Small Cap Value Report (21 Jul 2015) - ENTU, VP., GLS, AMO, ESCH

Tuesday, Jul 21 2015 by

Good morning!

(at the time of writing, I hold a long position in ENTU)

For anyone who missed it, Entu (UK) (LON:ENTU) rushed out their interim results two days early, yesterday afternoon, presumably because the share price was in freefall. I interrupted my siesta to update to yesterday's report, reviewing the figures and outlook.

It's funny how different people see things differently. Reading the comments from other investors, some seemed reassured that the figures were not as dire as the plunging share price suggested. Others thought the fall in profits in H1 was terrible, and that the cashflow looked suspiciously weak.

My view is that the most important thing is the outlook statement. In this case the company confirmed that it's trading in line with full year expectations, and that they expected a soft H1 - if so, why didn't they previously communicate that to the market, I wonder? So it seems to me that the company has bungled its investor communications (which can perhaps be forgiven this once, since the company is still in its inaugural year as a listed company).

The share price has dropped from a peak of around 145p to 107p at the time of writing, yet none of the disaster scenarios that investors were fretting about has come to pass. In fact, the company says it's trading in line with full year expectations, which I think suggests about 13p EPS (so a PER of only about 8), and a dividend yield of just below 8% too. It's not often (any more) that you find companies where the PER and yield are the same number.

So taking things at face value, I think this is a good buying opportunity, so I've increased my position size about five fold at the recent lows, and just hope there's no more bad news to come out. Given that the company is nearly three quarters of the way through this financial year, they should have a good handle on how the results are likely to look, so confirming the full year forecasts at this stage should hopefully be relatively low risk.

Finally it has to be noted that, yet again, a UK stock which was about to report poor results was aggressively sold off by insider dealers (i.e. trading illegally, having been tipped off that the results were likely to disappoint) in the days preceding the results…

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Entu (UK) PLC is engaged in the sale of replacement windows, double glazing, entrance doors, patio doors and exterior improvement products within the United Kingdom. The Company's segments include Home Improvements, Energy Saving & Insulation, and the Repair and Renewal Service Agreements (RRSA). The Home Improvement segment products, doors, windows, conservatories and roofline, are sold through separate brands. The Energy Saving & Insulation segment products include solar photovoltaic installations, air-to-air heat pumps, voltage regulators, remote heating controls and boilers, as well as cavity wall insulation, external wall insulation and loft insulation. The Company's brands include Astley Facades, ZEST, Zenith, Weatherseal, Penicuik, Europlas, St Andrews, St Helens, Eco Piggy and Job Worth Doing. Astley offer external wall insulations and render systems, lightweight external wall framing, composite and timber cladding, as well as specialist terracotta and aluminum rain screens. more »

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Vp plc is engaged in equipment rental and associated services. The Company is engaged in providing products and services to a range of end markets, including infrastructure, construction, house building, and oil and gas, both in the United Kingdom and overseas. Its segments include UK Forks, Groundforce, Airpac Bukom, Hire Station, Torrent Trackside, TPA and TR Corp. The UK Forks segment is a hirer of telescopic handlers and tracked access platforms. Its Airpac Bukom segment offers oilfield services and is engaged in provision of specialist compressed air and steam generation services. Its TPA segment provides equipment rental and installation of portable roadways, walkways and stairways. Its Hire Station segment is a provider of small tools, lifting, safety, survey, press fitting and low level access equipment. Groundforce is a rental provider of excavation support systems and specialist products.TR Group provides technology solutions to corporate, industrial and government clients. more »

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

19 Comments on this Article show/hide all

mrwhits 21st Jul '15 1 of 19

Hi Paul,

I agree that ENTU is a stonking buy, not that I ever sold any before or after the news.

Looking further into the report it looks OK for a half year report, as long as they do what they say in the second half, but then if they do disappoint then it is probably either in the price or will move it a small amount.

ENTU to me looks like a classic Dreman play, buy, forget for 12 months, re-evaluate then, if it is still Dreman-esque keep, forget for another 12 months.

How hard is that? easy as can be, but not many can follow it.

Contrarian investing is dead, long live contrarianism!


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Effortless Cool 21st Jul '15 2 of 19

In reply to post #103328


Regarding ENTU, I'm one of the ones that sees things differently. Quite simply, these results did not reflect the story I bought into, so I sold out entirely this morning at a loss of over 20%.

A few of my reasons:
- The clear leak of these results several days before their accelerated publication suggests an unacceptable level of moral hazard.
- The glib dismissal of what were undoubtedly disappointing results as being "in line with management expectations".
- Every one of the four segments delivered revenues below my projections, so there is not even one bright spot.
- The recent Board change means shareholders of this small cap company are now paying a director £200k+ a year to work solely on acquisitions and integration.
- The company does not generate anything like enough cash to maintain dividends and pay for acquisitions, so any such acquisitions made will result in masses of new shares being issued.
- The approach of paying massive dividends whilst simultaneously spewing out shares to fund acquisitions is strategically incoherent.

Maybe there is value here now, but I think it is fundamentally a bad company and am a lot more comfortable being out.

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bobo 21st Jul '15 3 of 19

Have you reported them to the FCA?

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BlueFrew 21st Jul '15 4 of 19

In reply to post #103330

I have also sold ENTU for many of the same reasons. The results may have been in line with management expectations, but they certainly weren't in line with this (ex-)shareholders expectations. Perhaps management should be a bit more forthcoming with shareholders and a bit less communicative with their insider dealing friends.

I'm also puzzled by the massive increase in receivables, especially when sales and profits are down. Perhaps I'm wrong, but it seems like a company desperately trying to meet it's IPO promises and not warn on profits in the first year. Trouble ahead?

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herbie47 21st Jul '15 5 of 19

Paul maybe right but for me there seem to be too many risks and negatives with Entu (UK) (LON:ENTU), at the moment, so I'm looking to sell my holding. The company they have taken over sounds as though there could be more problems, losing a lot of staff does not look good either. One to watch.

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coombe 21st Jul '15 6 of 19

In reply to post #103330

I agree with you - this looks like a 'bad company'. There's virtually no asset backing and so its a 'hope' stock with dividend jam to attract the punters.

Just some further thoughts :

  • 8% yield on admission price was a huge red flag for me. If it looks 'too good to be true...... it is'.
  • There are 65,600,000 shares in total , which will mean an annual cash payout of £5.248 mil. This is rather a lot for a cyclical business.
  • Building a business in a fragmented marketplace gets much, much tougher as time goes by.
  • The chairman has already made a pile at the IPO . He still owns some 30%.and would probably wish to exit when the time is right. He has reputation for being an astute businessman.
  • Not bad for a business set up in 2008.
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JDW72 21st Jul '15 7 of 19

I'm confused by the expectation of full year eps of 13p+.

Last year, the H1 eps was 6.5p and full year was 12.3p so H2 was worse than H1.

If we give the benefit of the doubt and assume this year H1 and H2 are the same, that gets us to 8.2p, not 13p, with a p/e of about 13. Or am I missing something?

Pays a decent divi (although as noted above quite how sustainable that is is open to question).

I tried to make contact with the CEO earlier this year and he was tricky to contact and finally responded to my various attempts with a "we're in a closed period so I can't talk" response which they clearly weren't when I started trying to get in touch.

It just feels a bit all over the place from a strategic perspective. Acquisitive yet looks to have bought a bit of a lemon which it is having trouble integrating, is paying out massive dividends. Losing key staff is never a great sign either. I assume they will have gone to a competitor.  The link with Flowgoup is going nowhere as those boilers aren't going to sell so that doesn't help.

When you have Epwin (LON:EPWN), £SFE etc. in the same(ish) sector, neither of whom have these types of issues and both of whom have a track record of delivering, I can't find a reason to hang on to Entu.

I would not be surprised to see an earnings downgrade from the broker, a major fundraise for an acquisition and an RNS indicating trouble integrating Astley Facades in the next 6 - 12 months......

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iwright7 21st Jul '15 8 of 19


I feel the same way. The Stocko Ranking numbering were great (maybe too good) when I brought in, but they haven't delivered in H1 and there are too many problematic issues to make me want to re-buy. Ian

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Camtab 21st Jul '15 9 of 19

I have 3 issues with Entu. Why do they need to offer such a high dividend if the story is so geared to growth? The sector is very sensitive to subsidies and this is not predictable. I don't like their asset to liability ratio driven by their accounts payable to accounts receivable in 2014.

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Dearg Doom 21st Jul '15 10 of 19

Entu rose in price today with good turnover, suggesting the disappointing trading statement expected by some traders in the days before has now been built into the price.

I would have expected a fall which it did do early in the morning session. Good turnover in shares dealt later in the day saw the share price rise. I will be watching Entu management closely over next few months for any financial surprises.

Going back in time Entu appears to have been built up by acquiring other companies with different brand names in different regional areas. Entu came to market at €1.00 offering a generous 8% yield because of its good cash flow business. Why the need for such a good yield for a company that would soon be on the acquisition trail?
The acquisition to acquire Astley earlier this year cost nothing since the 200K initially paid was refunded back to company after some negative findings I presume post purchase.

What did the owners of Astley get if not the 200K? What was the point of selling a 12 million turnover business for nothing unless the owners gain is someway? Maybe the Astley directors had given some personal guarantees to Banks. There was the negative net asset value of half a million shown on Astley 2014 accounts to be considered. . I don’t fully get it! Astley had just begun its own turnaround plan that year.

The 2014 y/e for Astley showed a loss of 3.8 million after an exceptional loss due to the sale of Astley Scotland of 3.5 million approximately. In 2013 Astley lost 1.7 million on 23 million turnover. In 2012 y/e the business seems to have lost half a million on turnover of 10 million. 3.7 million cumulative losses to 31 March 2014 and still rising in 2015. Turnover for the first six months in 2015 have fallen to under 5 million meaning I presume sales are not being generated as quickly and trading losses of half a million as a result have been incurred so far.

I  noticed also that three of five directors resigned in December 2013 from Astley.

Hopefully for existing Entu shareholders, that  management has wonderful turn around skills for new businesses acquired, and if so they can pick up on many other cheap similar businesses going forward. 

I would not be surprised however by a profit warning later in the year.  If not this company is a great buy if it can bring back Astley to break even and make Astley make a meaningful contribution to the bottom line next year.

Entu is a company I feel worth watching from the sidelines at this time. If the price moves without news, than any shareholder simply waiting for RNS news is going to be the last to know.

The gyrations in price interest me.  Any comments welcome.


Dearg Doom

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Munday 22nd Jul '15 11 of 19

According to Barclays there are no director share holders. This causes me some concerns,for Entu.

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slartybartfast 22nd Jul '15 12 of 19

Their website shows:
Ian Blackhurst 4,920,000 7.5%
Belinda Blackhurst 4,920,000 7.5%

I appreciate that Belinda isn't a director, I assume the connection is close enough!

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Yantomawr 22nd Jul '15 13 of 19

RE Amino - AMO

Strong write-up by Simon Thompson in his on-line commentary today

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Munday 22nd Jul '15 14 of 19

Barclays are either not up to date on the director list or Entu are not?

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herbie47 22nd Jul '15 15 of 19

I thought the chairman owns 30%?

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Effortless Cool 22nd Jul '15 16 of 19

Brian Kennedy - not on the Board post-listing but with continuing very strong business links. Potentially a shadow director and another reason I am not comfortable to be invested.

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xcity 24th Jul '15 17 of 19

There are a lot of yarns being spun here, so it is a lot easier to be negative than positive.
First the inside dealing.
Second, saying the results are in line with expectations when that is a) not what the numbers suggest b) not what the inside dealers thought and c) later explained away by problems in photovoltaics.
Three, Astley Facades has had problems for years. Taken over in 2012 by Gentoo (a social enterprise), which was severely criticised by the HCA in January 2015 and stumbling into wild swings in order books and losses. Interim statement says it is operating at breakeven, but it had already proved to be somewhat at odds with the truth by the time I read that.
River and Mercantile appear to have been big sellers on the day of the results (before or after?), so clearly they aren't entirely happy.
I haven't seen the segmental split mentioned by Effortless Cool above (not in the Interim Statement unless I missed it) but the largest segment, Home Improvements, had 76% of group turnover and produced operating profit up 41%. Things don't add up very well. Maybe everything varies a lot. Simon Thompson (who appears to have acquired info not in the report, probably from Zeus the company broker) says Home Improvement contributed 60% of interim profits - so margins there were clearly much lower last year.
The broker appears to have earned their fees as Simon goes on to convince himself that Entu is still a buy.
I have a few, currently standing at a minor loss. I would have bought more if the interim results satisfied me about prospects. But they have decided me to sell. OTOH, there is a decent yield and the company clearly want the share price to be up rather than down (and have convinced at least one commentator) - so I think there might be a chance of getting out at breakeven or even a slight profit if I wait a bit.

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xcity 24th Jul '15 18 of 19

Found the segmental analysis. Everything did vary a lot, but trend lines not looking good.
Home improvement profits little changed over previous 6 months, RRSA profitability down against both halves last year, Insulation sales and profits both down against both halves last year (no obvious sign of any Astley contribution) & the profitability of Energy Saving and Generating was down in last years second half before deteriorating further in this period. Since nothing is steady, I've no idea how there can be any confidence in genuinely independent profit estimates by brokers so they have to be working on strong guidance from the company.

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Paul Scott 25th Jul '15 19 of 19


Interesting points, thanks.

For me, the crux with Entu (UK) (LON:ENTU) was the upbeat Directorspeak about contract wins, big rise in the order book, therefore confirming that they are on track to meet the full year numbers (and remember it's a 31 Oct year end, so they're nearly three quarters of the way through the current year.

For the avoidance of doubt, I would have had no hesitation in selling out if the poor interim numbers had been accompanied with a full year profit warning, but that categorically was not the case. However, the company is now very much on the spot, and MUST hit the full year figures, or at least come very close, to maintain my confidence in the share.

I like the asset-light business model at ENTU - they out-source the manufacturing to what used to be a sister company, Epwin (LON:EPWN) . Entu's sales agents & engineers, etc, are self-employed, so again the business can be scaled up & down very quickly & easily if needed, with no problem of exceptionals, etc.

The business has a track record of being a cash machine for its owners, generating plenty of cash for them to indulge interests such as propping up a rugby club with a £10m loan that was then written off. It's not our business to frown on that - they could do what they like with the business when it was privately owned, but of course that kind of thing stopped when it was listed - with the legacy issues such as the rugby club loan tidied up. Maybe the former owners might seem a bit bonkers, but I'm more interested in the fact that the business generated all that cash in the first place, since I now own a small part of the business.

Check out the free cashflow line on the StockReport, where you can see that it historically has been very cash generative, and with consumer confidence & real incomes now rising, plus the new pensions freedom, then surely the outlook for Entu is much better?

The VAT issue was a red herring, as Entu invoice the vast majority of their sales at standard rate VAT already.

Clearly there were some operational issues in H1, but with the order book now so much higher, they're confident for H2. If the full year numbers do come in as expected, then the stock is likely to be a good bit higher, in my view.

I like buying stocks that have sold off 30-40% on relatively minor issues! (if that's what they are, we'll have to wait a few months for the next update).

Regards, 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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