Small Cap Value Report (20 Jun 2017) - FXI, ITQ, NWF

Tuesday, Jun 20 2017 by

Good morning! It's Paul here.

I'm heading into London shortly for an investor seminar, so will rattle off a few comments on today's news, more briefly than usual.

De-listings - Interquest & Fusionex

This is becoming a big issue. Companies which decide to abandon their stock market listing are usually hopeless cases - tiny, loss-making, and strapped for cash. So they're pretty easy to avoid.

However, I'm becoming increasingly concerned at companies which are leaving the markets when they really shouldn't. A good example is Interquest (LON:ITQ) - a small staffing company. It previously had a good track record, but the shares crashed when it warned on profits last year.


As you can see above, there was a nice progression of profit growth, until things went wrong last year. Obviously the share price has reflected this period of poor performance:


If a company performs badly, then management have a duty to rectify things. Over time, the market will reward improved performance with a recovery in the share price.

However, in this case, management has decided to stuff outside shareholders with a low-ball takeover bid. They're offering just 42p (a lousy 9.3% premium to the previous share price) to take the company private! In the relevant paperwork, management bemoan the low share price, whilst seemingly oblivious to the fact that it's their poor performance which is the root cause of the low share price. A ridiculous loan note alternative (redeemable in 2027!) only adds insult to injury.

In my view this takeover bid is unethical. It's also damaging to the reputation of the stock market, and undermines investor confidence. Why would any of us buy shares in any company, if we're going to be forcibly bought out, at a low price, if things go wrong? 

The only independent Director at Interquest has urged investors to reject the offer, and has the support of shareholders with 20.1% of the company. Unfortunately, I don't think that will be enough to stop this shabby, opportunistic deal. A share can be de-listed once a takeover bid has the support of 75% of shareholders. In cases like this, where management have a large shareholding, the interests of outside shareholders can be seriously…

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NWF Group plc is engaged in the manufacture and sale of animal feeds, the sale and distribution of fuel oils, and the warehousing and distribution of ambient groceries. The Company operates through three segments: Feeds, Food and Fuels. The Feeds segment is engaged in the manufacture and sale of animal feeds and other agricultural products. The Food segment is engaged in warehousing and distribution of clients' ambient grocery and other products to supermarket and other retail distribution centers. The Fuels segment is engaged in the sale and distribution of domestic heating, industrial and road fuels. The Company's subsidiary, Boughey Distribution Limited, is engaged in warehousing and food distribution. Its subsidiaries, NWF Agriculture Limited, S.C. Feeds Limited, New Breed (UK) Limited and Jim Peet (Agriculture) Limited, are engaged in animal feedstuffs and seeds supply. Its subsidiaries, NWF Fuels Limited and Staffordshire Fuels Limited, are engaged in fuel distribution. more »

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15 Comments on this Article show/hide all

barnetpeter 20th Jun '17 1 of 15

It is not always true that a delisted share is worthless. I have had three payments this year from companies that have sold or partly sold their assets; including one that was 5 times the price I paid for the stock when it was listed.

Off topic...would welcome some analysis on 7 dig that today became the biggest music streaming company in Europe. Tiny market cap below the usual limits.....could it be the biggest gainer next year when profits are expected to explode or is the CEO just a dreamer?

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Paul Scott 20th Jun '17 2 of 15

In reply to post #195319

Sure, there are some circumstances where a private company can do well, and deliver a return for investors. However, I'd be very doubtful whether an AIM-listed Malaysian company is likely to fit into that bracket.

To my mind Fusionex looks similar to the Chinese AIM stocks - where the clear purpose of listing on AIM was to extract cash from gullible investors in an effectively unregulated market. Ripping off AIM investors is a pain-free method for overseas individuals to enrich themselves. After all, there are no consequences - the money just disappears abroad, and nobody is ever punished or called to account for the losses that UK investors have suffered.

Regards, Paul.

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heron 20th Jun '17 3 of 15

Paul - I may have this wrong but but if at least 20% of ITQ holders are against delisting and the bid then it seems to me odds against that the required 75% majority to delist will be obtained?

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DVB99 20th Jun '17 4 of 15

hi Paul

Luke Johnson runs his own private equity company ( i think?), so am not surprised.
In my experience, PEquity don't care in the least about businesses/people etc, only in the potential profits they can make (they often treat people like dirt)
Maybe an extreme view, but i have had several experiences and all have been extremely negative

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barnetpeter 20th Jun '17 5 of 15

Paul....the Chinese frauds are shameful and show the LSE in a very poor light.

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herbie47 20th Jun '17 6 of 15

In reply to post #195319

£7DIG None of the music streamers make any money as far as I know. There is plenty of competition with the likes of Spotify, Deezer, Google, Amazon, Apple etc. There is already a hi-res streamer Tidal. Hi-res is a very niche market so I think the CEO is a dreamer, sounds pretty blue sky to me. Most people (even pros) can't hear the difference between mp3 320kbps and HiRes music.

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FREng 20th Jun '17 8 of 15

Yesterday's SCVR ends "work in progress". Is there more to come?

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kevfle 20th Jun '17 9 of 15

Paul - Did you meet the management of Revolution Bars recently? I recall reading somewhere that you were planning to meet them last week I think. If so, what was the outcome? Are you still positive on this investment at the current share price?

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FREng 20th Jun '17 10 of 15

In reply to post #195379


Paul bought 200,000 Revolution Bars (LON:RBG) for his fantasy portfolio BMUS about a week ago.

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gus 1065 20th Jun '17 11 of 15

In reply to post #195379


Paul posted an update on his meeting with Revolution Bars (LON:RBG) management on the attached thread on June 13th. RBG wasn't tagged so no reason why you would find it in a search.

I think Paul's comment was on or around #28.


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kevfle 20th Jun '17 12 of 15

In reply to post #195399


Thanks for pointing me in the right direction on this - I'd missed that update.

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BrianGeee 21st Jun '17 13 of 15

Paul, just to add to your list of delistings and recent funny goings-on, Galasys (GLS) delisted following resignation of their Nomad (WH Ireland) last August, following a boardroom battle between the Chairman and CEO.
Since then, there has been NO information; indeed the last trading related information was the preliminary results statement to 31st Dec 2015, released on 30th June 2016. That statement showed the business to have significant net cash, and profitable, but cash collection from customers had been poor.
So, now, about a year after the last trading information was released, the CEO (apparently) has been bidding 13.5p for the shares - off market obviously.
How do you evaluate such a bid? Clearly he sees value in the shares, but with no disclosure of financial information, the trade is totally lopsided. A fully informed insider versus an uninformed investor.
If you don't sell, you will possibly continue to hold shares in an overseas unlisted company, where you have no power or control. On the other hand, the CEO may well already have negotiated a takeover at a multiple of the price he's bidding for your shares, and not disclosing that information.
IMO, UK listed markets should not allow a situation like this to develop. AIM rules state that a 75% shareholder majority is required for a company to delist. However, if the company simply fails to pay its Nomad or otherwise make the Nomad unhappy, they will resign, and shareholders lose all regulatory control. What's the point in requiring a super-majority vote, when it's so easy to circumvent.

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Dennism 21st Jun '17 14 of 15

You make an interesting point about companies getting around the 75% delisting vote problem by losing the confidence of their Nomad - it doesn't seem right that they are allowed to do this. Maybe, if they lose their Nomad, and claim not to be able to find another one, they should first go into some kind of "special measures" whereby a "Nomad of last resort" maintains their listing and sends in a "corrective team" to deal with any issues. They might still be delisted in certain circumstances but only after a suitable investigation.

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ridavies 21st Jun '17 15 of 15

In reply to post #195323

Hear hear to your conclusions on Malaysian companies. CSF (LON:CSFG) is another. Perhaps others on this page can offer examples of Malasian companies which have NOT ripped off shareholders via the UK sock market, and I would be very interested to read about them.

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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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