Small Cap Value Report (21 Apr 2017) - REC, CAY, IDH, PEB

Friday, Apr 21 2017 by

Good morning,

It's Paul's day off today, so I'm planning to cover 3-4 of today's stories in his absence. First up is Record (LON:REC):

Record (LON:REC)

Share price: 42.375p
No. shares: 221.4m
Market cap: £94m

Fourth Quarter Trading Update

This is an unusual type of asset manager, as it is focused on currencies rather than equity/fixed income.

One might ask: when clients want hedging or currency-derived returns, shouldn't banks be the go-to provider? How can a smaller institution compete with them?

On the hedging side, it doesn't surprise me that there is space for a smaller, independent player. After all, there are plenty of currency brokers dealing with the retail market, providing individuals with advice and better rates on their FX needs when they expatriate/repatriate, buy foreign property, etc. Think of Record as a large, institutional version of this!

And on the currency-derived return side, Record acts similarly to any other independent asset manager or hedge fund.

So, in principle, I'm very comfortable with the idea that there is space for an independent currency specialist, focusing on institutional clients.

The track record of profitability isn't bad either: profits were reset lower during the 2008-2012 period, but have been stable since then.

Which brings us to today's update:


(AUME = Assets under Management Equivalent)

So it's a 2.8% gain in USD terms, and also a 1.7% gain in GBP terms.

My opinion

I'm kicking myself a little bit when I look at the share price chart - even after today's slide, the shares are higher than they've generally been over the last couple of years.

Admittedly, it's not the easiest investment thesis.

On the positive side: 

  • The company has always been financially strong. At the last interim results (for Sep 2016), it had a tangible and liquid balance sheet which included cash and short-term instruments worth some £36 million.
  • In the absence of strong growth, dividends have at least been generous relative to earnings (1.7p divis in 2016 versus 2.5p EPS).

On the negative side:

  • The client base is not too well-diversified. According to today's update, the number of clients has reduced from 64 to 59 (this time last year, it had 58 clients).

Note that today's update shows AUME up by $1.6 billion, but $2.1 billion of increase was due to movements in global stock markets and exchange rate movements. So the…

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

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Record plc (Record) is a United Kingdom-based company, which is engaged in the provision of currency management services. The Company's suite of products is divided in two categories: Currency Hedging and Currency for Return products. It also offers solutions to individual client requirements. Its Currency Hedging mandates are primarily risk reducing in nature. Its suite of Hedging products includes Passive Hedging and Dynamic Hedging. Its Currency for Return mandates are return seeking in nature. The range includes five Currency for Return strategies being Active Forward Rate Bias (FRB), FRB Index, Emerging Market, Momentum and Value, and these strategies can be offered in either a segregated or pooled fund structure. The Company's clients are institutions, including pension funds, charities, foundations, endowments, and family offices, as well as other fund managers and corporate clients. It operates in the United Kingdom, North America and Continental Europe, including Switzerland. more »

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Charles Stanley Group PLC is an investment company. The Company provides investment management services, financial planning and pension administration. The Company's segments are Investment Management Services, Asset Management, Financial Planning, Charles Stanley Direct and Support functions. The Investment Management Services division provides personal investment services to individuals, companies, trusts and charities and includes platform dealing, custody and self-invested personal pension (SIPP) and individual savings account (ISA) administration services. The Asset Management division provides specialist asset management services, through its range of pooled funds, active and passive model portfolios, inheritance tax (IHT) services and investment research to the Investment Management Services division and clients. The Financial Planning division provides financial planning and advice. Charles Stanley Direct provides direct-to-client online dealing and fund broking services. more »

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Immunodiagnostic Systems Holdings PLC is a specialist in vitro diagnostic solution provider to the clinical laboratory market. The Company develops, manufactures and markets immunoassays and automated immunoanalyser technologies. It operates through three business segments: Automated IVD, Manual IVD, and Licensing & Technology. The automated IVD business consists of 25-OH Vitamin D, specialties and instrument sales. The automated IVD business also consists of the sale or placement of its IDS-iSYS instrument, in addition to selling automated assays and consumables for use in these instruments. The Manual IVD business sells manual assays, radio immunoassays (RIA) and ELISA kits (EIA) to labs. Its assay development is focused in the clinical areas, such as calcium metabolism, bone metabolism, chronic kidney disease, hypertension, fertility and growth. Its subsidiaries include Immunodiagnostic Systems Limited, Immunodiagnostic Systems Nordic A/S and Immunodiagnostic Systems France SAS. more »

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

12 Comments on this Article show/hide all

denis gaffney 21st Apr '17 1 of 12

Anyone Know why COG have suddenly taken off?

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Howard Marx 21st Apr '17 2 of 12

In reply to post #180513

Simon Thompson article in this weeks Investors Chronicle. He concludes:
"Having considered all the risks, I still feel that Cambridge Cognition’s shares represent a good investment at the current share price, on the proviso of course that management hit their budgets and deliver on finnCap’s earnings estimates. If they do then I feel a cash-adjusted rating of 25 times 2018 EPS estimates is a much fairer valuation, implying a target price of 130p, in-line with finnCap’s own objective."

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JohnEustace 21st Apr '17 3 of 12

In reply to post #180513

Cambridge Cognition Holdings (LON:COG) are up on a Simon Thompson article in the IC

Edit - you wait 30 minutes for a reply and two come along within 30 seconds!

| Link | Share | 1 reply
Camtab 21st Apr '17 4 of 12

Thanks for the update on Record Graham. It is a share I have held for some time. I was pulled in by the good cash flow and strong dividends, which are supported by Employee purchases and should continue to grow. I have heard ex share holders complain about the company's attitude to share holders but given their own holdings have always been a little cynical about this claim. Divi seems covered well enough at this stage. I used to work in the Institutional business so understand the clients pretty well. It is unlikely a group of clients would work in unison to leave ( Local Authority more likely to leave together) but not got the breakdown of clients. Investment Consultants can be a risk as they are quite concentrated Mercers, Towers Watson which Myners highlighted all that time ago.But all in all with increasing world upheaval there should be demand for a good currency hedger like this. I would like to see them develop a higher margin product but everyone can see consistent active returns in currency are a tall order. That said their operating margin is high which is something I always look for as it provides good defence against dropping demand. Well that's my tuppence appenny for what it is worth.

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mercury61 21st Apr '17 5 of 12

re Record (LON:REC) I don't like the fact that free float is only 32.6% (Stockopedia data) the majority share holder being a Neil Record at 32.06% (Morningstar data)

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paraic84 21st Apr '17 6 of 12

ONS data on Q1 2017 retail sales released today looks interesting. Clothing sales are up by a respectable amount which is promising for the likes of Next (LON:NXT) which has received some attention on this report recently. Costs might be going up too of course but part of the worry around Next (LON:NXT) and clothing retailers was the potential for lower sales as higher costs get passed on. 


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Graham Neary 21st Apr '17 7 of 12

In reply to post #180522

Thanks for the insights camtab.

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shauniekent 21st Apr '17 8 of 12

Quite a drop on Record today. Im surprised but possibly because no mention of the special dividend which some holders myself included may be holding for.

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denis gaffney 21st Apr '17 9 of 12

In reply to post #180519

thanks guys

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dahokolomoki 21st Apr '17 10 of 12

On Record (LON:REC), I was a holder when it was below 30p, and I'm kicking myself for cashing out at 30p.

The reason why I cashed out was the concentration risk in a few big investors, as well as the fact that for many quarters (and including this one) they didn't earn any performance fees, which means they're not delivering great returns for their investors. As an investment fund, if you're not delivering great returns for your investors, they're going to pull out their AUM and go elsewhere in the long run.

For me, that is the main reason why I don't hold REC.

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gsbmba99 21st Apr '17 11 of 12

I have to commend Immunodiagnostic Systems Holdings (LON:IDH) on their shareholder communications. They are remarkably clear and unusually frank for a small company. I wish more companies let you see the equation for revenue rather than just the result. The annual letter from the Chairman gives a comprehensive overview.

You have to imagine that Vitamin D testing revenues (particularly for the automated assays) are at risk of approaching zero eventually as the continued shift of Vitamin D testing to the large diagnostic companies continues (with Bioventix (LON:BVXP) being a beneficiary of this shift with double digit licensees). I guess the good news is that they managed positive net placements and expanded their testing menu (though by less than their stated intention). If memory serves they also have a deal in place for allergies with Omega Diagnostics (LON:ODX) which could prove an interesting catalyst.

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seadoc 21st Apr '17 12 of 12

Record (LON:REC) As the last trade was 10% of day's trade what means a second price monitoring extension at the close?

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

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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