Small Cap Value Report (18 Apr 2016) - SPRP, TPOP, IGR, LAKE

Monday, Apr 18 2016 by
50

Good morning!

I'm back from a long weekend in Warsaw - it was really good to have a change of scene. All was great, apart from being ripped off by an illegal taxi driver, and a stag party on the plane back who made the flight a misery. The airlines really do need to do something about this increasing problem.

Mello Beckenham

A reminder that David Stredder's popular, and long-running monthly investor evening is happening today - click the blue link above for more details. The popular & very capable David Cicurel of Judges Scientific (LON:JDG) will be updating investors on progress this evening.

I probably won't be able to make it tonight, as I'm working in North London this afternoon, helping a private company. I'm taking on some NED roles in smaller, private companies with good growth potential, to help them with finances, and strategy/planning. All good fun, and it's enjoyable to do something a bit more hands on.


Sprue Aegis (LON:SPRP)

Share price: 142p (down 47% today)
No. shares: 45.9m
Market cap: £65.2m

Profit warning - you know straight away, when a share price is down 47%, that the profit warning is a bad one. Also, there has been no bounce in the share price yet, Such an initial bounce often happens for 2 reasons;

1) The early drop can be exaggerated by forced sellers at spread bet companies - whose positions are cut at any price, once the stop loss is triggered. It's important to remember that there can often be considerable "slippage" with stop losses - i.e. your spread bet can end up being closed at a far lower price than the stop loss you set. A stop loss is only a genuine stop loss if it's guaranteed, and you have to pay extra for that. Any share that gaps down at the open can make a mockery of a (say) 10-20% stop loss. The actual loss can be considerably more.

2) Existing holders are often anchored to the previous share price, and wrongly see the reduced price as a buying opportunity. This is down to psychological factors, and often an underlying desire to support the share price. This is due to the increasing pain of the losses on their existing shareholdings. It's nearly always a mistake to steam in and increase your existing…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Fireangel Safety Technology Group plc, formerly Sprue Aegis plc, is engaged in the business of design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories. The Company also operates its own CO sensor manufacturing facility in Canada. The Company is also a provider of home safety products. The Company's principal products include smoke alarms and CO alarms and accessories. Sprue manufactures CO sensors for use in all its CO alarms. Sprue serves in the United Kingdom retail and the United Kingdom's fire and rescue services. The Company offers a range of brands, including FireAngel, AngelEye, Pace Sensors, First Alert, SONA, BRK and Dicon brands. The Company's subsidiaries include Sprue Safety Products Limited, which is engaged in distribution of smoke and CO alarms, and Pace Sensors Limited, which is a manufacturer of CO sensors. more »

LSE Price
38.5p
Change
 
Mkt Cap (£m)
29.2
P/E (fwd)
20.3
Yield (fwd)
n/a

The People's Operator Plc (TPO) is engaged in the provision of mobile phone services. The Company is a cause-based commercial mobile virtual network operator engaged in acquiring customers through viral networking and online communities. It has developed, marketed and operates a mobile phone business that provides consumers with an alternative to traditional providers. It supplies communication services and products to the United Kingdom market through a mobile virtual network. It offers two types of service plans to the United Kingdom subscribers: a Pay Monthly plan (PAYM) and a Pay As You Go plan (PAYG). It consists of over 22,595 subscribers on PAYM and approximately 57,890 subscriber on PAYG. The Company has over 21,000 subscribers in the United States. The TPO Community offers members, charities and other non-profit organizations a social network and a donation platform. The TPO Community comprises over 20,000 individuals from approximately 160 countries. more »

LSE Price
0.005p
Change
 
Mkt Cap (£m)
n/a
P/E (fwd)
n/a
Yield (fwd)
n/a

IG Design Group plc, formerly International Greetings plc, is engaged in the design, manufacture and distribution of gift packaging and greetings; stationery and creative play products, and design-led giftware. The Company's geographic segments include UK and Asia; Europe; USA, and Australia. The Company sells its products in over 150,000 stores across approximately 80 countries. It also offers a portfolio of licensed and customer bespoke products suitable for sale through multi channel distribution. The Company's products include crackers, pens and pencils, stickers, single cards and gift wrap. The Company offers its products under the brands A Star, B Stationery, Papercraft and Pepperpot. Its subsidiaries include Artwrap Pty Ltd, International Greetings UK Ltd, International Greetings USA, Inc, International Greetings Asia Ltd, The Huizhou Gift International Greetings Company Limited, Hoomark BV, Anchor International BV and Hoomark S.p.z.o.o. more »

LSE Price
620p
Change
0.3%
Mkt Cap (£m)
485.8
P/E (fwd)
19.1
Yield (fwd)
1.7



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


27 Comments on this Article show/hide all

Carcosa 18th Apr '16 8 of 27
1

The original plan for Lakehouse (LON:LAKE) was to replace all the NED's, so this RNS is a bit of a climb down for the requisitionists as only the Chairman is walking out the door. Of course it may be the plan from the beginning but we don't know. So perhaps the arguments have moved from the public forum to the boardroom or maybe a tacit agreement has been reached as to when the other NED's will leave to pursue other interests.... Either way the company should be in a better position going forward, I hope!

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xcity 18th Apr '16 9 of 27

In reply to post #128102

Seems like a virtually total win for Rawlings and Slater to me. Rawlings and the other two he put forward are going on to the Board. And taking the Chair and Senior Independent Director positions.  In themselves the NEDs weren't the issue, it was adequate management and oversight.

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paraic84 18th Apr '16 10 of 27
3

I use People's Operator (LON:TPOP) - it's bloomin' cheap. £11.99 a month for 6GB data, unlimited minutes and text. Thank you to the shareholders who are subsidising me ;) I see it has recently upped the price of this package to £14.99 a month for new subscribers, presumably for the reasons Paul sets out. That still makes it cheaper than any other provider I can see while maybe improving its bottom line a bit. It's a good investment if you want a SIM-only deal, maybe less so if you're trying to make a bit of profit out of the company.

On a brighter note Boohoo.Com (LON:BOO) seems to be having a good run of late.

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JDW72 18th Apr '16 11 of 27
2

In reply to post #128087

I had one that started beeping with a battery issue last week. I just chucked it and replaced it. I can't even remember where I bought the original from, let alone have any warranty info or a receipt.

Surely there must be some form of redress against the supplier as well.

SPRP were a little racily rated a while ago but they have a good innovative product, cash on the balance sheet and many markets to exploit. I've actually bought more this morning.

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simoan 18th Apr '16 12 of 27
5

In reply to post #128114

Surely there must be some form of redress against the supplier as well.

This will depend. If it is a custom part and the supplier can prove that Sprue were using the battery outside of its design specification (entirely possible) they would have no chance of any claim. There are various reasons for the reduced life of a battery and most of them are not related directly to its manufacture.

SPRP were a little racily rated a while ago but they have a good innovative product, cash on the balance sheet and many markets to exploit. I've actually bought more this morning.

Surely the point is that even at the reduced share price, they are still looking very racy until 2018 at the earliest and there's got be better opportunities in the meantime? Especially since SPRP looks like it would be pretty badly affected by Brexit given it's major overseas market is Europe. Given the recent news flow from the company I would also have to question whether the management are on top of things here. Management credibility is a very important aspect for me and so I wouldn't touch this until it was very, very cheap. 

All the best, Si

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cafcash49 18th Apr '16 13 of 27

Like you JDW72, I also bought more Sprue Aegis. The products are good and 3 years is not bad, I was always sceptical of 10years. Like you I don't think many customers will look for redress it is not a big enough purchase to warrant the trouble.
Given some time I believe Sprue Aegis will prove a good investment and we have just picked up more shares at a cracking price.

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kenobi 18th Apr '16 14 of 27

In reply to post #128078

>>Sprue sells several "sealed for life" products with a lifetime approaching 10 years,

Seems likely, as an aside I recently bought smoke detectors and was going to buy sealed for life units (don't know if from this company), but decided against on reading reviews that they lasted much less than the advertised length. It seems like a good idea to have battery power for the length of the life of the sensor, but does mean that if the battery should fail prematurely, the unit has to be replaced.

K

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nseddon 18th Apr '16 15 of 27
2

Paul
A long time follower of your excellent work here
I have also seen you across the tables at mello
I lived in Warsaw 1992-94, illegal taxi? Seems like nothing has changed

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cig 18th Apr '16 16 of 27
1

In reply to post #128090

Another theory is that the battery has a discharge curve (voltage * time, see examples) that is somewhat different than the original part their product was designed for, hence reaching the battery warning trigger voltage earlier, before it's really empty (the point is to identify the end-of life drop). If so it's a quality control/engineering issue, if a subtle one.

The warranty reserving seems pretty high, as Carcosa says you wouldn't expect most customers to actually claim, though they may buy from another supplier and/or some resellers might drop them because of even a few returns.

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IR35 18th Apr '16 17 of 27
4

I bought 2 of the SPRP sealed for life smoke detectors about 12 years ago. They were the type that plugged in between a lightbulb and the fitting thus providing a source of power to recharge the batteries. They also had a 10 year life. One of them gave up after about 3 or 4 years so I bought a replacement and that only lasted a year before it started chirping away every few seconds. It was in the middle of the night that I realised the sealed units aren't so great because you cant take the battery out of them to stop them chirping. End result was to put it in a bucket of water outside the house (even then it continue to chirp )- great fun at 3 in the morning.

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lucien2k 18th Apr '16 18 of 27

In reply to post #128144

Yep we had similar issues with the sealed for life units. I think they just got thrown away, I would imagine most consumers would do that.

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Velo 18th Apr '16 19 of 27
2

If Spruce had ever been able to produce Lithium batteries that functioned satisfactorily to give 10 years working life then all the world's lithium battery manufacturers would have been biting their nails down to the quick and getting their CV's off in the post long before now.

10 years working life out of any lithium battery, c'mon !?! Own up, who swallowed that one?

3 ot 4 years before 60% capacity gone, in the very best Lithium batteries - sounds about the ultimate you could expect.

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Carcosa 18th Apr '16 20 of 27
1

Everything you could possibly want to know about 10 year Lithium (and alkaline) batteries in Smoke Alarms. https://www.cpsc.gov//PageFiles/116967/LithiumFinal.pdf

From a 2002 U.S. CONSUMER PRODUCT SAFETY COMMISSION paper. - PRELIMINARY TEST RESULTS ON LITHIUM BATTERIES USED IN RESIDENTIAL SMOKE ALARMS

Clearly places the then findings squarely at the door of the battery manufacturer....

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Velo 18th Apr '16 21 of 27

Sprue not Spruce - my post above (must type with a lisp).

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Whitbyview 18th Apr '16 22 of 27
8

If you want to know more about sprue's problems, the easiest thing to do is to read Amazon customer reviews. This is what put me off buying the shares a few weeks back. There are many reports on there of battery failures in times far shorter than 10 years. Maybe people will just buy another (some people on Amazon said they bought another because it fitted on the same mount) but personally, if I invested in a piece of safety equipment that was outside the specification, I wouldn't buy another. As for claims and compensation, maybe individuals won't be bothered but some large organizations have bought in bulk. They might be more persistent and forceful. I suspect the biggest issue here is reputational ... and that's very hard to fix, however good the balence sheet.

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Paul Scott 19th Apr '16 23 of 27
8

In reply to post #128207

Whitby,

That's a great point actually.

Many investors, including myself, get most of our info about all companies from their RNSs and the website. Yet this is one-sided info, and often wrong.

We should perhaps learn to ignore the lies that companies & their PRs tell us. Instead find out info ourselves. As in this case, people said that the news of failing batteries in SPRP products was commonplace. Smart people sold their shares when that news became widespread - easily checked from Amazon & other websites.

So perhaps we should put less emphasis on the RNS, and the lies that management tell us, and seek out more accurate information ourselves?

How much do I trust company management? Very little! Most are varying degrees of liars - from the extreme conmen at AIM resource stocks, to the next level up that twist & turn to schmooze you. At the top there is an elite of wonderful entrepreneurs, so don't get TOO sceptical..

PP.
PP.

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Paul Scott 19th Apr '16 24 of 27
5

One thing I never liked with SPRP was their weird supply chain.

If you don't control the whole process, then who knows what goes on.

It's not a company I want to revisit anyway.

P.

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Christopher Smith 21st Apr '16 25 of 27
4

Two or three years ago my father had a free fire safety check at his home carried out by the local fire brigade, during which they supplied him with a free Sprue FireAngel ST-620 alarm that they fitted for him. A few weeks ago it started chirping from time to time (although it could be cancelled by poking the central test/reset button with a stick.) I phoned the fire brigade to let them know what had happened and they said they knew about the problem and would arrange to send him a replacement. An updated model ST-622 then arrived in the post directly from Sprue. I'm assuming it's an updated model with a better battery but we'll find out in two or three years if it starts chirping again.

Either way, it looks as though they've known about the problem for some time and that they must have supplied a lot of the original alarms under contract to local fire services.

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shipoffrogs 21st Apr '16 26 of 27
2

In reply to post #128645

The Amazon reviews of this alarm ST620 could hardly be worse.

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carmensfella 26th Apr '16 27 of 27

There is a meeting arranged by ShareSoc with the Sprue management for this Wednesday. ShareSoc members only http://www.sharesoc.org/events.html
Results and the recent update will both be covered.

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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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