Small Cap Value Report (19 Sep 2016) - WTG, SPRP, MTO, SPL, 7DIG, DPP, ADGO, STY, SPSY

Monday, Sep 19 2016 by

Good morning!

Sorry I didn't get round to reporting on any more companies on Friday, I was too tired. Have decided it's time to focus on health, so spent the weekend charging around on my new bike. It seems to have blown away a few cobwebs!

Mello Beckenham

A lot of regulars read this column, so David Stredder has asked me to mention that there is NO meeting tonight. It has been pushed on to next Monday, 26 Sept.

Fairpoint Webinar

I like webinars, as they save me a trip into London, which isn't really worth it usually just to see one company. Fairpoint management are doing a webinar for investors today at 1:30pm. I've got the date right this time! Here is the registration link

Watchstone (LON:WTG)

Share price: 181p (down 16% today)
No. shares: 46.0m
Market cap: £83.3m

Correction to H1 2016 results - well this is embarrassing for the company. It looks as if they did their sums wrong in the most recent results, with the EPS figures being incorrect. Today's correction only seems to refer to EPS figures, so that suggests someone used the wrong denominator when calculating EPS, but that the numerator was correct. Sloppy. Mind you, this company has a long history of putting out nonsense figures, so I suppose it's par for the course.

Response to announcement by Slater & Gordon Ltd - of more importance is this second RNS today. Slater + Gordon are of course the muppets from Australia who massively overpaid for the core business of Quindell, when it was on its knees. S+G could have got away with paying a fraction of the ridiculous £637m initial cash consideration (plus further contingent payments). It's been described as one of the 5 worst acquisitions of all time.

This disastrous acquisition of Quindell's core business almost pulled down the whole of S+G. Indeed its share price collapsed from a peak of AUD 8 in early 2015, to just AUD 0.4 today - that's a fall of about 95%. S+G is now reliant on bank financing, and could yet go bust, as another article from the Sydney Morning Herald points out.

Conman Rob Terry, who created the tangled web of Quindell, laughably thinks that S+G "got a bargain". Clearly someone in complete denial, as is often the case with…

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Watchstone Group plc offers technology solutions to the insurance, automotive and healthcare industries. Its segments include Hubio, Healthcare (pt Health and InnoCare), and ingenie. Hubio provides integrated solutions to help organizations in the insurance and automotive sectors to build customer engagement and enable usage-based personalization. Healthcare includes ptHealth, a national healthcare company that owns and operates physical rehabilitation clinics across Canada, and InnoCare, a clinic management software platform and call center and customer service operation based in Canada. Its ingenie is an insurance broker. Using telematics technology, ingenie gives its community feedback, advice and discounts to help young drivers improve their driving skills. more »

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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 »

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Mitie Group plc is a United Kingdom-based provider of facilities management services. Its segments include Engineering Services, Security, Cleaning and Environmental services, Public Services, Catering, and Professional Services and Connected Workspace and Care and Custody. Through its operating segments, the Company provides a range of services and products for landscaping, gritting, security personnel, fire and security systems, remote monitoring, workplace and outdoor catering, building maintenance, and heating and ventilation. The Company also provides other public services that include property management, roofing and refurbishment services, and custody support services. The Company operates through its subsidiaries and provides its services through customized service contracts, such as single, bundled, integrated and connected. The Professional Services and Connected Workspace segment provides consultancy services related to the joined-up proposition of services among others. more »

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

33 Comments on this Article show/hide all

JohnEustace 19th Sep '16 14 of 33

In reply to post #150944

They are already a Thing on the Internet - Nest do one. Not that I'll be rushing out to buy one given this review:

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FREng 19th Sep '16 15 of 33

In reply to post #150962

Yes, a really useful review. "The upsides of all this complexity are incredible features, such as the ability to know if your home in Minnesota is suffering from a carbon monoxide leak even while you're sitting on the beach in Florida.". Plus they are internet connected and contain a microphone "for self test".

1984 was meant to be a warning, not a blueprint.

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actsofvolition 19th Sep '16 16 of 33

In reply to post #150923

The majority also appear to refer to conveyancing, so assuming you believe the business model is sound, an underperforming division can/should be rectified into something more positive going forward.

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Sniggolb 19th Sep '16 17 of 33

It was gross that Rob Terry was allowed back into a listed company at all; his dubious past was well known so he was avoided by experienced investors like Jim Slater and Hargreave Hale. Those responsible for the losses are the professionals, particularly the auditors who let him through their nets because of the fees he generated. If they reckon will be generated then they allow more or less anyone with a pulse onto their client lists. Also culpable were the Investors Chronicle and Shares magazine who both recommended Quindell as a buy.

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andrea34l 19th Sep '16 18 of 33

In reply to post #150917

FIF results in themselves look good... but is the following a concern under "Principal Risks and Uncertainties" though?

Labour costs, prices and supply - The Group, along with other food businesses, will face the risk of inflationary pressures through both commodities cost increases, further driven by currency weakness post Brexit and the National Living Wage.

Economic Environment - The market place remains challenging and there is an uncertain macro-economic outlook following the vote to leave the EU....

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herbie47 19th Sep '16 19 of 33

In reply to post #150971

I think some magazines do a lot of harm, tipping shares and supporting such companies as Quindell and Globo. Unfortunately a lot of new investors get their fingers burnt. Yes directors such as Terry should be banned for life.

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andrea34l 19th Sep '16 20 of 33

There is an update from CCT for anyone still holding... excerpts below (price down over 3%):

The Directors are pleased to report that solid progress continues to be made and the Board expects to deliver results for the year ended 31 August 2016 that will meet market expectations.

The Group's portfolio continues to be derived from own-developed, in-house ranges, including those produced 'under licence' and others sourced through exclusive distribution agreements. All our major product ranges have performed well.....

A significant proportion of the Company's purchases are made in U$ dollars and, therefore, the increasing strength of the US$ against £Sterling continues to put pressure on Group profitability. Nevertheless, the Board remains of the view that it can continue to mitigate the resulting increased costs. This is being achieved through the expansion of our international business, which generates revenue and profit in US$'s, and by our continuing active programme of monitoring all costs and rationalising operations where possible through increased efficiencies.

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PJ0077 19th Sep '16 21 of 33


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herbie47 19th Sep '16 22 of 33

In reply to post #150974

Yes I think you are correct, there are concerns going forward as you have mentioned, but most food producers will have similar problems and market will get more challenging I'm sure, to me Finsbury Food (LON:FIF) seem to be one of the better managed companies in this sector. But I would not want to have too much exposure. One thing I don't like about FIF is the Long Term Incentive Plan.

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Brackendale 19th Sep '16 23 of 33

In reply to post #150980

Thanks Andrea. CCT is a strange one, it was savaged by the referendum result despite not being expensive at the time, rallied a bit and now is getting back towards that low, on what seems to be a quite mundane announcement. The market seems to be seeing a weakness which I don't really understand (just for a change..!). The currency situation adds difficultly but does it merit those sorts of declines for what appears to be a quality business? I wonder if anyone else has views/is puzzled on this one?

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simoan 19th Sep '16 24 of 33

In reply to post #150980

There is an update from CCT for anyone still holding... excerpts below (price down over 3%):

Yes, I read this too, but that was last Wednesday (14th Sept). So not new news and nothing to do with any price change today.

All the best, Si 

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smythw 19th Sep '16 25 of 33

In reply to post #150911

As a fairpoint shareholder, I actually decided to try the product recently when I had a property to sell, so I used Simpson Millar.

The transaction is currently going through so I'm going to reserve judgement for a few more weeks until we hopefully complete, but so far:


* Price - they were at least 20-30% cheaper than other quotes I got, and had a nice offer of a refund should the sale not complete.
* I did need to call their office for clarification at one point, and the person I spoke to was very nice and helpful.

* A simple google search didn't seem to locate them. I only found them because I knew who I was looking for.
* The communication has been a little bit poor, sending me the wrong forms, asking me for the same information multiple times etc.
* From my interactions with them, there seems an awful lot of scope for automating communication and process.

Overall I'm happy to hold. I've certainly not seen anything that gives me a red flag, in terms of using their service.

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purpleski 19th Sep '16 26 of 33

In reply to post #150959

Yes I agree. I have put £SPRG on my barge pole list just now. The note I put was "dont know why but just don't like". Can't put my finger on it but not for me. Wished I had realised this about Crawshaw (LON:CRAW) before I bought that one!

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jonesj 19th Sep '16 27 of 33

In reply to post #150899

Looking at the reviews for random selections of other solicitors, the site seems to have slightly more positive reviews than negative, although with some polarisation of reviews.
So I would see the reviews as generally indicative of service quality, which is bad news.

From a couple of property transactions, I know the quality of the solicitor is critical. If you get a slow one, there is simply no way to get them to move at a reasonable pace. Having learnt the lesson, next time I asked around until I found one who was recommended by a friend. I was delighted with the service.

The more pressing issue is to make sure I do more due diligence checking on line reviews for such stocks.

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JustCurious 20th Sep '16 28 of 33

I would be wary of investing in Mitie, I remember it was flagged as a top short at the 2015 UK Investor Show by Matt Earl. He has some analysis on his website, showing how the situation is similar to the (delisted) Connaught.

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LongbeardRanger 20th Sep '16 29 of 33

In reply to post #151016


Thanks - an interesting read. I actually held Mitie (wish I'd read Matt Earl's analysis earlier....!), and sold out yesterday. My reasoning being that, firstly, management have clearly messed up by entering the homecare market, and secondly, that the core business looks more vulnerable than I thought.

Obviously, having sold out I won't be rushing back in. That's not to say there isn't value at today's price - there might be - but equally there are risks and Mitie also has financial risk, which makes things more complicated. I'm increasingly wondering how investable contracting businesses are more generally.

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FREng 20th Sep '16 30 of 33

I have just bought some WH Ireland (LON:WHI), as Equity Development say that the 20% bought by Kuwait yesterday was at 140p. I can't believe they are buying a micro cap share to hold and trade.

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cig 22nd Sep '16 31 of 33

In reply to post #151046

"Bought by Kuwait" sounds like it's a government sovereign fund. From their website, it seems KEH is a single Kuwaiti family's semi-private portfolio, so the investment may not be out of scale.

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FREng 22nd Sep '16 32 of 33

In reply to post #151385

True. I wonder what else they hold in their portfolio.

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HollandSmith 17th Oct '17 33 of 33

Would be interested to know other peoples notes on Watchstone (LON:WTG) a year after this was written. I have very much warmed to it over the last month and decided to buy in today.

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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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