Small Cap Value Report (21 Dec 2016) - PTD, CBUY, AVS, WATR, WSG

Good afternoon!

This year certainly seems to be drawing to a close with a flourish - the SMXX benchmark which I follow is hitting new all time highs. This does seem surprising, given all the uncertainty over Brexit, and various other problematic geopolitical issues globally.

There are only 3 or 4 trading updates I'm going to comment on today, so this report should be finished by about 3pm.

Pittards (LON:PTD)

Share price: 78.3p (down 10.3% today)
No. shares: 13.9m
Market cap: £10.9m

Situation in Ethiopia and trading update- the title of this RNS sounds ominous, and the 10.3% share price confirms that, before I've even read it.

Problems in Ethopia have affected production;

Although the state of emergency is still in place, the Foreign and Commonwealth Office has lifted its advisory travel restriction.

Operations at the Company's tannery in East Shewa were affected by the disruption; some production was lost and levels have not yet returned to the levels pre-disruption.

The effect has to some extent been mitigated by undertaking production in the UK but there will nevertheless be an impact on the results for the second half of the year.

So it's an H2 profit warning, and presumably a full year warning too.

Demand is depressed too;

The prolonged depressed demand for leather has culminated in disappointing sales volumes in the last few months of the year. Together with the disruption in Ethiopia, the overall performance for the full year ending 31 December 2016 is likely to be lower than our expectations at the time of the half year results.

Yes, there we are - it is a full year warning, but no indication is given of how much lower profits are expected to be.

What are they doing to remedy things?

The new management team is now in place and further progress has been made in the second half to simplify the Group to better position it for growth.

Valuation - it's difficult to value on a PER basis, as it looks as if this year is likely to be minimal profit.

There is a large discount to NTAV, but that's because the company has extremely inefficient, high levels of inventories.

My opinion - I do sometimes wonder why I bother following this company, as it seems to continuously disappoint.

A few years ago this business was nicely profitable. So I would need to better understand why it's now struggling. Cheaper competition from China maybe, at a guess?

It's difficult to think of any reason to get involved with this share. I've no idea what the future holds for this company, so cannot therefore value it. So it's impossible to form a view on whether the shares offer value or not.

Cloudbuy (LON:CBUY) - trading update - the market cap here is only about £5m, so I wouldn't usually cover it. However, it's an interesting one to track, to see how it all ends - as the performance to date has been diabolical. Always jam tomorrow, combined with heavy losses. Bursts of excitement on spurious newsflow happen occasionally.

Today's update says that 2016 revenues are in line with expectations, and the loss slightly better than expected. The trouble is, the forecasts are for a terrible performance - a £4.1m loss on revenue of only £1.8m.

Cost-cutting has been done, including Directors taking a total pay cut of £250k p.a.. That's good to see - sounds like the big financial backer here is kicking some ass.

My opinion - so far, this company has been hopeless. I'm not convinced it will ever make much progress. Although when the market cap gets this low, any sniff of good news can result in a spectacular share price rise - as we've seen recently with Blur (LON:BLUR). So who knows, it might make a nice little speculation at some point, but it's not something I would touch.

Avesco (LON:AVS) - news has just come through that the takeover has gone through. Shareholders should receive 650p per share in cash by 4 Jan 2017.

Huge thanks to management here, who delivered spectacular shareholder value with this sale of the business.

Water Intelligence (LON:WATR) - a positive-sounding update from this American water leak remediation company.

Turnover is rising strongly, with 2015 total already beaten in Q3 of this year.

Profits are in line with expectations, despite investing for growth.

Overall, it looks potentially interesting. Although it's too small & illiquid for my liking, and doesn't pay divis.

Westminster (LON:WSG) - this company has a pretty awful track record. It always seems to be dangling the prospect of huge contracts in front of investors, but something always seems to go wrong.

However, today's update sounds encouraging;

The Group expects to report an improved financial performance both at the revenue and adjusted EBITDA levels for the current year compared to the year ended 31 December 2015.

The cash position has been strengthened by the fundraising announced on 22 November 2016 which provides the Group with funding to support working capital requirements around current business development costs, certain anticipated initial post contract spend on the large Middle East opportunity as well as for general corporate purposes.  This fundraising was structured with the aim of limiting potential shareholder dilution.

 Note that the fundraising referred to above was not an equity raise. It was a £1.2m convertible loan through Darwin. I'm not keen on that type of deal.

Various other details on operations are given. Its ferry in Sierra Leone, which has been problematic in the past, has commenced operations. They expect it to be cashflow positive.

My opinion - overall, I wouldn't touch this company with a bargepole, but for people who are prepared to take a punt, the update today sounds like good news.