Small Cap Value Report (2 Mar 2016) - SEE, EMR, DRV

Wednesday, Mar 02 2016 by

Good morning!

I was burning the midnight oil last night, updating yesterday's report, so for readers who only saw the original report, there are now new sections added on;

Johnson Service (LON:JSG) 



Hydro International (LON:HYD) 

A couple of those look quite interesting actually, so yesterday's full report is worth another look - here is the link.

There's not much news today, so my plan is to write today's report, then also write a catch up report for Monday, to bring us up to date. I don't like gaps in the sequence, but sometimes it's unavoidable if I'm under the weather.

I liked the results from Somero Enterprises Inc (LON:SOM) yesterday, which seemed remarkably strong in its main market, the USA, considering that there have been worries of the USA going into recession.

So it was interesting to see that economic data released last night seemed to allay those fears, with both manufacturing and construction data from the US coming in above expectations. I think this is what's driving the current rally in US stocks - i.e. that the economic outlook is now probably better than investors feared in January. It's important to keep an eye on stuff like this, as it provides the context for our investing.

Seeing Machines (LON:SEE)

Share price: 4.25p (down 6.0% today)
No. shares: 943.9m
Market cap: £40.1m

CFO Resignation - today's announcement says that the CFO has tendered his resignation, to take up a non-competing CEO role. CFOs are usually career-minded, and hence them moving on to pastures new for a promotion, is not necessarily a red flag. However, I am wary when CFOs at jam tomorrow companies move on - as it sends me a signal that they don't see the future as very exciting in their existing job (otherwise they would have stayed).

SEE remains significantly loss-making, and by my calculations, it could well need another cash call in the not-too-distant future. Perhaps the CFO didn't fancy doing the rounds, and talking to the same investors again, to explain why the original business plan has not succeeded as yet?

The other big problem with SEE is that…

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Seeing Machines Limited is engaged in developing, selling and licensing products, services and technology to detect and manage driver fatigue and distraction, including continued market development to secure sustainable channels to market for the product. The Company's segments include automotive, off-road, fleet, aviation, scientific advance and other. The Company is also engaged in developing driver-monitoring technology to incorporate into passenger cars; entering commercial agreements with partners for the development, manufacturing and sale of products into target markets, and research and development of the Company's processing technologies to support the development and refinement of the Company's products. It also offers driver monitoring system (DMS) technology. more »

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Empresaria Group plc is a United Kingdom-based international specialist staffing company. The Company's principal activity is the provision of staffing and recruitment services. The Company is organized across three regions: UK, Continental Europe and Rest of the World and operates across seven key sectors. The Company targets a balanced and diversified spread of operations across its regions and sectors. The Company also targets professional and specialist job levels where its brands can offer value added services to clients. The Company has three main service lines, temporary recruitment, permanent recruitment and offshore recruitment services. The Company’s offshore recruitment services represents a range of different recruitment services and provides training services in South East Asia. The Company's brands include Alternattiva, Ball and Hoolahan, Become, FastTrack and Greycoat. It has operations in 21 countries. more »

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Driver Group Plc (Driver) is a United Kingdom-based company, which provides consultancy services to the engineering and construction industries. The Company conducts its operations through three operating divisions: Europe & Americas (EuAm); APAC, Middle East & Africa (AMEA), and Initiate. The EuAm and AMEA divisions provide various services, such as quantity surveying, litigation support, contract administration, and commercial advice/management. The Initiate division offers development, project and contracting management services to the infrastructure market in the United Kingdom. DIALES is its witness support service provider. Driver Project Management provides the strategic and leadership disciplines necessary to develop and deliver a project. Driver Project Services provides customer-focused project controls solutions across a project lifecycle. Driver Trett provides multi-disciplinary consultancy services to support delivery of its clients' projects. more »

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

12 Comments on this Article show/hide all

imranawan 2nd Mar '16 1 of 12

Hi Paul

Thanks for the write-up of Empresaria (LON:EMR) and as a holder I was pleased with the results this am.

I just wanted to check my understanding of the net debt situation. In note 9 they had total financial liabilities of £15m and with net cash of £7.7m this brings down net debt to £7.3m. I assume the year end cash position has probably been window dressed given the balance sheet is a snapshot in time, and because the finance costs on the P&L is at the same level. Is this your understanding as well?

Also worth noting is that the tax rate was 36% in 2015 which is high, but given they do business across the globe this is the blended rate I assume.

Best wishes,

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Damian Cannon 2nd Mar '16 2 of 12

Hi Paul,

I think that the debt figure with Empresaria (LON:EMR) is clean now as they no longer have a non-recourse invoice discounting facility in place (which was their previous, off-balance sheet arrangement IIRC).

It's interesting to note that the market cap of Empresaria (LON:EMR) and Seeing Machines (LON:SEE) is near-enough equal at this moment in time and I know which one I'd prefer to hold (and in fact do hold). NB it's not the one that smells of jam in the morning.


Blog: Ambling Randomly
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apad 2nd Mar '16 3 of 12

You've just gotta do CLIN. Bizarre interims and more versions of EBITDA than you can shake a stick at.

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gaustin 2nd Mar '16 4 of 12


I see that Waterman announced interim results on Monday, albeit that they were not surprising given a previous trading update announcement, but did not see any update in your recent postings - maybe I just missed it.

I think it looks a good company, but the market seems slow to upgrade it's valuation.

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bazzer1000 2nd Mar '16 5 of 12

Hi Paul
There's much talk of a 'debt to debtor's' ratio in the results. Forgive me if everyone else is familiar with this. Could you (or anyone else) explain what this is. It's not a debt ratio I'm familiar with.



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Mark Midmore 2nd Mar '16 6 of 12

Paul, I would be interested in your view of WTM. Good report but market response was muted. Seems excellent value although a cyclical business.

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Paul Scott 2nd Mar '16 7 of 12

In reply to post #122891

Hi apad,

Clinigen (LON:CLIN) is too big for me, at £728m mkt cap.

Also I tend to avoid medical/pharma type companies whenever possible, as not a sector I'm particularly comfortable analysing.

Regards, Paul.

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danyou 2nd Mar '16 8 of 12

Will you have a chance to review BPI from Monday. You showed some interest in this company in December...

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Paul Scott 3rd Mar '16 9 of 12

In reply to post #122921

Hi Danyou,

I've just finished writing Monday's SCVR, here it is.

Unfortunately, I didn't get round to writing about BPI. Although I did have a quick skim over the numbers, and I think it looks good - definitely worthy of further research.

Although make sure to check out the pension deficit, and what recovery payments are necessary, as in some cases this is becoming a bigger issue.

If you like it, why not post a piece here about the company? As much or as little detail as you like!

Regards, Paul.

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Paul Scott 3rd Mar '16 10 of 12

In reply to post #122912


Your wish is my command! ;-)

I've just published Monday's belated report, which includes Waterman (LON:WTM) and DX (Group) (LON:DX.) here:

Regards, Paul.

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Paul Scott 3rd Mar '16 11 of 12

In reply to post #122909

Hi Baz,

Well I would understand "debt to debtors" as being a ratio of what part of the debtor book (i.e. money owed TO a company by its customers) that is funded by bank debt (i.e. money that the company owes to its bank).

Providing customers are mainly of good financial standing, then a bank should be comfortable lending up to say half the debtor book.

There are various ways of doing this - e.g. invoice discounting, etc, but the overall principle is the same - it's bridging finance from your bank, to cover the gap between you invoicing a client, and the client paying the invoice, which is normally about 60 days.

I haven't seen the context of your question, but assume that you're probably talking about EMR, which like most staffing companies, relies on some bank funding to part-finance its debtor (or receivables, same thing) book.

Regards, Paul.

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bazzer1000 3rd Mar '16 12 of 12

In reply to post #122954

Brilliant, thanks Paul. Yes I should have said in my question I was refering to EMR. Thank you for you explanation, it's so useful to have someone to explain these things, especially if you don't have a network of other PI's to discuss these things.

Great blog by the way. Keep up the good work.


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 Are LON:SEE's fundamentals sound as an investment? Find out More »

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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