Small Cap Value Report (2 Nov 2018) - SYS1, FORT, FOUR, ETFs

Friday, Nov 02 2018 by

Morning all,

A very quiet day in RNS-land today. Which is helpful seeing as I've been occupied with a wide range of administrative chores. Being self-employed can be very complicated, as I'm sure some of you will appreciate!

Anyway, that's my excuses out of the way.

Today we have interim results from System1 Group, a company that is no longer in my investible universe but which I'm happy to keep half an eye on.

I can't see anything else of interest so I suppose this is the bit where I take requests and ask if there is anything from earlier in the week that I missed?



System1 (LON:SYS1)

  • Share price: 195p (+8%)
  • No. of shares: 13 million
  • Market cap: £25 million

Interim Results

Let's see how Brainju... I mean, System 1, has been doing recently:

This table says it all:


The key points are as follows:

  • revenues and gross profits down, but...
  • underlying overheads also down significantly, with average headcount down by 19%, so we get a much improved underlying PBT result from consulting activities (£1.92 million vs. £1.1 million).
  • System1 breaks out the £1.09 million spend on developing its new Ad Ratings product, so that we can treat it separately. That's fair enough.
  • The result this period also benefits from the lack of any share-based payments. Good.

So what are the most important numbers in this table? I would say that the £1.9 million in underlying PBT from Consulting is the most important one.

We do have to bear in mind that this figure is before share-based payments, which are likely to feature again in Systems1's future.

It's still a decent result and makes the shares look modestly priced with a £25million-odd market cap.

AdRatings: £1.59 million in total has been spent developing this new business line. Of that amount £1.09 mllion was expensed (i.e. included on the income statement) while the rest was capitalised (i.e. recorded as an asset on the balance sheet).

Cash: System1 has historically had a very strong balance sheet and cash pile. With the increased investment, cash reduces to £3.55 million. That's still plenty for a company of this size.

Dividend: unchanged for now, but the final dividend may be reduced.

CEO comment: excited about the new Ad Ratings service, and thinks the existing business "will continue to stabilise and in…

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All my own views. I am not regulated by the FSA. No advice.

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System1 Group PLC, formerly BrainJuicer Group PLC, is a United Kingdom-based company, which is focused on marketing and brand consultancy, with proprietary market research and advertising solutions grounded in the principles of behavioural science. The Company’s services include System1 Agency and System1 Research. System1 Agency is advertising agency, that creates advertising proven to translate emotion into profitable brand growth. System1 Research produces the FeelMore50, an annual ranking of the world’s 50 TV and digital ads. The Company offers its client create 5-Star, fame-building communications. The Company operates in the United Kingdom, the United States, Continental Europe, Brazil, China and Singapore. more »

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Forterra plc is a producer of manufactured masonry products. The Company is also a manufacturer of building products for the United Kingdom construction industry. The Company's segments include Bricks, Blocks and Bespoke Products. The Company's product range consists of clay bricks, Thermalite blocks, aggregate blocks, Red Bank chimney, roofing and flue systems, precast concrete and flooring products, and Formpave permeable block paving. It is a manufacturer of bricks in Great Britain and a manufacturer of Fletton brick, which is sold under the London Brick brand. It is a manufacturer of aircrete blocks in Great Britain sold under its Thermalite brand. It also manufactures aggregate blocks. Its bespoke products range consists of precast concrete, concrete block paving, chimney and roofing solutions, and structural wall insulation. It operates from approximately 20 facilities in total and is focused on the United Kingdom building and construction market. more »

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4imprint Group plc is a direct marketer of products in the United States, Canada, the United Kingdom and Ireland. The Company supplies products under the brand name 4imprint. The Company sells a range of promotional products, which are purchased by a range of individuals within various types and sizes of businesses and organizations. These products have a range of uses as an integral part of sales and marketing activities; recruitment and recognition schemes; health and safety programs; and other initiatives to make a connection between the customer's organization and the recipient. Its promotional products consist of basic giveaways, such as pens, bags and drinkware to more exclusive products, such as embroidered clothing, business gifts and full color trade show displays. The Company's subsidiaries, 4imprint Inc. and 4imprint Direct Marketing Limited, are engaged in direct marketing activities. more »

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  Is LON:SYS1 fundamentally strong or weak? Find out More »

53 Comments on this Article show/hide all

Graham Neary 2nd Nov '18 34 of 53

In reply to post #414844

Hey threeputt, thanks for your input on Pelatro (LON:PTRO). It's not really my type of thing but cheers for mentioning it anyway! G

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sharmvr 2nd Nov '18 35 of 53

Forterra (LON:FORT) I think is a good company (have held in the past and sold out a the top, which is probably why I like it) because of slowing construction sector.

Valuation for them and Ibstock (LON:IBST) is a lot more palatable now to when I sold.
One thing for prospective buyers - Forterra (LON:FORT) was/is held in size by one of the Woodford funds and he has been a seller for a lot of the year (which maybe a buy signal). Not sure what current situation is but I would suggest that overhang is a consideration

They have great margins for (what I would think are commodities, but never bought a brick so builders may disagree) and while cyclical, UK needs to build houses and I guess bricks/concrete are a key component.
Did speak to one construction worker (at the time I bought) and he said UK is pretty far behind when it comes to brick innovation. I just can't see such a bulky commodity lend itself to international trade - surely transport costs would be as much as the product.

Good luck and great weekend all

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Graham Neary 2nd Nov '18 36 of 53

In reply to post #414854

Hi there - I've penned a few thoughts on ETFs, not exactly in terms of index tracking error, etc. but in more general terms. Cheers! G

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sharmvr 2nd Nov '18 37 of 53

In reply to post #414909

Thanks Graham - always good to hear views from the better informed - much appreciated and have a fantastic weekend.

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aflash 2nd Nov '18 38 of 53

In reply to post #414869

FORT (Forterra) has been around for ever.
Here is what Ed Croft wrote in Jan:

In a previous life Forterra was the UK building products division of Hanson, which was bought by HeidelbergCement in March 2015. The division was later sold, rebranded as Forterra and then floated in 2016. Since then the shares have notched up a 65 percent gain, reflecting strong demand for its bricks, blocks and various other masonry products. Its customers range from major housebuilders and contractors to builders merchants. There is no doubt that Forterra is a cyclical play, but in the current conditions it very much fits the profile of a high quality, high momentum stock.

I appreciate the Graham Neary review, however, because I was watching competitor IBST (Ibstock) which bottomed out at 200p early in October and now is 233p. FORT has better quality scores albeit Historical. It was 300p when Ed put it in NAPS, then went to 325p.

Just bought a small amount because expect upside to be limited.

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mojomogoz 2nd Nov '18 39 of 53

In reply to post #414844

Hi threeputt

I looked at Pelatro (LON:PTRO) a month ago. Questions to answer:

1) why does a pure international software business need to spend £250k on vehicles last financial year?

2) It is profit making as it capitalising development costs. Not a bad thing but does mean that it looks like it needs cash to keep developing

3) nearly all wage costs are either capitalised or expensed as development cost. That includes for the directors. Given that the company states that sales development, recruitment and growth are key to the future how is it possible that all time at company is R&D?

I'd be interested in good answers to the above. I did ask the company and they said they would be presenting at Sharesoc and Mello so could ask there....(ie they didn't answer though)

Best wishes

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12barblues 2nd Nov '18 40 of 53


Have you commented on the proposal by Ranger Direct Lending Fund (LON:RDL) directors to put their snouts firmly in the trough with a revised (i.e. massively increased) remuneration policy? If so, I've missed it!

Currently there is a cap of £250k on total remuneration in the company's Articles. The new policy will pay £50k p.a. for non-exec duties, payable to each of the five directors including the two execs (!), £15k per month (and can be raised to £22.5k) to each exec director and a bonus pool of up to £750k, to be shared equally by exec and non-exec directors alike, that looks guaranteed to pay out unless the accounts are a complete fiction. All this is to be backdated to June when the new board took over. They can also hike their fees further when the current investment management terminates next year.

All this for what appears to be a part-time job just winding down the existing loan portfolio! The one and only independent non-exec, who was previously happy with £25k p.a. under the previous management has effectively been "persuaded" that this is appropriate by doubling his fee and giving him potentially £150k from the bonus pool. Looks outrageous to me, but perhaps I'm being too harsh?

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Edinburgh Investor 2nd Nov '18 41 of 53

Don't forget there are passive funds as well charging 0.7 or less. Same exposure but without the brokerage charges.

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heregoes18 2nd Nov '18 42 of 53

First ever posting here (so treat me gently). As per my username I've only just jumped in to individual investments this year and joined the community here. Typically I got interested when all the markets were near their peaks so it's been a learning experience so far, but hey-ho nothing ventured. Interested to see the comments on FORT as I bought in to this one a few months back, currently some 20% down but happy to hold. Nice little dividend and something caught my attention in the 2018 half year results that looks interesting (quote below).

"The next phase of expanding brick capacity to meet market demand through redeveloping the site at Desford in Leicestershire was announced in May 2018. The planning application for the project has now been submitted and involves building a new factory capable of producing up to 180m bricks per annum to replace the existing facility which has an annual production capacity of 85m bricks. The existing plant will remain operational until the new facility built alongside is completed. Subject to planning consent being received, it is anticipated that the new plant will be commissioned in late 2021 and that the capital expenditure of £90-95m will be spent over the period 2019 to 2022."

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Nick Ray 2nd Nov '18 43 of 53

I am beginning to think that ETFs are an excellent way to gain exposure to various factors with much less complication than owning lots of shares (or bonds, or commodities).

But for me the main problem is simply getting on top of how many ETFs there are, and how they all behave.

I had a look at the one that Graham mentioned IS SHRT DUR HY CRP BD USD (DIST) ETF (LON:SDHY) and Yahoo for example seems to have a very inaccurate chart of its performance with random drops down to the 70s and back up which I am sure is not right.

Meanwhile the ishares page for this share shows "total return" (including dividends) which is also confusing.

How on earth does anyone make any progress in sifting through this morass of confusing info?

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wildshot 2nd Nov '18 44 of 53

In reply to post #414889

Many thanks for covering 4imprint (LON:FOUR) Graham. I've held this share for 8 years and it is by far the best performer in my portfolio. Very steady company, although a little illiquid so price swings can be notable. It is generally though a steady as she goes company and has been great on delivering results and dividends.

If I remember correctly I got in when it had quite a large pension deficit, this was gradually reduced, improving the balance sheet whilst trading grew consistently. I hope that I keep finding gems like this one, also boring although it doesn't do bricks ;-)

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Armorduck 2nd Nov '18 45 of 53

In reply to post #414879

I watched the Stephen English video and very much enjoyed/appreciated. Thanks. Perhaps, before I'm too old I might gain the courage to attend one of these Mello or similar events. I'd assumed the audience would be full of wealthy, successful, clever investors and/or spivs, but the seminar made me think that normal people (like me) might fit in and not feel too out of place.

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jonno 2nd Nov '18 46 of 53

In reply to post #414864


Thank you for your thoughts on SYS1; very much appreciated. More luck than judgement I think regarding my sale of Brain juicer, which from memory was around £8. You win some and you lose some. Hopefully more the former than the latter.

Have a great weekend

All the best

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jonthetourist 3rd Nov '18 47 of 53

In reply to post #415024

Hi Armorduck

There are certainly some clever and wealthy investors attending Mello. But spivvy is the last word I would use to describe it. One clever man called it Woodstock for investors, and there is a general air of helpful sharing of knowledge and experience. It's quite remarkable for the very positive atmosphere.

I will happily but you a coffee and answer any questions if you choose to come along to the one this month.


PS can't claim to be normal though

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rhomboid1 3rd Nov '18 48 of 53

In reply to post #415024

I’ll go one better than Jon .(who I met for the first time at Mello Derby)..i’ll happily buy you beer if you attend...the thing is that all investors are different..I spent an hour or so swapping investment ideas/experiences/beers with Stephen English at Mello Derby before we even got on to the subject of him being a fund manager at all...everyone is simply there because they enjoy investing

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jonthetourist 3rd Nov '18 49 of 53

In reply to post #415069

He's always at least one better! And one of those clever people we discussed, although a bit obsessed about Stoke on Trent

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HumourMe 3rd Nov '18 50 of 53

In reply to post #414984

I am beginning to think that ETFs are an excellent way to gain exposure to various factors with much less complication than owning lots of shares (or bonds, or commodities).
But for me the main problem is simply getting on top of how many ETFs there are, and how they all behave.
How on earth does anyone make any progress in sifting through this morass of confusing info?

It is tricky and it is unclear to me whether a NAPS approach is just more transparent. iShares  (Blackrock) seem the easiest to research using their screener.

There is interesting diversity in implementation:

Vanguard U.S. Momentum Factor ETF (VFMO), 0.13%, 0.22%, 1164 stocks

dbx MSCI World Momentum UCITS ETF 1C, 357 stocks

IWMO iShares Edge MSCI World* Momentum Factor UCITS ETF , 344 stocks

* 'world' seems to mean approx 60-80% US depending on provider.

All three purport to be momentum, however, there is a large potential difference in what has qualified. My instinct say that fewer means a tighter definition. Or is this because Vanguard is 'active'?

Personally I'm leaning towards a multi-factor approach (aka Smart Beta), which brings me back to a Stlg/Euro NAPS, supplemented by ETFs, for exposure to the US.

There is also the distinction between 'synthetic' and 'direct'. The latter seems 'safer' to me.

Most are algo driven. Some are disguised funds (Vanguard).

Ongoing charges should also be noted, or used as a tiebreaker.

Anyway here are a few providers with some sort of screener that I've come across (you may have to tick professional to get more information). They vary in utility.


Deutchbank db-x 

Franklin Templeton 


Lyxor (synthetic components obvious so not looked at further)

Amundi, all sampled synthetic, 

Robeco (van Vleit)

I asked Stocko about screening ETFs and it is on the to do list, but not imminent.

I remain generally confused.

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aflash 3rd Nov '18 51 of 53

In reply to post #414984

The confusion is increased by the Google search putting the highest payer at the top of the list.
It is compounded by the marketing strategy of the etf provider.

However two names repeatedly provide the information I am looking for.
One is Morningstar which often provides the top ten holdings better than the provider.
The other is:
which usually comes up with a symbol that enables me to pursue research elsewhere. Maybe other(s) plural such as

but with the words etf before the .com.

On the returns I look at stockopedia which has most of the etfs in its database, select the time period that interests me and work it out.

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mmarkkj777 3rd Nov '18 52 of 53

In reply to post #414779

Thanks TT,

Hopefully the ones I've picked are not small enough to have liquidity problems if I want to sell. Keyword Studios, Games Workshop, U and I, Strix, Learning Technologies, Kaz Minerals and Tesco (hopefully the last one will be OK liquidity wise :-) ). Not Fevertree yet! Waiting to see on that one.

I take your point though. I need to watch for that liquidity thorn.


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nedelcu 4th Nov '18 53 of 53

In reply to post #414814

Hi Fegger, re Forterra, a person that lives nearby the affected kiln mentioned to me that there was a gas explosion to a bungalow in the village a few weeks back, that caused damage to the power supply in the area for over half a day.
So totally out of company's hands and not due to incompetence.
As I work in the industry the lack of certain types of bricks has been instantly felt.My company had to buy a County red brick for double the price just to keep the building work going

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 Are LON:SYS1's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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