Small Cap Value Report (17 Dec) - HYDG, EKT, NASA, AMS, IOF

Tuesday, Dec 17 2013 by

Good morning! It's been a good year generally for shares in recruitment groups, as they have re-rated due to recovering economies in the UK and US. Hydrogen (LON:HYDG) has been on my watchlist for almost a year now, and looks reasonably good value on the Stockopedia traffic light graphics (see below), with a forward PER of 11.3, and an attractive dividend yield of just over 4%.

So let's have a look at Hydrogen's trading update this morning for the year ending 31 Dec 2013. It's a mild profit warning. The reasons given include the cost of an additional 10% sales headcount, foreign exchange losses from the recent strength of sterling, and fee income "marginally lower than projected" in Nov & Dec.

Helpfully, they quantify the profit shortfall (always a good idea, as the market hates uncertainty), expecting H2 profit before tax to be £0.3m lower than H1. So looking back at the H1 results, they made £1.3m profit before tax, so that implies a full year result of £2.3m.

Basic EPS was 4.26p in H1 (H1 2012: 6.13p), so adjusting that by 1.0/1.3 gives us about 3.3p EPS in H2, or just under 7.6p for the full year. That's about 10% below the broker consensus of 8.42p shown on Stockopedia, so it's a moderate profit miss, not really anything to get terribly excited about. It's likely to take about 10-15% off the share price today, I would imagine.


The outlook statement sounds upbeat for 2014, but seems to contradict the rest of the statement, saying;


Activity levels across the Group in the lead-up to the year-end remain strong. The Board remains confident in its strategy to grow the business, and believes that the investments made in 2013 leave it well placed to benefit from market opportunities in 2014.


I don't quite understand how they can say that activity levels remain strong, when they have just reported softer than expected Nov & Dec trading? Surely those statements are contradictory?

The UK economy is already recovering, so really Hydrogen should really be reporting profits rising, not falling, so that puts me off somewhat. It perhaps suggests that they might be struggling with competitive pressures. After all, there is little to separate one employment agency from another. In my experience…

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Hydrogen Group plc is a United Kingdom-based company, along with its subsidiaries, is engaged in the provision of recruitment services for mid to senior level professional staff. The Company operates through two segments offering both permanent and contract specialist recruitment consultancy for the organizations. The Company's segments are Professional Support Services and Technical and Scientific. The Company recruits for roles in Professional Support Services, including legal, finance, technology and business transformation placements, and in Technical and Scientific market sectors, such as power, mining, oil and gas and life sciences. The Company's subsidiaries include Hydrogen UK Limited and Hydrogen International Limited in the United Kingdom; Hydrogen Group Pty Ltd in Australia; Hydrogen Group Pte Ltd in Singapore; Hydrogen Group Ltd in Hong Kong; Hydrogen Norge AS in Norway, and Hydrogen Group LLC in the United States, among others. more »

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Elektron Technology plc is a holding company. The Company is engaged in designing, manufacturing and marketing products that connect, monitor and control. It operates in two segments: Connectivity, and Instrumentation, Monitoring and Control (IMC). Connectivity comprises two complementary product families: Bulgin and Arcolectric. The Company's products are helping its customers to quantify real-world environments, process this data and act on the results. Its products include sealed connectors, Switches, indicators, battery, fuseholders, ophthalmic instruments, nanopositioning and sensing equipment, and vehicle power management systems. The Company's Checkit offers a wireless solution providing work management software and automated monitoring. Its subsidiaries include Elektron Technology Corporation, Elektron Technology PTE Ltd, Elektron Technology UK Ltd and Elektron Technology (Shanghai) Trading Limited. more »

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Nasstar plc is a United Kingdom-based company, which is engaged in the provision of hosted managed services and cloud computing services. The Company integrates private and public clouds by supplying the hosted information technology services to its business customers. The Company's segments are, Nasstar UK, Kamanchi, and VESK Virtual Desktop LLP, Appiam Limited and VESK Limited (VESK). The Company is an information technology outsourcer and Hosted Desktop provider. The Company provides a cloud managed service package, offering Hosted Desktop, Office 365, Hosted Exchange, Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Hosted Telephony services. Additionally, the Company hosts a range of software applications on behalf of its clients. Further, the Company provides managed networks and an end user support service. The Company operates principally in the United Kingdom with some overseas contracts. more »

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

6 Comments on this Article show/hide all

jakedog2 17th Dec '13 1 of 6


Ref - HYDG - i'm a contractor. Looked at buying shares during the last 12 months , based on fundementals which were appealing. However what put me off was their approach as a recruiter.
Personally found their service to be vastly inferior to other recruiters i have worked for .... so my money went elsewhere.

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Skelray 17th Dec '13 2 of 6


ZIOC up over 20% toay. Can't find any news. They are on my watchlist.

Just an observation you may have missed.


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Paul Scott 17th Dec '13 3 of 6

In reply to post #79995

Hi Skelray,

I don't comment on price rises unless there is any news. So no idea why ZIOC went up 25% today.


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Funnymoney 18th Dec '13 4 of 6


VLK "It is expected that the last day of dealings in the Ordinary Shares on the Main Market will be 17 January 2014" Doesn't this mean we are still going to see selling pressure as the funds get out for at least another month? Can they announce any takeovers before then if they are still not in AIM?


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SevenPillars 18th Dec '13 5 of 6

In reply to post #79995

A look at the chart will show that ZIOC was well hyped in August/September on the back of the Glencore news, Its price went up from around 11p to 30p. I think once it was milked for all its worth and some made 100-200% in such a short period of time it was then sold off. From around 16th Sep until a couple of days ago it was more or less down every day, settled at around 15p, so it effectively halved in price after the hype. The chart now looks good with a potential breakout to the upside, but anyone interested needs to be careful of the equally sharp sell offs. This one looks like a newsflow or lack of it company that moves the share price either way. When there is no news it drifts down big time. Given yesterday I wouldn't be surprised if something will come out soon. That's a guess, but that's what happened back in August/September. Who knows with a company like this? It's big project is a jam tomorrow prospect if it comes off, but recent share price moves show that it is a roller coaster ride. Anyone buying for the long term has to take the rough with the smooth and hope the jam is eventually tasty.

By the way, does anyone know why it fell from around 220p back in 2011 to its low below 10p this year?

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Yantomawr 18th Dec '13 6 of 6

In reply to post #80011

Maybe, but VLK have improved by almost 10% over the past 2 days.

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

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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