Small Cap Value Report (2 Jul 2014) - BLNX, JSG, MTC, TPT

Wednesday, Jul 02 2014 by

Good morning!

Blinkx (LON:BLNX)

This is on the cusp of what I define as a small cap (upper limit in a grey area between £200-300m - other people use varying figures), but I suspect it might be coming down more firmly into my territory. The market cap at 66p is around £262m.

I've never quite understood their business model, nor how they managed to generate such strong growth in turnover & profit. It seems to revolve around online videos, and the selling of associated advertising.

You may recall that this is the company that was the subject of a critical blog from a Harvard Associate Professor, Ben Edelman. He also presented at the UK Investor Show in April 2014 in London. I freely admit to not having a clue about the technicalities of what he said, but it sounded credible, and he is credible - you don't get to be a Harvard Associate Professor if you're daft. If his allegations were untrue, then he wouldn't have risked his career by making them, is my reading of the situation.

That's why I have avoided buying shares in Blinkx - on the no smoke without fire principle, even though as noted here on 6 May 2014, they appear reasonably good value - with strong profits that look real (i.e. not created by accounting tricks), and piles of cash on the Balance Sheet.

Also I am suspicious of situations where the share price does not rebound when it should, if all was well. That again makes you feel that there must be some substance to the bearish case against a company.


Anyway, this morning the situation seems to have got a lot worse for Blinkx shareholders, as a trading update is issued which is clearly a profit warning. The company refers to H1 trading to date, but seeing as they have a 31 Mar year end, then this looks like a Q1 update to me (Apr-Jun). The key figures are not good;

...As a consequence, while revenues grew c. 5% year-on-year, EBITDA will be c. $5M below management expectations for the Period, based on the Company's internal models.

"the period" presumably is H1 rather than Q1, i.e. expectations for H1, based on trading in Q1, that's how I read it anyway.

Interestingly the reasons given for the profit shortfall specifically mention the attack by Edelman;

Historically, blinkx's business…

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RhythmOne plc, formerly blinkx plc, is an online advertising company that connects digital audiences with brands through content across devices. The Company is engaged in offering online advertising through a range of formats and pricing options that include video, mobile, social, display, native, text and media covering brand, and performance advertising campaigns, sold both directly and programmatically. The Company offers RhythmMax, which is an integrated programmatic trading platform. The RhythmMax platform offers a common point of access to RhythmOne inventory across owned, controlled and extended supply sources. The RhythmMax platform includes specialized brand safety technology, RhythmGuard, which combines third-party verification methodologies with filtering technology to ensure quality inventory. The Company works with advertisers, publishers and content providers to offer integrated, cross-screen advertising solutions. more »

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Johnson Service Group PLC is a United Kingdom-based company that provides textile rental related services. The Company is the supplier of workwear and protective wear. The Company operates through Textile Rental segment. The Textile Rental segment is engaged in the supplying and laundering of workwear garments and protective wear; linen services for the hotel, restaurant and catering markets, and high volume hotel linen services. The Textile Rental segment principally consists of workwear garments, cabinet towels, linen and dust mats, are initially treated as inventories. It operates Textile Rental business under the brands, including Apparelmaster, Stalbridge, Bourne and London Linen. Its market workwear rental business, providing a clothing portfolio to the workplace, supported by sourcing supply and aftercare service solutions. Its Johnsons Stalbridge Linen Services offers the laundry service to the hospitality sectors. more »

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Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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16 Comments on this Article show/hide all

Fangorn 2nd Jul '14 1 of 16


Interesting comments PP. Even more intriguing you'll be surprised to hear that Winnifrith, the arch proponent of Blinx having a failed business model recently went positive and rated the company as a Buy given how far it had fallen.

Now call me old fashioned but if a Business model is a busted flush , as he, and his sidekick Edelman claimed, then surely it wouldn't be a BUY at any price? So why the sudden turnaround in his opinion -other than him engaging in his usual charlatan behaviour..

Took advantage of the dip myself and added a trading tranche.

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MrContrarian 2nd Jul '14 2 of 16

In reply to post #84464

Winnifrith still bearish on Blinkx, it was one of his writers who said the charts say buy. LOL.

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Fangorn 2nd Jul '14 3 of 16

Fair enough Contrarian. Same outfit though - does the left hand not know what the right hand is doing then?

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Paul Scott 2nd Jul '14 4 of 16

In reply to post #84466


The site that you refer to often has opposing opinions on particular shares from different writers - which is very healthy in my view, that's how it should be.

Also I think to describe Edelman as anyone's sidekick is ridiculous!

Please can we keep the discussion about shares, and avoid getting into disparaging remarks about personalities.

Many thanks, Paul.

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Joeydisco 2nd Jul '14 5 of 16

Paul, do you have any plans to write a book on investing and financial analysis?


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FREng 2nd Jul '14 6 of 16

Paul, You looked at Concurrent Technologies (LON:CNC) on 27 Dec 2013. I noticed that yesterday they RNSed that BIS would be announcing a relaxation in export controls in 2 weeks' time. As I recall, CNC have blamed export controls for recent sales difficulties.

I remember reading that CNC is a long term holding of John Lee's.

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Ramridge 2nd Jul '14 7 of 16

Hi Paul. Re Blinkx and Ben Edelman.
I have an immediate urge to check a person's credential these days ever since i recruited a few years back a candidate who claimed to be a fellow of the institute of actuaries only to find out a month later that his qualifications were bogus. Ben Edelman is a genuine article and has a very impressive background. In the past he has taken on Google, Facebook and other major corporations in the US and exposed their dubious practices.
Here is a link to the relevant Harvard's website.

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Delpher 2nd Jul '14 8 of 16

In essence BE's criticism was that BLNX was using adware which is illegal in the US and led to the collapse of Zango and the purchase of part of its assets with some staff by BLNX. Adware is a programme that is introduced into a PC by a user downloading an apparently helpful programme which carries additional programmes leading to pop up ads which if acted upon can result in an merchant paying for the introduction when it would have got the business at no cost. Zango was fined for doing this leading to it being put into administration. BLNX has denied that it is breaking US law. Guilty or not BLNX would appear to be having difficulty in contracting new business. There has been no report of a pending prosecution or enquiry. If the principal reason for the PW is as a result of BE's blog then Blinkx has to show that it has done all it can to prevent abuse together with evidence of the measures that it has taken to avoid adware being used either directly or through third parties similar to those used by Google. Surprisingly in its previous report regarding the blog BLNX issued a denial and then said it was getting on with business, clearly that wasn't enough. BE was criticised for producing a report commission by potential shorters. Incidentally the recent statement only refers to problems with PCs and not mobiles which is a huge growth area.

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Ian_of_London 2nd Jul '14 9 of 16

Wasn't sure to put this comment here or in your previous commentary on Networkers International (LON:NWKI) but in light of the c.23% gain over the last few months and a jump up this morning, I wonder if anyone had spotted any news on this. Do you still hold?

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Fangorn 2nd Jul '14 10 of 16

"Please can we keep the discussion about shares, and avoid getting into disparaging remarks about personalities."

You're quite right Paul, wouldn't want to be disparaging of "The Sheriff of Aim" as he narcissistically calls himself.

I've not seen anything either to evidence it's not a real business.It's throwing off cash. Edelman accuses the company of engaging in illegal activities - we all know how litigious the USA is. if Blinx were engaged in such surely they'd be in the process of being dragged across the burning coals?

It's without doubt that all the negative publicity, Edelman's blog(which was edited daily to retrospectively erase any errors) and the public salivating of prominent shorters has impacted on the business.I'd have been surprised if it hadn't - Technology is a fickle business to be in and things change so rapidly.

Offset against this is the fact that this is the company's quietist quarter is it not?

With the AGM only 10 days away or so it sure will be an interesting event.

The fall looks overly harsh and is, I'd wager, the result of it being another one of the PI favourites - many no doubt with their Spread/T+20/ CFD positions getting caught out in the precipitous drop this morning.

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bsharman 2nd Jul '14 11 of 16

Hi. I would much rather own Norcros (LON:NXR) than Topps Tiles (LON:TPT)

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JMLDutch 2nd Jul '14 12 of 16

I think BLNX might have lost clients or failed to attract future clients. One of BE's allegations was that adverts were not actually viewed by persons (but were billed to BLNX clients). If I were a (prospective) client of BLNX I would want to know more about that before paying BLNX any £££.

Also note "The shortfall was exaggerated toward the end of the quarter". This suggests current business is worse than the average of the last quarter.

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MrContrarian 2nd Jul '14 13 of 16

Blinkx: As I understand it, adware itself isn't illegal in the US, it's getting people to install it by subterfuge. Edelman says that Blinkx affiliates and sub-affiliates do use subterfuge.
See my blog on Edelman's talk

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JakNife 2nd Jul '14 14 of 16

Some interesting comments from Cantor's posted on ADVFN regarding the credibility (lack of) to the MTC bid:

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beatingmrindex 3rd Jul '14 15 of 16

Paul, I was quite keen to get on the JSG train, but the directors not holding many shares and their frequent selling scared me off...

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jdwaters 10th Jul '14 16 of 16


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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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