Small Cap Value Report (20 Feb 2014) - FLYB, IKA, ZZZ, IPEL

Thursday, Feb 20 2014 by

Good morning! Here is my official photo from the Brighton Half Marathon last Sunday, with me looking very serious & also looking knackered - which is a tad worrying, as judging from the angle of the sun, and the buildings behind on Madeira Drive, this shot was taken right at the start of the run!

As you can see from my charity fundraising page, you've beaten the £2k target including Gift Aid, with a remarkable £2,268 raised almost entirely from readers of this blog, so thank you very much indeed. The page is still open, so any late donations are still very welcome!

I was gasping for a pint or two of pear cider afterwards, which is how I usually re-hydrate after half marathons, but part of this year's charity challenge is to be completely sober for 3 months, so I instead had to make do with lucozade!



As we all know, the Stock Market is primarily a market for secondhand shares to change hands. However it also has an economically vital role to play in allocating capital by fundraising for both existing quoted companies and new entrants to the Stock Market. There is so much activity in both these areas at the moment, that it surely must augur very well for the British economy in 2014?

Investors should adapt to market conditions a certain amount in my view - i.e. if you see a profitable trend underway, then it pays to run with it, whilst being careful not be caught over-paying for something fundamentally flawed - and there are plenty of examples of that at the moment - i.e. fashionable stocks that will probably in the long run be a huge disappointment for investors. Remember that in the short term the market is a voting machine than sets prices based on investor sentiment. However in the long term, share prices will converge with each company's fundamental ability to generate cash and pay dividends - so in the long run the market is a weighing machine, and if there is little real substance to a company, eventually that will come home to roost with a dramatically lower share price.

The market's current huge appetite to refinance companies has been demonstrated again this morning, with two fundraisings in my own portfolio, as follows;




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Flybe Group plc (Flybe) operates regional airline in Europe. The Company operates in two segments: Flybe UK, which comprises the Company's main scheduled United Kingdom domestic and the United Kingdom-Europe passenger operations and revenue ancillary to the provision of those services, and Flybe Aviation Services (FAS), which focuses on providing aviation services to customers, largely in Western Europe. The FAS supports Flybe's United Kingdom activities, as well as serving third-party customers. Its One Stop to the World program provides access to long-haul destinations for its customers, through its international codesharing partners at main hubs within Flybe's network. The Company has over 50 new routes focused on connecting its regional bases to regional centers in Europe, such as Rotterdam, Dusseldorf, Amsterdam, Paris and Milan, as well as some domestic route infilling, such as Edinburgh-Liverpool and Exeter-Glasgow. more »

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Ilika plc is the holding company. The Company is engaged in the production, design and development of high throughput methods of material synthesis, characterization and screening. It has developed solid-state battery technology to meet the demands of the Internet of Things (IoT). The Company has materials development programs addressing a range of applications, including the solid-state battery, aerospace alloys and electronic materials. It has developed a type of lithium-ion battery, which, instead of using the usual liquid or polymer electrolyte, uses a ceramic ion conductor. It offers Stereax M250 rechargeable, thin film battery. It has applications in autonomous sensor devices, smart homes (heating, ventilation and air conditioning (HVAC), security, light), automotive (infotainment, sensors), logistics (asset tracking), medical devices (biometric monitoring) and wearables. It is also developing superalloys, self-healing alloys and smart materials for electronic data storage. more »

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Snoozebox Holdings plc is engaged in investing in the development of accommodation solutions for existing and new vertical markets. This includes investment in developing prototypes of new V1 type accommodation, V2 second generation accommodation together with developments for the medical and social housing markets. The Company's segments are Events and Semi-Permanent. The Events segment includes all activities providing short-term hotel accommodation at events and festivals. The Semi-Permanent segment includes all activities in relation to the provision of long-term managed hotel solutions. Its geographical segments include United Kingdom, Other European countries and Rest of the World - South Atlantic. It has possession of and access to approximately 570 V1 containerized rooms and over 18 V2 rooms on trailers for deployment to generate Semi-Permanent revenues. more »

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

8 Comments on this Article show/hide all

billytk 20th Feb '14 1 of 8

Morning Paul,
IP (LON:IPO) has had a strong run recently. They are the group that have a stake / backers of Actual Experience (LON:ACT). All focused on university spin offs and IP. I saw a presentation from the Fusion IP (LON:FIP) CEO last year as they invest in Sheffield and Cardiff university start up's and IP. I was very tempted to buy but the usual spread and liquidity issues were at play. IP (LON:IPO) were a major backer of Fusion IP (LON:FIP) and have bought out the rest of the group that they didn't already own. There was a nice 20-25% gain for Fusion IP (LON:FIP) investors on that announcement.

Anyway, it is an area of interest for me also. It's hard to value and who knows what direct control they have in the day to day running of these University start up companies but all they need are a few to really take off and then list themselves like with Actual Experience (LON:ACT). Then the question is whether to bank a profit and sell the subsidiary or run with it I guess.

Granted it's always nice to invest in the individual company but by investing in the group you have a bit of a safeguard with a lot more scope long term.

Just some musings. All thoughts welcome.

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harry34 20th Feb '14 2 of 8


I used to work in technology transfer at a University that IP Group has an agreement with.
In my experience a University will want to get deals done, and will be generous in valuing companies and actively encourage entrepreneurs to come in and run the company. They want the academics to do further research and develop the next idea - not to try and run a business on a day-to day basis. The University also makes more money out of the further research the spin-out company does. This will often greatly exceed the "return" they could make on its percentage share of the equity. So in essence a University would rather benefit from millions of pounds of R&D generated by their own start-up companies rather than drive a hard bargain over valuation or control. Plus they will have been heavily diluted by the time these businesses reach the AIM market.

Paul - have you heard anything more about Vianet and the Government consultation on PubCos. I noticed further director buying, and with a dividend yield of over 8%, and a clear statement from the board that the dividend is safe for the foreseeable future, are you still feeling confident about the company?! I think I am, but don't want to invest further until I see the outcome of the consultation.

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campbellsmith 20th Feb '14 3 of 8

So pleased you will be seeing representatives of Deltex Medical (LON:DEMG) next month. I would come but Avignon (France) is a shade too far for me. Maybe I could think up a question for you to ask them?

Keep up the excellent work!


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wjjward 20th Feb '14 4 of 8

Hi Paul, Jarvis Securities Jarvis Securities (LON:JIM) also reported full year results today. The report reads well to my less experienced eye. The SP jumped up by 27p (6.4%) on the news today but they price looks a bit steep now for me given the great run over the last year. I'm sure that there is more upside to come but I cannot see the same rate of SP increase looking forward. The increasing divs and lack of debt seem attractive though. Will you be doing an update on this one?


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bsharman 20th Feb '14 5 of 8

Hi Paul, Ilika are presenting tonight at the Sharesoc Event and also Newriver Retail.. Are you coming?

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dangersimpson 20th Feb '14 6 of 8

Hi Paul,

Harvey Nash (LON:HVN) also issued a trading statement today:

It's an ' line with market expectations.' one, but they commit the cardinal sin of not stating what those expectations are. Stockopedia has them down for a slight decline in eps but given that revenue grew by 17% and gross profit by 7%, a decline in eps would be slightly disappointing.

Still they are showing accelerating q on q revenue & gp growth, are well positioned to benefit from the cyclical upswing in recruitment, trade at a discount to their larger peers and have a 99 percentile stockopedia rank. Reading a few comments on advfn it seems a few people may have been underwhelmed by their cash flow given that they only added £1m to their cash pile in fy2014, however given that they spent £1.3m on acquisitions, paid 2.2m in dividends and spent c£0.6m buying shares from their ebt and that growth for recruiters always sucks in working capital this didn't seem too bad to me, particularly in light of the positives highlighted above.

Cheers, Danger

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dangersimpson 20th Feb '14 7 of 8

Sorry small correction, cash pile reduced by 1m in fy14

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Paul Scott 20th Feb '14 8 of 8

In reply to post #81506

Hi bsharman,

No I can't make the ShareSoc thing tonight.
I forgot to register for it, and in any case couldn't get to London today, as had to spend the afternoon driving my friend back from the Hospital an hour's drive away, after her hip replacement. Then did some odd jobs around the house for her, like raising the bed to a suitable height, etc.

Hope it goes well & will be interested in the feedback on all the companies presenting. I've seen them all before anyway.

Cheers, Paul.

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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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