Small Cap Value Report (2 Jul) - SID, PDX, THT, TPT, MSLH, CSG

Tuesday, Jul 02 2013 by

Good morning. The big news this morning in the small caps world is the suspension of trading in Silverdell (LON:SID) shares, which is said to be pending an announcement. One of the two announcements this morning says that the suspension is "pending clarification of the Group's financial position".

I don't want to pre-judge it, but a pending clarification statement is usually very bad news. I've put a call into the company, so hopefully might get some additional colour on the nature of the suspension of Silverdell shares. I don't hold myself, although a lot of my friends do. It's a company we've met several times, and seem shareholder friendly, although I felt unease about the potential need for a fund-raising to finance growth, and slightly ambiguous comments from the CEO, so sold my shares a few weeks ago. If something doesn't feel right, then it's always best to play it safe, sell up and ponder why it doesn't feel right.

Let's hope the situation is clarified soon.



Pursuit Dynamics (LON:PDX) shares are also suspended, although that's certainly less of a surprise, as it's been pretty obvious for several years that that one has run out of chances & nobody believed all the hype any more.



As mentioned by StrollingMolby in the comments below, Thorntons (LON:THT) has issued a positive Q4 trading statement today. Pre-tax profit will be ahead of market expectations for the year ended 29 Jun 2013, and they helpfully asterisk this by saying that market expectations are for £4.6m profit.

Thorntons shares have risen 8% to 103p on this good news, although as I've been saying for a while now, however I look at the numbers, it looks expensive, given the considerable debt, pension deficit, and leasehold liabilities. I'm not prepared to pay a racy multiple for a business with a very weak balance sheet, and arguably rejuvenating a tired format. Although hats off to management for diversifying away from just retail, a strategy that has worked so far, and has avoided them becoming yet another retail failure.




Press reports are saying that the Government has agreed to allow AIM-Listed shares into ISA, which is expected to be from this autumn,…

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17 Comments on this Article show/hide all

StrollingMolby 2nd Jul '13 1 of 17

Fantastic profits upgrade from Thorntons (LON:THT) this morning following the end of Q4. FY results on Monday 15 July will be worth getting up early for! I still need to crunch the numbers and check the existing market expectations, but could see in excess of 6p earnings, which would be >50% increase.

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SevenPillars 2nd Jul '13 2 of 17

Silverdell is a company I've been tracking for a while, today's announcement does look unusual and if it is negative does put the company in a bad light considering what they have been saying recently about no need for additional funding. In fact here's what they said in their trading statement back in April.

"A strong order book gives the Board confidence for the future and in particular its expectations for the financial year ending 30 September 2013, which remain unchanged. The Group has a strong pipeline of work, and sees compelling opportunities for growth in both domestic and overseas markets where it can build on the foundations of strong customer relationships."

I think the fact that they have denied rumour of needing further funding does raise a big question of trust if suddenly they are in trouble. Of course, no one knows yet, but a suspension doesn't look good.

It also raises a question of having to read between the lines of company reports, as Silverdell presented a picture of great opportunity ahead. As is often the case with smaller companies, a situation that can look rosy on the service can change big time with a sudden unexpected announcement and by then it can be too late to jump ship.

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bobdouglas 2nd Jul '13 3 of 17

Fully endorse your comments regarding AIM-Listed shares being allowed to be put in an ISA. As you say, good for smaller companies and small cap investors alike.

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Monty9 2nd Jul '13 4 of 17

In reply to post #74774

Silverdell has lost a third of its market cap in the last 4 months - with the benefit of hindsight this, against the positive messages from management, may suggest somebody had more than an inkling all was not well. I always worry that AIM stocks may be more susceptible to insider knowledge that their larger cousins, particularly on the bear side.

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SevenPillars 2nd Jul '13 5 of 17

In reply to post #74776

You could be right, but then the problem with rumour, and insider knowledge that flies in the face of what the investor is being officially presented with, leaves us in a world of no trust. AIM is less well regulated and probably one of the reasons why it seems to attract a fair number of Dodgy types, spivs and Del Boy characters who can get away with things that wouldn't happen on main.

Silverdell has been trending down for some time which might suggest trouble, but let's be honest shares on AIM and in the smaller company sector in general will often drift down for what looks like no apparent reason at the time. The bad companies, those losing money or in trouble can often be seen a mile off, but sometimes companies which at face value as ok can also drift. Most of the time they will often drift back up just as quick.

When the company does make it's announcement, especially if it is looking for more money, questions should be raised as to why it fed the market with statements that everything was ok and current growth was sustainable without the need for further funding.

This is what Silverdel's CEO Sean Nutley said in April.

‘We are targeting 15% year-on-year revenue growth over the next three years. The market only has us at 8%,’ he states. ‘At the 8% forecast growth rate, we can support that growth without going out for further funding from a bank or elsewhere. If we want to go to 15% growth, we will need additional financial support.’

Then in June.

Today Nutley tells me that Silverdell no longer needs additional working capital to hit the 15% target. ‘We’ve been able to get the right mix of business and right payment profile to meet our strategic targets,’ he states. Additional money is only needed if the group finds a way to ‘supercharge’ growth beyond the 15% rate, adds the CEO.

So, have they suspended because they want more funding to "supercharge" at 15%+?

Who knows, but something doesn't look right given the rosy picture of just a month ago.

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marben100 2nd Jul '13 6 of 17

In reply to post #74778

AIM is less well regulated and probably one of the reasons why it seems to attract a fair number of Dodgy types, spivs and Del Boy characters who can get away with things that wouldn't happen on main.

...and the main reason for this is that it is self-regulated, with NOMADs (many of whom are inherently conflicted) supposedly performing most of the regulatory functions. ShareSoc is doing what we can to try to get this changed -but we need more support!

Improving enforcement on AIM in particular should do nothing to reduce its attractiveness to honest companies seeking to raise equity capital. On the contrary, honest companies should welcome the improvement in trust that would result from a better regulated market.


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SevenPillars 2nd Jul '13 7 of 17

Found this elsewhere. It is suggested that the Silverdell suspension may have something to do with the winding up petition of Kitson Environmental Europe Ltd. Plot thickens, as it always does with speculation!

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SmallBear 2nd Jul '13 8 of 17

Yes it is good news about AIM shares in ISAs but what is the point of the index going forward? Surely the IHT benefits will need to go? It's crazy that there are companies of £3bn martket cap on there with, as you say, light touch regulation. Surely a market cap limit or some kind of test to prove necessity is needed to keep this a market focused on providing growth capital to small businesses.?

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kenobi 2nd Jul '13 9 of 17

Hi Paul,
just a house keeping point, I followed the link from the email today, the text link "read more...." doesn't work, it's a relative link, so doesn't have on the front, and thus, it doesn't work, the orange "continue reading in your browser" works fine, I can forward you the email if this isn't clear,

cheers K

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deucetoace 2nd Jul '13 10 of 17

Regarding Sweett if anyone wants to look further be careful to check how much profits are related to selling PFI projects that are on their books. By their nature such profits will be one-off but from what I can see they are not shown as exceptionals in the accounts.

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Cisk 2nd Jul '13 11 of 17

The Silverdell situation completely sucks.

Whilst we don't yet know what actually happened; a charitable view is that it looks like there was a fundamental misunderstanding of what it takes to run a plc, and what should be disclosed to the market and when; a less charitable view might think that the directors be hung out to dry - fined, barred from directorships, imprisoned etc etc.

I've mentally written off the small part of my portfolio that Silverdell presented. However, it did make me think in general about the pitfalls of investing in tiny market cap AIM listed companies, and led me to take some profits on them.

I'm probably one of the few here that is somewhat lukewarm about AIM stocks being allowed in an ISA. I view losing money in an ISA as far worse than losing it in a trading account, given that there is a ceiling what you can put in each year. Should such risky investments be allowed there?

For me, this should only happen if the whole rules around AIM are tightened dramatically. Or don't allow AIM stocks in an ISA and force larger companies to leave AIM once they reach a certain size / risk profile.

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woakesd 2nd Jul '13 12 of 17

In reply to post #74791

There is nothing to stop you continuing trading outside an ISA if you don't want the risk of losing your ISA allowance. Plenty of people are dabbling with smaller sums and dont manage to make the full ISA contribution each year. I'm really pleased to be able to have all my holdings within an ISA so if one of them does multibag eventually I will be able to avoid tax.

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marben100 2nd Jul '13 13 of 17

In reply to post #74791

Hi Cisk,

I'm probably one of the few here that is somewhat lukewarm about AIM stocks being allowed in an ISA.

Whilst we're confident at ShareSoc that most of our members will welcome this change, we also share your concerns and have expressed them to government. Details here:



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Beginner 2nd Jul '13 14 of 17

Regarding Sweett (LON:CSG) I would look at two other things as well as the PFI sales. First there is some question of an employee being investigated regarding corrupt practices. They have issued an RNS about this. Secondly much of the debt owed to them is from the Far East, and it seems from experience this might be hard to gather. Having said that, I used to hold these and spoke to one of their employees in the local office here. He seemed very positive about the future and said he would buy more shares in the firm if he had spare cash. I did sell out a while back though.

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Cisk 2nd Jul '13 15 of 17

In reply to post #74792

Hi woakesd

Don't get me wrong, I would rather have the choice of putting AIM stocks in an ISA. Really what I would like to see is tightening up of rules / regulations around AIM - to reduce the number of con merchants / improve the quality of companies on there.

Silverdell being a case in point - if it wasn't fraud then it was extreme incompetence through directors who have no business running a public company.

The mantra in my ISA is to preserve capital and bank the dividends - but that's just what works for me.

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Edward John Canham 2nd Jul '13 16 of 17

This is the first time that I have read this column. I shall be a regular from now on.

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intuitive6191 3rd Jul '13 17 of 17

I to am somewhat concerned about AIM stocks in ISAs.

Having a long memory I can remember prior to 2000 when various dubious small AIM companies were ramped on bulletin boards and bought by the unsuspecting public who did not realise the unregulated nature of AIM. I personally doubt that much has changed and that this will simply encourage more unwary investors to invest in AIM stocks when then clearly shouldn't

I think that this thread highlights the complete uncertainty of AIM. Paul Scott is very diligent in both his financial analysis and his conversations with directors. Even so we have a situation where an AIM company which was well discussed by knowledgeable people has unexpectedly disappointed in very unsatisfactory circumstances. What chance would the average ISA holder have in trying to analyse such a situation?

In my view if AIM stocks are being brought into mainstream investing then the AIM market needs a substantial review and the quality of the companies improved.

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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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