonegate the 'hurry up' and force them to make an offer by 28th August. So what was to be gained from doing that?
  2. The counter offer from Deltic (15-Aug) at least flags that there is at least one more interested party at least waves a little flag to suggest the offer could be forced about £2 per share. It was though disappointing that the RBG board did not really give a material reason for not pursuing the option any further. - It's easy to look at the Deltic accounts and conclude that they are less valuable than RBG , but unless we know the terms of the possible offer (surely it would involve RBG shareholders having a majority stake in the merged group?) it is impossible to judge whether the board were acting in the shareholders best interests.

For now I'm still holding onto my smallish position (on which I'm slightly ahead atm), but the predominant reason for this is the belief that with competent central management (which hopefully is forced by the interim CFO) the groups should be worth more than it is currently. I can't really  work out whether the dynamics of the potential bid / counter bid / walk away provides near term value above the current price or not - but hopefully at the very least there is something to learn from this.

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dgold 18th Aug '17 19 of 23

In reply to post #209623

Thank you for your interesting comments.

I would highlight that as you yourself observe, it is odd for someone to try to buy a large amount, when the downside is potentially large and the upside small. This is itself an argument that whoever wants to buy has inside knowledge, i.e. they know there is no downside risk. On your question of why they would try to scalp a few pence as opposed to just buying, my answer is that there is not that much stock available for sale on the other side of the order book. If they were to start buying what is available it would also push up the price very fast. So they are hoping to just catch any sales from people who want to get out. Although I accept they could buy some stock from the RSPs at around the offer price, they have their sights on larger quantities.

They may also judge that even with inside knowledge that the offer will proceed, assuming the offer will be at 200p it's not worth it for them buy above the price they are offering i.e about 188p (due to delays in completion/risk of failure).

On your point of 300k being a relatively small percentage of the whole company, it still makes sense to save as much as you can. Also, it doesn't mean they are only trying to buy 300k. Maybe if those orders would be filled they would then place more orders either manually or automatically. Actually I think whoever is trying to buy and for whatever reason is being very clumsy and indiscrete by not submitting the orders as iceberg or hidden orders, or via an automatic trading program, which doesn't show the whole quantity intended to be bought.

Interesting situation, let's see how it plays out.

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Gromley 18th Aug '17 20 of 23

In reply to post #209728

Actually I've found it useful to verbalise my thoughts on the current status of Revolution Bars (LON:RBG).

On reflection I've decided that the c. 5% premium to the known possible bid just isn't enough for me in this market (where I think big and better opportunities may be 'just around the corner'); so I've sold the lot of my small position this morning for a modest gain.

So one can no doubt expect the counter bid to come in early next week!

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dgold 18th Aug '17 21 of 23

And I'm agonizing over whether to sell some of my position and if so how much. It comes down to a question of how likely the bid/bids is not to proceed and what would the price be then.I'm guessing 10% and 165p.

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dgold 18th Aug '17 22 of 23

In reply to post #209808

I've made up my mind. I'm not selling any. The reason is I have just spotted more interesting behaviour on the level 2 screen. Two bids went through at 190p at 11.15GMT, one for 14500 shares and one for 1225 shares.Then 25 minutes later two more bids appeared at 190p, one for 14500 shares and one for 1215 shares. So clear someone is trying to buy shares in a slightly less open way than yesterday but still noticeable! I can't believe anyone would go to such lengths to buy such a large amount at 190p without inside knowledge of a definite bid of at least 200p. It's just too suspicious. Time will tell.

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Gromley 18th Aug '17 23 of 23

In reply to post #209833

I hope that works for you dgold.

I'm not a student of order book or tradewatching, but to me it feels like you are making a pretty big intuitive leap from order book and trade data to the motives, knowledge and even competence of one or more unknown market participants.

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 Are LON:IDOX's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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