Small Cap Value Report (22 Jul 2014) - HYDG, IDEA, RNO, HRG, SCPA

Tuesday, Jul 22 2014 by

Good morning!

Hydrogen (LON:HYDG)

Oh dear, it's another profit warning from this recruitment company. I last reviewed it here on 22 May 2014, when a rather hesitant trading update referred to lack of growth in fee income, and that they were cutting costs. As I concluded at the time, this is all wrong in a recovering economy. Competitors are reporting stronger sales, as they should be, given the reasonable pace of economic recovery in the UK now - so this should be positively impacting Hydrogen given that 56% of the group's gross profit comes from the UK (from last full year accounts, note 2(b) ).

I don't know if any readers actually use the hyperlinks I put into these reports, so if you don't note that I link to the RNS itself on investegate, and where relevant to my previous articles here. I did put in a deliberately incorrect link a few weeks ago to see if anyone would notice, but nobody commented on it.

Today's update follows the same format as before, saying that underlying business is good, but various delays & problems mean that they are performing badly. Net Fee Income (NFI) actually fell by 7% in the six months to 30 Jun 2014. That's bad.

So management are doing more restructuring, with exceptional costs of £1.8m likely for the full year. Interestingly that means the H1 profit warning does not follow through to the full year, as they say;

The strong client pipeline and reduced cost footprint give the Board confidence that future business profitability will improve, and the Board therefore believes that profit for the full year before exceptional items will be in line with expectations.

So it could have been a lot worse. Although there must be a high risk that something else will crop up in H2 to deliver another profit warning. It's just one after another with this company. The inescapable conclusion is that it's not a very good company. However, it has a reasonable Balance Sheet, with less debt than some other smaller recruiters, and it has consistently paid a generous dividend. the forward yield is just under 6% after this morning's 5p price fall to 77.5p per share.

For value investors, this might be worth a closer look. Although the key issue to my mind is whether management are any good. Current performance suggests they're possibly not.…

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Hydrogen Group plc is a United Kingdom-based company, along with its subsidiaries, is engaged in the provision of recruitment services for mid to senior level professional staff. The Company operates through two segments offering both permanent and contract specialist recruitment consultancy for the organizations. The Company's segments are Professional Support Services and Technical and Scientific. The Company recruits for roles in Professional Support Services, including legal, finance, technology and business transformation placements, and in Technical and Scientific market sectors, such as power, mining, oil and gas and life sciences. The Company's subsidiaries include Hydrogen UK Limited and Hydrogen International Limited in the United Kingdom; Hydrogen Group Pty Ltd in Australia; Hydrogen Group Pte Ltd in Singapore; Hydrogen Group Ltd in Hong Kong; Hydrogen Norge AS in Norway, and Hydrogen Group LLC in the United States, among others. more »

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Ideagen plc is engaged in the development and sale of information management software to businesses in various industries, and the provision of associated professional services and support. The Company is engaged in supplying governance, risk and compliance (GRC) solutions primarily to the healthcare, transport, aerospace and defense, manufacturing and financial services sectors. The Company’s portfolio products include Q-Pulse, Coruson, Pentana Audit, Pentana Performance and PleaseReview. Q-Pulse, which provides quality and safety management. Coruson,which provides cloud-based software solution. Pentana is an auditing software within its internal audit.It has operations in the United Kingdom, European Union, the United States, Middle East and Southeast Asia. more »

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Renold plc is engaged in delivering engineered and power transmission products and solutions across the world. The Company's Chain segment manufactures and sells power transmission and conveyor chain and includes sales of torque transmission product through Chain National Sales Companies (NSCs). It has manufacturing sites in the United States, Germany, India, China, Malaysia and Australia. It also offers leaf chain used in the forklift trucks. Its Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings. It is a manufacturer and developer of coupling and gearbox solutions, from fluid couplings to rubber-in-compression and rubber-in-shear couplings, and a range of worm gears, helical and bevel helical worm drives. It also manufactures gear spindles. The applications of conveyor chain include theme park rides, water treatment plants, cement mills, agricultural machinery, mining and sugar production. more »

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

20 Comments on this Article show/hide all

nevilleaustin 22nd Jul '14 1 of 20

Good Morning Paul, I often follow your hyperlinks, so please keep doing them. Also I like your more recent "bullet point" summaries. With regards from Neville

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DLG12 22nd Jul '14 2 of 20

Yes, links are very useful. Cheers Paul. Any thoughts on IQE today?

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Thegrimester 22nd Jul '14 3 of 20

Your links are great, especially when looking at an old report. It makes it much easier find which one you were refering to.

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intuitive6191 22nd Jul '14 4 of 20

Yes - hyperlinks are useful. Its quite possible that people have clicked on dead links and have not bothered to report or query the link.

I recall a situation some time ago where ZIOC had an incorrect link on the Stockopedia stocksheet to their own website. People nowadays seem to accept dead links as a matter of course and just don't report them.

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CliveBorg 22nd Jul '14 5 of 20

Maybe no-one bothered mentioning the faulty link because for some of your readers, they can't login until after they post a comment, at which point Stockopedia appears to lose those comments. I know I'm not alone in having this problem.
But anyway, perhaps another time you wanted to test your readership with a dummy link, you could actually substitute the real link with one so outrageous that no-one could resist mentioning it.
Suggestion: SexToys r ...

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Whitbourne 22nd Jul '14 6 of 20

Hi Paul, I followed the broken link but it is so rare and I post so seldom that I felt it would be ungrateful to mention it. To err is human, after all. So all the more impressive to find it was deliberate ...

On Hydrogen mainitaining their listing, people are less rational than we give them credit for, in my view. Could the motivation be as simple as pride? There is a certain prestige in being a director of a quoted company after all. And it does give an exit route if one of the founders wants to realise their investment, even if they may not get a good price owing to the lack of liquidity.

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brucepackard 22nd Jul '14 7 of 20

Yes - links useful. Don't click on them every time - but do like to refer back sometimes.

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Welshborderer 22nd Jul '14 8 of 20

Dummy duff links ...hmmm...cute way of covering up an unintentional mistake...quite ingenious!

Seriously I am with the others on this, there are so many invalid links dotted around the various websites they just go unremarked.

Like the bullet points. always a good idea in any financial report in my view where the bullet points should be amplified below allowing the less financially savvy to pick and choose what to read.

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purpleski 22nd Jul '14 9 of 20

Hi Paul

Often click on links but not always depends on the stock and what the link is to. If the link is to an RNS I may have read it already from an Investigate alert. If you link to a page on for example your Google Analytics report will tell you how many people click on the link.

Thanks as always for the reports.

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Paul Scott 22nd Jul '14 10 of 20

Great, many thanks for the feedback, seems like a strong vote of support for continuing to put in links, so I shall continue!

Regards, Paul.

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dscollard 22nd Jul '14 11 of 20

a dangerous precedent if every error is to be construed as deliberate...

FWIW I cancelled my IC renewal today as Stockopedia is a much better cost/value prop and I like your style and frankness. I am a big DYOR anyway .

that said I'm not correcting your homework for you

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AnonymousUser39518 22nd Jul '14 12 of 20

Paul. I don't understand Simon Thompsons share tips of the IC. Today he tipped Netcall again.
* Netcall has a cap of £84m and a share price of 62p
* Great bal sht with net cash of £11.4m
* but pedestrian rev growth. +3% for the last half year so its not even growing and lots of deferred income
* Market expects 2.5p eps this year, so a price earnings point of 25!

I cant agree with that. He would suggest that its worth way too much. What do you think of Simons tips? Buying netcall seems to be asking for trouble

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Bonitabeach 22nd Jul '14 13 of 20

We can (and do) all get it wrong Paul and you appear to be honest when you do....

Judges Scientific (LON:JDG)

The shares have done very well, and are on a forward PER of 20.5 this year's earnings, and 17.2 times 2014 forecast earnings, which is pretty racy rating considering they are buying businesses at considerably lower ratings.

However, that's the beauty of their business model - having not put a foot wrong with roughly 10 acquisitions to date, investors have rightly put a management premium on Judges shares, betting that its CEO David Cicurel will continue his unbroken track record of adding shareholder value from shrewd acquisitions. Judges operates in the medical instruments sector, where small businesses can be bought at reasonable prices, often because the founder wishes to retire for example. This creates growth at Judges, so investors then put a premium rating on its shares, making the whole thing self-fuelling, as more cheap acquisitions continue to drive growth, and hence the share price. Clever stuff.

- See more at:

Kind regards,


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johnrosier 22nd Jul '14 14 of 20

Hi Paul, Renold. I have a more optimistic take on Renold. I must admit it is predicated on the new CEO being able to achieve his aim of 10% operating margins but so far he seems to be over delivering; always a good thing to beat expectations in a recovery story. Also I agree top line growth is slow at +0.9% but compared to the first half last year, -2.3% and second half -0.8% the trend is clearly improving. If global growth picks up and the top line accelerates the operational gearing should be good. I also accept your premise that it looks expensiveish but the analysts, as always with recovery stories, are way behind the curve. A year ago they were forecasting 2.5p for the current year, now 4.44p according to good old Stocko. I have no doubt the 4.44p will move up and be beaten. As for debt, the enterprise value of £164m v turnover of £184m doesn't look bad and should get better as the business does (i.e. market cap up and debt down!). Lastly the pension deficit - this is also a moving feast and with gilt yields higher it should have improved. Also, as the business improves operationally the pension deficit should become less of an issue. I accept there are risks and consequently at 2.0% of my portfolio it is one of the smaller holdings but I do think that recovery stories do often look expensive and often more expensive than this.

Website: JohnsInvestmentChronicle
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RichardK 22nd Jul '14 15 of 20

Encouraging AGM statement from the Vp Chairman (released at 11.00 am).
"I am very pleased to report that the excellent business momentum with which we ended the previous financial year has carried forward into this year. The Group has enjoyed a strong first quarter, delivering good revenue growth in all market segments. The market background remains positive and with current trading ahead of expectations, the Group is well positioned to deliver further good progress this year."

I hold Vp, but may be worth a look in spite of that kiss of death.


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MrM 22nd Jul '14 16 of 20

In reply to post #84892

As Paul is currently on the beach:

Broker WH Ireland say that the shares look fully valued on 22x FY2014 estimates, and they have moved their rating from outperform to market perform, purely on valuation grounds. I agree - it's been an amazing ride for shareholders, but with growth now much harder to bolt on, due to the enlarged size of the group, and a very rich valuation, if it was me, I would say thank you very much indeed, bank my profits, and move on. Each to their own of course!

- See more at:

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Paul Scott 22nd Jul '14 17 of 20

In reply to post #84879


I don't understand IQE (LON:IQE) so had a quick look at the results, but don't think I can really add anything worthwhile. Apologies.


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Paul Scott 22nd Jul '14 18 of 20

In reply to post #84895

Hi MrM,

Thanks for posting that. I've written loads of stuff about Judges Scientific (LON:JDG) in the past year, most of it concluding that I'm impressed with the skill of David Cicurel in making a series of great acquisitions, but I've increasingly warned about the valuation getting too high.

So my analysis was spot-on as it turned out.

Regards, Paul.

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cig 22nd Jul '14 19 of 20

In reply to post #84892

"where small businesses can be bought at reasonable prices" this may not last forever though, if nothing else because the mispricing is made more visible by JDG's past successes on both the buy side (competitors may want to buy cheap businesses too) and the sell side (people seeing their peers getting short changed by Cicurel may demand a better deal), and then there's the macro headwind that anything medical is currently fashionable.

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Highpeak 22nd Jul '14 20 of 20

Thanks for the reports Paul, I find them very useful.

With regards HRG, it does seem that large corporates historically like to outsource their travel arrangements. Maybe this is starting to change....

Also, I note that 4 brokers have HRG as a strong buy! Be interesting to hear their explanations (if any) when they do a re-rate.

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

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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