Small Cap Value Report (20 Dec 2016) - VLK, SPA, AVN

Tuesday, Dec 20 2016 by
68

Good morning!

A very quick run through this morning, as I have to set off as soon as possible after 10am, for a regular investor lunch in Reading.

Paddington station is tricky to get to, from Islington. However, I do enjoy the free WiFi on the GWR trains from there to Reading. It makes the journey so much more productive, as you can do useful things on the way.

I do wish the Government would prioritise free WiFi on all trains, as I think that would be a good boost to economic activity - allowing people to work on trains more effectively.



Vislink (LON:VLK)

Share price: 13.27p
No. shares: 124.6m
Market cap: £16.5m

Trading update - the company reassures on current trading;

The Company continues to trade in line with the Board's expectations for the full year, with Q4 expected to mirror the usual trading seasonality uplift.

The original core business is being sold for $16m, which will clear most of the group's bank debt. This sale was expected to close by end 2016, but looks as if it's slipped into early 2017. If this disposal falls through, then the company is in big trouble, with way too much debt, and a loss-making business in aggregate.

Therefore I wouldn't even consider an investment here until the sale has gone through.

John Hawkins' disastrous, self-serving (in terms of excessive remuneration) stewardship here has resulted in the original business being sold off in a fire sale, to repay the debt he ran up making acquisitions. He's got form on this - a series of acquisitions ended badly when he ran Anite.

However, that's water under the bridge now. The only question is whether the remaining software business - Pebble Beach - is worth more or less than the market cap?

A table is provided today, which shows that Pebble Beach (i.e. future Vislink) is profitable. However, I've also flagged up the hefty central costs. So the key question is how much of the central costs will depart along with the main business that's being sold?



5858f5963807bVislink_table.PNG



At a guess, it looks to me as if new Vislink (i.e. Pebble Beach) may make a profit of c.£1m after reduced central costs. As such, the market cap of £16.5m doesn't look particularly attractive to me.

I'd want to look very closely at the accounting procedures too, as I've…

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Pebble Beach Systems Group plc, formerly Vislink plc, is a software and technology company. The Company is engaged in the collection and delivery of video and data from scene to screen. The Company's Pebble Beach Systems division is a developer and supplier of automation, Channel-in-a-Box and content management software solutions for television broadcasters, cable and satellite operators. For the broadcast markets, the Company provides wireless communication solutions for the collection of live news, sport and entertainment. The Company's products include Marina, which is an enterprise level playout automation platform for multi-channel applications; Orca, which is an Internet Protocol (IP)-enabled cloud-based integrated channel delivery solution; Dolphin, which provides multi-format integrated channel delivery solutions based on information technology (IT) hardware, and Stingray, which is a self-contained Channel-in a-Box. more »

LSE Price
6.98p
Change
1.5%
Mkt Cap (£m)
8.6
P/E (fwd)
n/a
Yield (fwd)
12.8

1Spatial plc is a holding company. The Company's principal activity is the development and sale of information technology software along with related consultancy and support. It operates through three segments: Geospatial, Cloud Services and Central costs. The Geospatial segment includes the core 1Spatial Group, including France and Belgium, and Laser Scan Inc. The Cloud Services segment is represented by Enables IT and its two smaller businesses: Avisen and Storage Fusion Limited, and its associate, Sitemap Limited. Its geospatial technology enables organizations to manage, validate, integrate and interpret spatial data from different sources. Its products and services include 1Integrate for ArcGIS, 1Spatial Cloud, 1Spatial Management Suite, Elyx Suite, FME, Geocortex, G-Cloud Services, consultancy, support and training. Its clients include national mapping and cadastral agencies, utility and telecommunications companies, and government departments, including census bureaus. more »

LSE Price
36p
Change
 
Mkt Cap (£m)
39.8
P/E (fwd)
33.5
Yield (fwd)
n/a

Avanti Communications Group plc is engaged in the provision of communication services. The Company is engaged in commercial exploitation of its space and network assets, which include its spectrum rights, satellites, intellectual property and ground station assets. The Company's products include SELECT, CUSTOM, PURE and ApTec. The Company's satellite network interface gives service providers the control across the fleet and ground infrastructure. The Company's shared bandwidth product is an end-to-end solution that provides terminal equipment and a contended access path from an end-users property to the Internet. Its service levels range from 512/128 kilobits per second (kbps) to 30/2 megabits per second (Mbps). PURE is suitable for established satellite service providers and supports any satellite based data communications application on any vendor's Ka-band hub. ApTec is a specialist systems integration and solutions sales group, which helps Government to achieve outcomes to policy. more »

LSE Price
0.41p
Change
17.1%
Mkt Cap (£m)
7.6
P/E (fwd)
n/a
Yield (fwd)
n/a



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18 Comments on this Article show/hide all

MrContrarian 20th Dec '16 1 of 18
2

Surprised Avanti Communications (LON:AVN) bondholders didn't play hardball and grab most of the equity as well.
Dismal FY and Q1 results also released later.
FY rev fell 3%. Debtor-days more than double to 350d. Admittedly 1/3 of that is accrued income. Q1 rev $18m, EBITDA -$6m. No comps, unlike a year ago. In fact rev is up but EBITA loss doubled.
"The Group has sufficient cash balances to comfortably meet all of its medium-term financial commitments and management expects cash generation to grow swiftly as revenues exceed Avanti's largely fixed cost base." Oh, hang on. That was a year ago. A year is a long time in orbit.

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AlanJenkins2 20th Dec '16 2 of 18

In reply to post #163270

Do these new bonds they are issuing have first call on the company's assets,at the possible expense of the other bondholders ?

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Maddox 20th Dec '16 3 of 18
2

1Spacial: I find it curious that they are selling one business Avisen - when in turned over £1.4m and generated a profit of £0.3m for only £0.1m - a third of what it generated in profit and receivable in 12 months time!! That deal requires more justification I'd say.


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Maddox 20th Dec '16 4 of 18
6

Vislink is now far too small to support Fatty Hawkin's greedy remuneration package - surely the non-Execs must see that.

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purpleski 20th Dec '16 5 of 18
3

Vislink (LON:VLK) completely agree with Paul. I was lucky to get out in August 2015 with a £372 profit before Vislink (LON:VLK) dropped 85%. This was from no great insight as I did not know about Hawkins' "form" but the VCP just seemed over generous in relation to the size of the company and only in the interests of the management and not the owners.

It helped confirm my rule that I must like and trust the management (obviously I can only glean this from reports such as this) before I invest.

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FREng 20th Dec '16 6 of 18
2

Andy Roberts, ex Innovation (LON:TIG), is now running 1Spatial (LON:SPA) and he seems to have taken some radical action. The analysts at TechMarketView say that Avisen was loss making (I haven't checked the accounts, but they are a skilled and specialist team at TechMarketView so I assume they are right). If Roberts has kitchen-sinked the results, as you might expect a new CEO to do, 1Spatial (LON:SPA) may look up from here.

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FREng 20th Dec '16 7 of 18
4

In reply to post #163291

Vislink (LON:VLK). I too was lucky to get out in July 2015. My note says "Sold 30,000 at 55p because of the rapacious director reward package being introduced." and this has become a strong policy for me. If the institutions adopted the same approach they would protect their investors' assets and act as some deterrent to such greed. I don't think that PIs can have any influence at all.

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jashunter 20th Dec '16 8 of 18
3

In reply to post #163300

Vislink (LON:VLK) I too got out immediately on 2nd July 2015 as a result of reading Paul's report. I had no idea JH was part-time and was shocked at the way in which the low hurdle was set for the obscene reward package. I bought at 34p in 2013 and sold my modest holding at 56.5p making a profit of £813. I was lucky. I have learned a great deal through following Paul's SCVR. One of the fundamental things I look out for now is quality management. If any doubts I don't invest - or if invested get out quick! Thanks Paul!

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garkum01 20th Dec '16 9 of 18
1

I also got out of VLK due to the LTIP generously rewarding the directors. Agree with FREng that PI's are powerless and the institutions should act as the greed police.

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cg78riverside 20th Dec '16 10 of 18
2

Re Vislink. Wow. Guys. Well done. Enough of the back slapping self congratulations already. Surely you're making the cardinal sin of looking backwards here and pricing the company on historical legacy issues. Having researched Pebble Beach Systems extensively I actually see a bright future for the new look VLK, with or without JH. Cemtral costs largely disappear with VCS. And profits for PBS likely to be £2.5 to £3 million.They are a fast growing software company and once the sale of VCS completes the market will spike the shares higher. I'm pretty certain the deal will complete so I've bought a holding at these levels to gain entry at ground floor level. Always look forwards, never look back.

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herbie47 20th Dec '16 11 of 18
5

In reply to post #163312

I to got out at 59.75p, I was looking forward at the time, since then the LTIP was announced and the shares have plummeted. I see Hawkins is still on board and he got 2m free shares in August. There were some dodgy things going on with his remuneration, such as settling his tax bill directly with HMRC so it did not show up as in his pay.

I won't be getting involved again. Good luck with your investment.

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purpleski 20th Dec '16 12 of 18
6

In reply to post #163312

But surely all of those people who sold out in the summer of 2015 were looking forward and that what they saw in the future was not very appealing?

Yes maybe a little bit too much back slapping but the point I was making was that I think one needs to assess the management qualitatively not just the numbers quantitatively.

Finally I would quote the great Ben Graham when he wrote in "The Inteligent Investor":

"Those who do not remember the past are condemned to repeat it".

Good luck with the investment but for now it is not for me.

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timarr 20th Dec '16 13 of 18
11

In reply to post #163312

The trouble with Vislink (LON:VLK) is that the historical legacy issues haven't gone away, they're still running the company.

timarr

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ericb 20th Dec '16 14 of 18
1

In reply to post #163312

Where do you get "profits for PBS likely to be £2.5 to £3 million" from !!

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herbie47 20th Dec '16 15 of 18
2

Hawkins has history, you can look at Anite one of his previous companies, you will find a similar story there, excess pay tumbling profits.

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bestace 20th Dec '16 16 of 18
1

In reply to post #163318

Benjamin Graham may indeed have been great, but he certainly wasn't the original author of that quote!

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purpleski 20th Dec '16 17 of 18
1

In reply to post #163342

I know (he does not claim it to be an original thought but attributes it to Santayana), but he saw the wisdom in the saying, which I believe many people today do not!

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Lantran28 21st Dec '16 18 of 18

Thank you for the report Paul.
I am still holding some shares with a profit of £1000. Will sale them tomorrow !

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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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