Small Cap Value Report (19 Jan 2016) - ZYT, TSTL, DOTD, XLM, STM, FRP, MYSL, JDG, JPR, QP., SCS

Tuesday, Jan 19 2016 by

Good morning!

Looks like it's going to be a bounce day - with the futures up strongly, apparently due to positive Chinese economic data. Although there seems a great deal of scepticism over how much we can believe such data, in line with pretty much everything that comes out of China - e.g. the garbage that they have floated on AIM, along with fictitious accounts in many cases.

The big question for lots of us, is whether we should be buying the dips, or selling the rallies (or both!). There's no denying that the major indices have now broken the long up-trend which lasted from 2009 to 2015. Therefore, I detect far more caution amongst investors that I talk to regularly right now.

Also, bear markets are characterised by powerful rallies of course. So just because the market breaths a sigh of relief today, doesn't mean that we're out of the woods.

That said, prices of several good quality companies on my watchlist reached levels that I couldn't resist, and I went on a shopping spree yesterday, picking up more Zytronic (LON:ZYT) and a new purchase of Tristel (LON:TSTL). In the case of Tristel, I possibly jumped the gun a bit, due to perhaps "anchoring" to the previous, higher share price.

These soft patches in the market are a good opportunity to chuck out shares that you're not happy with, but have tolerated in your portfolio due to inertia. That raises fresh money for picking up some better quality shares at advantageous prices, where panic and sentiment-driven selling by others (perhaps people on margin call?) hands you a bargain on a plate.

dotDigital (LON:DOTD)

Share price: 50p (up 5.8% today)
No. shares: 293.5m
Market cap: £146.8m

Trading update - this email marketing software company updates the market for its estimated H1 figures to 31 Dec 2015 - the company has a 30 Jun 2016 year end.

Today's update contains numerous bullish points, but it's important to remain grounded by reinforcing that the title says "in line with market expectations". So all these positives were really already baked into the price.

A few key snippets that I noted down on my pad;

  • H1 revenues up 29% to £12.9m (of which SaaS is £10m)
  • Avg revenue per client up 31% to £525 p.m.
  • Cash of £14.8m, just over 10% of the…

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dotdigital Group Plc is a United Kingdom-based company, which is engaged in providing software as a service (SaaS) and managed services to digital marketing professionals. The Company offers dotmailer, which provides e-mail and multi-channel marketing automation platform with various tools that enable marketers to create, manage, execute and evaluate various campaigns. In addition to its automation technologies, the Company also provides multi-channel marketing consultancy and services for businesses seeking to manage customer acquisition, conversion and retention. The Company also has pre-built integrations with e-commerce platforms and customer relationship management (CRM) products, such as Magento and Salesforce. dotmailer helps in using contact data to design, test and send automated campaigns. The Company's subsidiaries include dotmailer Limited, dotsearch Europe Limited and dotmailer Inc. Through its subsidiaries, it is engaged in providing Web- and e-mail-based marketing. more »

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XLMedia PLC is the United Kingdom-based online performance marketing company. The Company focuses on paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers. The Company's segments include Publishing, Media and Partners Network. The Company owns over 2,000 informational Websites in approximately 20 languages. Its Media division acquires online and mobile advertising targeted at online traffic with the objective of directing it to its customers. It buys advertising space on search engines, Websites, mobile and social networks and places advertisement referring users to its customers Websites or to its own Websites. It manages marketing partners, whose role is to direct online traffic to its customers. Its partner program enables affiliates to have a single point of contact for directing traffic. more »

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STM Group PLC is a financial services company engaged in the structuring and administration of clients' assets. The Company operates through five segments: Corporate Trustee Services, Pensions, Insurance Management, STM Life and Other Services. It specializes in the delivery of a range of financial service products to professional intermediaries and in the administration of assets for international clients in relation to retirement, estate and succession planning, and wealth structuring. Its products and services include intellectual property, foundations services, private medical insurance, Spanish legal & tax services, and insurance management. Its private medical insurance services include provider finder, bilingual service, advice on policy matters and renewal, and updates on changes. The Company offers solutions, which include international retirement, life insurance solutions, company management, residency and citizenship, international tax, and trust and trustee. more »

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25 Comments on this Article show/hide all

Ramridge 19th Jan '16 6 of 25

Hi Paul -
Re. STM (LON:STM) I recall that this stock was a particular favourite of Edward Roskill in your last podcast with him. You will be interested to note that it has dropped 15% on the day on the announcement that the CEO has resigned.
Having read the RNS carefully the parting is amicable and he is serving his 12 months notice period to ensure a smooth transition. So to me the fall looks overdone and presents a buying opportunity. I took a small stake this morning.

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jimbobjames2002 19th Jan '16 7 of 25

I own some STM (LON:STM) too and agree the fall seem overdone, but in this market anything even slightly negative is getting hammered.

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herbie47 19th Jan '16 8 of 25

Paul, Do the large directors selling at dotDigital (LON:DOTD) not concern you?

Yes have been watching STM (LON:STM) for a buying opportunity, the update does not sound that promising, broadly inline, after Edward Roskill's comments I was expecting a bit more, wide spread also and difficult to trade.

Fairpoint (LON:FRP) update today, at last some figures re whiplash claims about 8% of revenue. Must say the format of the statement could have been better.

Re Tristel (LON:TSTL) very surprised how much that dropped, I can't see why China problems would affect them, did not top up but should have done. 

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AlanJenkins2 19th Jan '16 9 of 25

XLM do have some nice photos of their board and management on their website.At least they're not being shy !

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deucetoace 19th Jan '16 10 of 25

Hi Paul,
If you have time I'd be interested in your views on LSIC who had a TU today. Looks v cheap to me (I hold) so hope I am not missing something.

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Stegrego 19th Jan '16 11 of 25

LSIC seconded. Supposedly forecast eps around 28c so p/e is 10 ish?

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Richard Goodwin 19th Jan '16 12 of 25

In reply to post #118499

Isn't LSIC de-listing and going to the US? I read the interims but didn't see it mentioned though.

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thekingsgambit 19th Jan '16 13 of 25

Re STM (LON:STM) why is the fall overdone? Brokers forecasts for this year were EPS of 4 pence. Last year profit before tax was £1.7 million and a EPS of 1.97 pence. So extrapolate that from £2.7 profit before tax this year and we get about 3.1 EPS this year. That puts it on a rather warm P/E ratio of 17! I remember the podcast with Edward Roskill and he was talking more along the lines of 6 pence EPS so that is quite a bit out. If they hit 6 pence EPS, then it is a bargin. But I can't see why the fall is overdone. I sold out. Feel free to correct if you think I'm mistaken.

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deucetoace 19th Jan '16 14 of 25

In reply to post #118505

A strategic review was announced in September & that was one possible option. It hasn't reported yet so who knows. Mind you if it happens could that trigger a rerating?

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paraic84 19th Jan '16 15 of 25

The other fair point I like to emphasise about Fairpoint (I hold a long position) is that there is a case for considering it as a growth share. It is on a cheap fwd P/E but this isn't a company that is moving sideways (like Laura Ashley or ShoeZone in my opinion), it seems to have found a unique business model in consumer legal services - i.e. actually detailing to consumers what prices are up front!! I therefore think there is good room for growth of the business. This might be partly offset by its currently declining debt management business but even on that side it's only a matter of time now before interest rates go up a bit and put pressure on family incomes.

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Gostevie 19th Jan '16 16 of 25

Tristel (LON:TSTL) is another one that I sold too soon. When will I learn?

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Paul Scott 19th Jan '16 17 of 25

In reply to post #118508

Hi thekingsgambit,

Re. STM (LON:STM) I am working from consensus EPS forecasts shown on Stocko of 3.8p for 2015, and 5.0p for 2016. So if they're only slightly below the 2015 figure, then the valuation looks reasonable to me.

Regards, Paul.

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Carcosa 19th Jan '16 18 of 25

Fairpoint (LON:FRP) seem to be saying, with references to govt statements, that legal representation is still allowed for these 'low cost' claims. I suspect their 'competitive advantages' of which they refer means that they still see this as a profitable part of the business because of their operating efficiencies, implying that other legal firms may struggle in this area. It also will not affect the business for a further 2.5 years.

So overall, I see this subject as a bit of a storm in a tea cup.

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Michael Billingham 19th Jan '16 19 of 25

Re STM (I hold a long position) It's a pity STM were not forthcoming with more detailed financial information in today's RNS. On the face of it, an increase in profit before tax at nearly 60% is a worthy result and deserved some amplification.

Looking back at their interim results to 30 June, I see revenue up 12%, profit before tax up 40% and cash up 29%.

A 17% cut in their share price today just doesn't seem justified.

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Camtab 19th Jan '16 20 of 25

I enjoyed the Edward Roskill interview and STM was the buy I took away A little out of pocket now but as Edward said the earnings accumulate nicely year after year because the business is sticky Over time the eps will make it look real value again I understand your concern re De Veres and the QROPs issue but financial salesmen will sell what they can so as long as there is an underlying demand I would have thought DV are a good broker to be with That said when the value of the investments fall though I believe takings fall as well Funnily enough this is like Record a company i recently bought because they just look cheap to me and I would appreciate any comments on that!! (Yes exclamation marks do work)
Sorry to all re punctuation my Apple Macbook seems to have lost the urge to print full stops and commas Its reaction to recent market moves

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Richard Goodwin 19th Jan '16 21 of 25

In reply to post #118511

If they abandon the UK quote then the share price is likely to fall until it is settled on nasdaq as there will be shareholders who don't want to own shares in a solely US listed entity.

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deucetoace 19th Jan '16 22 of 25

In reply to post #118535

It may be as you suggest. If so I can wait. I don't see it as a significant downside. Indeed it is possible to argue that it would be a buying opportunity where it to fall so is in the longer term a positive.

Perspective is all :)

It's only one possibility of course. Maybe the review will come up with nothing new.

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thekingsgambit 21st Jan '16 23 of 25

Re STM (LON:STM) is the fall now down to the terrible market conditions or the fact that the EPS will probably be around 3 pence? Interestingly they will be taxed this year so the EPS figure could be a bit lower, Sitting on the sidelines for now, but looking to reenter if it goes much lower.

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TangoDoc 21st Jan '16 24 of 25

Interesting to observe that while all my other holdings were crashing by an average of 3.5%, FRP was the only one actually going up. What can we gather from that, either about the market in general or FRP in particular?

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gus 1065 24th Feb '16 25 of 25

Excellent set of half year results just posted by Tristel (LON:TSTL) this morning. Strong earnings and profit metrics across the board, especially in export markets and increase in interim dividend of 95%.

Possibly much of this is already in the price which is well up since Paul's comment in mid Jan but pretty pleasing nevertheless.


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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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