Small Cap Value Report (21 Mar 2014) - BJU, SNTY, CVSG

21st Mar '14 by Paul Scott

24 comments 23926 reads

Good morning! Thank you for those who have already signed up for my Investor evening in Brighton on 8 April, here is the link for anyone interested. An excellent speaker is lined up, the CEO of an impressive growth company on AIM. Should be an interesting & enjoyable evening.

EDIT: Stop Press! John McArthur, CEO of Tracsis has just confirmed that he will be the speaker at my Tue 8 April investor social evening in Brighton. He'll be doing 20 mins on Tracsis, then 20 mins reflections on AIM, then Q&A. Space is limited, so early booking is recommended.

Brainjuicer (LON:BJU)

These are the most striking results today, in my opinion.

Recapping on my notes here (you can search the archive by ticker on this page here on Stockopedia (see screen grab to the right, which is also a link to that page), and then enter the company ticker in the search box, highlighted by the red box on the right.

So to quickly refresh my memory on shares that report results, I start by reading my last notes on that company.

In the case of Brainjuicer, I reported here on 17 Jan 2014 that the company had issued a trading update indicating that revenue would be up 17% to over £24m, and that profit before tax would be c.£3.5m, "substantially beating" market expectations.

I noted that this had driven a share price rise to 365p, but in the heat of battle, I somehow overlooked the opportunity to actually buy some shares myself. Most annoying, but that sometimes happens when you look at so many companies on a daily basis, it's all too easy to let good opportunities slip through the net unfortunately.

Anyway, I picked up a few shares this morning on the open at 440p, because the results for calendar 2013 published today look so impressive. It is an innovative online market research agency, which seems to focus on the booming area of behavioural science. A friend sent me a fascinating article which touches on this area yesterday, which is well worth a read - click here. It's all about how we are not as rational as we think we are, and that many successes are really…

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Bezhe

21st Mar '14

CVS - veterinary group.

CliveBorg

I've just emailed Synety regarding their proposed placing (ir@synety.com):

Hello
I would like to know why Synety want to make a placing for new shares to corporate investors only, particularly in consideration of the fact that the placing would represent a significant proportion of the existing share quantity, and at a discount to the current share price, thereby creating a dilution, when the company’s positive future is already well known to market watchers in general.
Thanks in advance,
Clive Borg

I will let you know if they reply.

tads

Hi Paul

CVS

Please note the correct spelling of veterinary. VETINARY is what they say in Yorkshire.....when talking about Mr Herriot.

As a vet with over 30 years in general practice I would be wary of CVSG. One corporate outfit has gone bust. I'm not saying CVSG will go bust but they do have a habit of paying over the top for goodwill.

Cheers

Mike

Paul Scott

Thanks Mike,

I've corrected the spelling mistake!
I agree that groups which grow by acquisition & have a lot of debt and a Balance Sheet stuffed with Goodwill, often come a cropper when something goes wrong. It's a horrible way to build a business in my view.

Regards, Paul.

pyemckay

paul, regarding the link you provided regarding luck , there was program on bbc2 recently called HORIZON- how we really make decisions. Daniel kahneman was in this too and I can say it was the most insightful program i have ever watched. everyone has "confirmation bias" whether they think they have or not and affects every one our decisions . There was a lot of the program dedicated to trading and financial markets. very very interesting indeed and I couldn't recommend it highly enough.

not available on iplayer yet but heres the details.

http://www.bbc.co.uk/programmes/b01rg025

kevanp

Confirmation bias is a massive factor in the interpretation of information and consequent decision making — even in something as apparently objective as scientific lab research. They say that we are born with just two fears — falling and loud noises. I reckon we're also born with a powerful drive to have our prejudgements confirmed.

stpalm

Maybe they're doing the usual city thing greasing eachothers palms. Its a cesspool out there!

carla77

The Directors of Synety have treated their shareholders with contempt, this arrogant behaviour by companies infuriates me.

If I were a shareholder I would be asking questions as it stinks, it should be made illegal and the directors should be whipped.

marben100

Don't get mad, get even: as Paul suggests, the best way to express your displeasure is to show up at the meeting and vote against. Remember a special resolution, which is required to waive pre-emption rights, needs a 75% majority. Directors rely on the apathy/inaction of their retail shareholders to put these resolutions through.

Anyone unfamiliar with the process of attending and voting at meetings can find good information here.

NB even if you're unable to attend in person, you can submit your proxy vote by post (see the link above for more information).

Cheers,

Mark

Beginner

Have a look at the stats on Red24 (LON:REDT) , Stevie. They more than justify the current price, and the share has recently traded above current levels. I own a few of these because I worked (at a subterranean level) for Tonksy. A good bloke, and exceptionally well connected: and that is what counts in their game. Sometimes the tips are actually right!

22nd Mar '14

I'm seeing the Directors of SNTY shortly, so am sure they won't have behaved badly, they have clearly been advised badly. Don't worry, I get the interests of PIs across to Directors when I see them.

Arrogant people at N+1 Singer, who clearly think that private investors are cannon fodder, need a kick up the backside. Remember the names. As well as having a ridiculous name, N+1 are treating private investors with contempt in this deal.

Small Placings can be done in a few moments over the phone - I invest money in Placings sometimes, it's a quick way to do things. But to expect the existing shareholders to just roll over and get shafted, er no!

If nobody stands up for the small shareholder, then people like N+1 will continue to walk all over our interests, whilst charging £500k for doing nothing.

Regards, Paul.

cig

"It didn't need to be underwritten, as the discount in price was plenty to attract existing holders to take up their entitlement."

Talk is cheap, would you offer to underwrite the placing with your own funds then? It's not obvious to me that an open placing would work as well, the price has only been above 250p for a few weeks, for net buy volumes that are probably smaller than the placing size, so it seems to me adventurous to predict the outcome of an open placing for such a sizeable issuance (relative to the size of the company). It's true that the institution would have had to pay a premium to buy on the open market, but they also may have been totally uninterested without a discount -- there are other fishes in the sea. If a placing fails, it's pretty bad for the company as you get a price collapse, a shortage of funds, and a sunk credibility all at the same time.

If underwriting is so risk free, maybe people from your network could form an underwriting syndicate (collectively you surely have the firing power necessary) that offers to underwrite placings for small caps. I'm sure the nomads will then be happy to structure the placings as per your instructions.

foxy1959

clg,

i take it you are from N +1?

23rd Mar '14

Mark,

Thank you for your reply, fortunately I am not a shareholder otherwise I would probably have sold.

Regards

Peter

Hi Cig,

I would have happily given an irrevocable undertaking to take stock at 250p yes, because I already like the company, and have been buying in the market at prices of up to about 310p.

My key point is this - if companies do a discounted fundraising, then they have a moral obligation to offer discounted stock to existing shareholders first. They also have a legal obligation to do so, unless they get a shareholder authorisation to disapply pre-emption rights, but sadly those votes usually go through on the nod.

Look at the way Costain structured their recent fundraising - because that is the fair way to do it. They offered the bulk of the new shares, at a discount, to existing holders. Then a smaller quantity were agreed in a Firm Placing. Any stock not required by existing shareholders in the Open Offer would then be Placed in a second Placing. I think in that case it was underwritten, but it really didn't need to be, because by offering the stock at a discount you are effectively obliging existing holders to take up their offer entitlement.

What has got right up my goat with the Synety (LON:SNTY) fundraising, is that the Open Offer is just a fig leaf, it's absolutely tiny in size - 200k shares at £2.50, so £0.5m in a total deal of £5m. So 10% of the new shares only are available to existing holders, and 90% go to Institutions in the Placing, that is all done behind closed doors. If they were paying close to the market price, then I wouldn't have a problem with that. It's the deep & unnecessary discount that is the problem here.

We're in a bull market, and for good growth stories such as Synety, there is absolutely no need for discounts in fundraisings right now, and it shows that the broker has done a poor job (and that management didn't stick up for shareholders enough that it was agreed) that such a steep discount was agreed here.

If you look back at the timing of the deal, the share price was just under 300p at the time the meetings would have been happening on this deal. So a book-building exercise should have happened, and in my view the correct price would have been around 280-290p for such a small deal as this. That's exactly what happened with the Numis deal to raise money for Ilika (LON:IKA) - the book-building was done in about 48 hours, and arrived at a price that was less than a 10% discount to the market price. It was a similar sized deal, and was also over-subscribed.

So in my view, N+1 did a lousy job on this fundraising, and that has harmed me as an existing shareholder. These companies charge a lot in fees, for doing very little, so when they screw things up for existing shareholders we have every right to kick up a fuss! I now own a smaller percentage of this company than I should have done if the fundraising had been done properly, at a price close to the market price.

Regards, Paul.

I can agree with you when you're saying that they could have got it underwritten it for a better price if they had tried harder, my main point was that not underwriting deals that are large relative to market cap seems imprudent. So yes to brokers trying harder, but no to sizeable open placings without a backstop, which I think are too risky for both the companies and their shareholders.

The syndicate point was a bit tongue in cheek but not only: there might be a true hole in the market here. Such a syndicate would quickly get known and would be asked every time there's a funding round, giving you the opportunity to fix/improve the problem and participate in placings at institutional prices or get paid underwriting fees. It would also help resolving an issue with involving PI as things currently stand: the regulatory burden of actively promoting to PIs ("retail investors") is probably too high to be worth doing actively for small caps, so practically all a company can do is issue a RNS and hope to be discovered (where you as a blogger can help, but it won't work every time for the issuers, as surely on occasion there will be companies you don't like). A syndicate structured as a commercial entity would work around that as it would be considered a professional investor for regulatory purposes.

@foxy1959 no I don't work for N+1 or any other industry player. If I have a bias here is that I find Synety a poor prospect, hence having a bit of trouble imagining that anyone would want to buy more of it at anywhere near current prices, but Paul is probably right that enough people share his view of the company as a growth story that in this specific case a placing closer to recent prices would probably have worked out.

PhilHofGrowYourDough

12th May '14

Brainjuicer (LON:BJU) - 19% drop today on no news as far as I can tell. I know another tipping service previously held these. Could the sell off today have been prompted by a sell recommendation?

Warm regards
Phil

timarr

Hi Phil

I imagine it's this ...

http://www.investegate.co.uk/brainjuicer-group--bju-/rns/agm-statement/201405120700177853G/

The sharp rise in the BrainJuicer share price during 2013 and early 2014 will likely lead to a much higher share based payment charge in 2014 than would otherwise have been the case. We anticipate a total charge of around £1m for share based payments and related National Insurance payments. The comparable charge for 2013 was £0.3m.

Tim

Thanks Tim,

I missed that detail. That's the 2nd time I've held this stock and it's bitten me on the arse.

Happy days
Phil

Small Cap Value Report (21 Mar 2014) - BJU, SNTY, CVSG

Brainjuicer (LON:BJU)

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Paul Scott

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