Small Cap Value Report (21 Jul 2017 - Part 1) - LTG, EMR, KOOV, MIDW, PAYS

Friday, Jul 21 2017 by

Good morning! Graham here.

Edit 1: Change of plan, as Paul is also writing a Part 2 report at this link!

Edit 2: This is the finalised list of stocks covered here in this report:



Learning Technologies (LON:LTG)

  • Share price: 48.9p (+8%)
  • No. of shares: 568.4 million
  • Market cap: £278 million

Trading Update

A detailed trading update from this e-learning business, growing via acquisition.

It's an update for the half-year ending June 2017.

The Board is pleased to report that LTG has made excellent progress over the period delivering on its strategic ambition of building an international business with annualised revenues in excess of £50 million and strong operating margins.  The Board expects the Group to achieve record revenues of not less than £20.8 million for the first half compared to £12.8 million in the first half of 2016, an increase of 62.5%.

That's interesting - the strategic plan is to shoot for a specific revenue target? I generally prefer to see objectives stated in terms of returns on capital, and I'd wonder about how the £50 million target was specifically chosen. I suppose the combo objective of revenue and strong margins is not a terrible substitute in theory (depends how strong the margins are).

The release includes a long paragraph about progress with the NetDimensions Holdings (LON:NETD) acquisition, which is going according to plan.

We also read there is strong organic growth in the group's other businesses and the period-end order book is at record levels.

Overall, it's a difficult picture to understand as there are a lot of different parts to it, as you'd expect with a company growing by acquisition.

The shares have risen so presumably the numbers are better than expected, but the update didn't actually confirm whether or not overall performance was in line with management or analyst expectations.

My opinion: I'm going to sound like a broken clock, and those of you who are long will not appreciate me…

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

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Learning Technologies Group plc (LTG) is a United Kingdom-based holding company. The Company is engaged in the provision of e-learning services. The Company is engaged in the production of interactive multimedia programs. The Company's portfolio includes LEO, a learning technologies firm, the multi-device authoring tool gomo learning, games with purpose company Preloaded and Eukleia, and an e-learning provider to the financial services sector. The Company's subsidiaries include Epic Group Limited, gomo Learning Limited, Leo Learning Limited, Leo Learning Ag, Leo Learning Inc, Preloaded Limited, Learning Technologies Group (Trustee) Limited, Eukleia Training Limited, Line Communications Holdings Limited, Line Communications Group Limited, Line Learning Limited and Line On-Line Limited. more »

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Empresaria Group plc is a United Kingdom-based international specialist staffing company. The Company's principal activity is the provision of staffing and recruitment services. The Company is organized across three regions: UK, Continental Europe and Rest of the World and operates across seven key sectors. The Company targets a balanced and diversified spread of operations across its regions and sectors. The Company also targets professional and specialist job levels where its brands can offer value added services to clients. The Company has three main service lines, temporary recruitment, permanent recruitment and offshore recruitment services. The Company’s offshore recruitment services represents a range of different recruitment services and provides training services in South East Asia. The Company's brands include Alternattiva, Ball and Hoolahan, Become, FastTrack and Greycoat. It has operations in 21 countries. more »

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Koovs plc is a supplier of branded fashion garments and accessories for sale by a third party through Website principally in Republic of India. The Company offers dresses, tops, jumpsuits and playsuits, skirts, trousers and leggings, cardigans and pullovers, lingerie and sleepwear, and swim and beachwear, among others, for women. It offers shirts, t-shirts and polo shirts, vests, jeans, jog pants, shorts, hoodies and sweatshirts, coats and jackets, and innerwear and socks, among others, for men. In addition, the Company offers bags and wallets, accessories, sunglasses, jewelry and watches. The Company offers its products of various brands, including Knockaround, KOOVS, Kultprit, Pataaka, Pepe Jeans, Shuffle, Sole Threads, Vans, Voi Jeans, Modello Domani and Mr Button, among others. The Company's subsidiary is Koovs Marketing Consulting Private Ltd. more »

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

20 Comments on this Article show/hide all

Paul Scott 21st Jul '17 1 of 20

Hi Graham, check your email!! lol

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Julianh 21st Jul '17 2 of 20

Good morning Graham
Any thoughts on the takeover bid for Paysafe (PAYS)? The premium to yesterday's share price is less than 10% which strikes me as much too low for a high growth company on a forward p/e of 14.4 and a PEG of 0.67. Having said which, the market has always assigned a low p/e to Paysafe maybe because of the regulatory risks.

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andrea34l 21st Jul '17 3 of 20

The update from LTG looks really good to me Paul, so will look forward to your comments on them - you covered them in April and suggested they looked interesting at 46ish pence, and after today's rise the price is not much beyond that. Slightly summarised commentary:

...LTG has made excellent progress over the period delivering on its strategic ambition of building an international business with annualised revenues in excess of £50 million and strong operating margins. The Board expects the Group to achieve record revenues of not less than £20.8 million for the first half compared to £12.8 million in the first half of 2016, an increase of 62.5%.....

...the integration of NetDimensions... has been successfully completed on time. The transformation program will continue during the second half of 2017, with the full-year synergies and settled cost base being realised from the beginning of 2018 as planned. NetDimensions' customer support teams have been relocated to the geographical territories that they serve, hosting services are being migrated to our centre of excellence in Nashville, and we are investing in our core technology team headquartered in Hong Kong....

The strategic progress in the first half of the year has been underpinned by strong organic growth in LTG's other businesses and our period end order book is at record levels, demonstrating excellent momentum as we enter the traditionally stronger second half.

LEO, the Group's comprehensive solutions provider, has achieved 50% growth in sales compared with the first half of 2016 and built a strong sales pipeline for the second half of the year. The Civil Service Learning contract, being delivered alongside our strategic partner KPMG UK LLP, is progressing well and in line with expectations.

Preloaded, our 'games with purpose' division has performed very well... and Eukleia is seeing an increase in demand with the introduction of MiFID II regulations.

Our software licence businesses are performing strongly; gomo has won a number of key enterprise contracts with its industry leading cloud-based multi-device authoring tool whilst Rustici has continued to expand its recurring licence business at a pace beyond our expectations...

...the Group continues to build recurring revenues and to diversify our business outside of the UK.

LTG continues to drive strong operating cash flows. At 30 June 2017 gross cash was £11.5 million (31 December 2016: £5.3 million) and net debt was £6.1 million (31 December 2016: £8.5 million). After adjusting for funds due to remaining NetDimensions' shareholders and net payments due as a result of the exercise of share options just prior to the end of the period, adjusted net debt was £9.8 million at 30 June 2017.

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dfr1 21st Jul '17 4 of 20

i too would like to here your points on pay safe paul [ i own shares in this company] but wonder if it could attract another bid from another foreign investor. thanks

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ridavies 21st Jul '17 5 of 20

I echo JulianH's question on PayPoint (LON:PAY).
Since Paul has commented on this in the past (2014), I have asked him for similar comment via the link given above. However I would be interested in your thoughts too. So here is broadly what I put on the Paul link today.

PayPoint (LON:PAY). I know they are probably way over your size limit now, but Paul's interest and insight in the past (2014) into this in some ways strange and controversial company make them interesting!
Today we have an acquisition AND a bid! The bid is complicated and I dont see any reference to the Board of Directors recommending it. One largish shareholder - Old Mutual with 10% - wants out, but nothing more than that. The only other largish shareholder on the website (Fidelity - again around 10%) makes no comment.
Your comments would be very much appreciated on the content of the bid and the exact timing juxtapoisition of the acquisition and the bid.

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Ramridge 21st Jul '17 6 of 20

Hi Graham - Re Learning Technologies (LON:LTG) A quick glance at broker revenues forecast says £49.2m for the full year .  So a £20.8m half year performance is not particularly exciting.
Overall I agree with you. Why the SP is up 9% beats me. I must be missing something.

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andrea34l 21st Jul '17 7 of 20

Thanks for the write-up on LTG Paul, some really good points made. I looked at the accounts for the last finals, and there's an awful lot of "acquisition related deferred consideration and earn-outs" and the liabilities, especially long-term, have ballooned - perhaps one would expect all of this with an acquisition-led strategy. I'm tempted to watch, and maybe dabble with only a tiny position only when the price settles.

However, a strategy that I have started to increasingly apply to my investments is that I watch what happens to the share price of a company on the day of a trading/results announcement AND on the day after that, and I only buy if it is up on both days - I looked at EGS yesterday and was left undecided... and today the price is currently down 3%, due to profit-taking I guess, and so I won't be investing at the present time. I realise that this strategy won't always work and I also miss out on a bit of the price rise, but for companies with good momentum it seems like a safer investment criteria and can avoid short-term hysteria driven by market makers.

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AstonGirl 21st Jul '17 8 of 20

In reply to post #201243

I think you may be referring to Paysafe (LON:PAYS) Paysafe here

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clarea 21st Jul '17 9 of 20

I know its outside of your market cap limit Graham but any chance of a comment on punter fave Paysafe.


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sminers 21st Jul '17 10 of 20

Love your comment on Efficient Market Theory lol

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Graham Neary 21st Jul '17 11 of 20

In reply to post #201283

Haha, thanks

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JohnEustace 21st Jul '17 12 of 20

In reply to post #201299

Heaven forbid that markets become efficient or investors become rational. I would be a lot poorer.
But if anyone wants to believe in that stuff, please carry on!

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andrea34l 21st Jul '17 13 of 20

Sorry, I gave Paul the credit for the write-up... it's Friday (zzz).... thanks GRAHAM!

Have a nice weekend all.

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Graham Neary 21st Jul '17 14 of 20

In reply to post #201179

Hi Julian,

I've thrown in my tuppence worth.

Best wishes


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Graham Neary 21st Jul '17 15 of 20

In reply to post #201307

No worries andrea. Thanks very much for the comment!


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bestace 21st Jul '17 16 of 20

I’m not a holder of Learning Technologies (LON:LTG), but not for the first time I think the StockRanks are failing to accurately reflect the business here.

LTG came to market by reversing into a cash shell called In-Deed Online plc in November 2013. If you look at the Stockopedia page for Learning Technologies (LON:LTG) you can see the 2012 results listed there reflect the trading results of In-Deed Online, and not the actual LTG operating businesses.

The 2012 results of that unrelated business showed an operating margin of negative 8,519% and ROCE of negative 47%, whereas the actual 2012 results for LTG (then known as Epic) showed an operating margin of 8% and a ROCE of 39% (both figures positive).

For the 2013 results, the Stockopedia page is showing the trading results for the correct company, but the loss for that year reflects the costs of listing and the reverse takeover, amounting to £2.1m. Strip those out and a loss of £1.1m turns into a profit of about £1m, the operating margin improves from negative 12.3% to positive 14.9%, and ROCE improves from negative 62.7% to positive 75%

You might wonder why the results from 2012 and 2013 are relevant to today’s StockRank, but the Quality score uses 5-year averages for operating margins and ROCE so in my view two out of those 5 years are based on information which is either misleading or plain wrong:


Adjusting for the 2012 and 2013 results in those 5-year averages, I reckon the Quality score should be assuming a ROCE of +24% not negative 31.5%, and the 5-year average operating margin should be +5.6% not  negative 1,654%.

Furthermore, because LTG doesn't report a gross profit line in its income statement, both the Piotroski score and the 'gross profits to assets' ratio in the Quality score appear to assume this means gross profit is actually zero, with the stock being downgraded accordingly.

I have no idea what impact all of this has on the overall Quality score, other than to suggest that the ‘true’ score is probably a lot higher than the reported score of 27.

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ridavies 21st Jul '17 17 of 20

In reply to post #201259

Yes I am off course referring to Paysafe (LON:PAYS). A non-deliberate error, and thank you for pointing it out.

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ridavies 21st Jul '17 18 of 20

Thank you for your expert comments on Paysafe (LON:PAYS) (when I asked for them in an earlier question I incorrectly put in PayPoint (LON:PAY) but I am sure you picked up the mistake!)
I am a little surprised that you did not comment on the fact that the bidders would require the sell off of so called non core assets before the takeover; that they were planning to use part/all of the funds released from that sell off to finance the takeover; that there was no comment from the Board of Directors on whether they were recommending the offer or not (something that is quite unusual?). If you can find time to comment further, I and no doubt Julianh would be grateful. Thanks in anticipation.

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Glaws2 22nd Jul '17 19 of 20

In reply to post #201323

Bestace - fantastic post - thank you.

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Maddox 4th Aug '17 20 of 20

Paysafe (PAYS): I regard 590p as a very low-ball offer. The payments sector is hot at the moment and with the US online gambling market on the verge of opening up Paysafe is a very attractive potential player. the offer for Paysafe is at x15 forward earnings, whereas Worldpay are being taken out at x30 forward earnings and a mature business with no US exposure.

The attraction is that with a Private Equity owner the Management Team get a pay-day, get to keep their jobs and probably a highly attractive incentive scheme to realize the company's full potential - when it eventually comes back to the market loaded with debt finance.

I'm a holder and staying in, I'll be very surprised if Blackstone and crew manage to get Paysafe at this price.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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