Small Cap Value Report (22 Jul 2016) - LAKE, INL, SPRP

22nd Jul '16 by Paul Scott

51 comments 25222 reads

Good morning!

I had a rip-roaring lunch yesterday with the CEO of Research Tree. It's a website that enables private investors to access broker notes - a hot topic which we've been debating here recently. Private investors rightly complain about being blocked from receiving broker notes, under some absurd regulation, which harms our interests instead of protecting them.

Well, here's a service that helps bridge that gap. I'm impressed with the website, and have taken a free trial. There are some good providers of research on the site, including N+1 Singers, and Finncap, and many others. They're hoping to add some more big name brokers shortly. It's handy to have research all in one place, so you just put in the company name, and up comes a list of what research is available. Well worth a look, I think.

Also, we have a special discount code, which gives 20% off annual, or 10% off monthly pricing. The code is "stockopedia". For the avoidance of doubt, I am not getting any commission for mentioning this! I'm just happy to flag up anything that looks useful for investors, and I think Research Tree is a good initiative, to help level the playing field for private investors, so I hope it is a success.

Lakehouse (LON:LAKE)

Share price: 29.25p (up 24% today)
No. shares: 157.5m
Market cap: £46.1m

(I hold a long position in this share)

Board changes - the share price has reacted very positively to news that Bob Holt is joining the Board, as Executive Chairman. Googling his name, I see he seems to have been the founder of Mears (LON:MER) - which is big in providing outsourced services for social housing - so highly relevant experience for Lakehouse.

Ric Piper is stepping down from Chairman to NED.

I think there's a decent underlying business here. Although there's a nagging doubt that it might have one more profit warning in it, possibly?

PMI data

There's been a sharp deterioration in PMI data today, which is forward-looking, hardly a surprise given the impact of Brexit, and the uncertainty that has created. So the only question remains how long & how deep this downturn will turn out to be.

Interestingly, the mid caps index has barely moved today, so it seems that the market is already pricing in a downturn.

Unlock with Email

Unlock with Google

Already have an account?
Login here

doug2500

22nd Jul '16

The other problem with research tree is that you have to be a sophisticated investor to join it, which somewhat fails to level the playing field.

You need to pass 2 out of 3 tests:
Large portfolio
Frequent trading
You have had a city type job

So if you like to keep costs down by not trading, and buy companies for the long term rather than icons on a screen, you're stuffed unless you work in the city.

RMundy

Hi doug2500

We're as frustrated as you are about this but we have to comply with the EU regulations. The point I find most bizarre is the 10 trades per quarter. I'm not sure why trading frequently should mean you are sophisticated enough, and on that metric Warren Buffett probably wouldn't meet the criteria.

We are looking at the possibility of a cheaper offering with slimmer access that is available for all but we're not quite there yet in terms of the compliance and dev work.

Cheers
R

Santawani

Hi Paul
A bit late to the debate, but wanted to say thank you for bringing Research Tree to our attention. I was one of the posters the other day about my frustration with Morningstar for just dumping their forecasts, so very much appreciate you taking the time to give us clues as to what's out there for the full, well-rounded investing service by mentioning other companies that may be of interest to PI's.
It's always useful to know what's out there and I will definitely look at trying RT out when I have got all the sand out of my hair after a good old fashioned UK holiday with no exchange rate stresses. Jolly obliging of the weather to play it's part in showing we can go it alone without brexit!
Santa

AnonymousUser37607

At least you had the initiative to try and do something on this research issue. The regulations are a joke but unfortunately you can only work within the existing framework.

Couple of points:

- Most equity research is not worth reading, certainly not worth paying for
- Most is pure maintenance
- Many analysts (and brokers/banks) are simply cheerleaders for corporate clients; biased as hell
- Investors are not going to get rich by following broker recommendations without undertaking further independent analysis; and thinking objectively about any broker research they read
- At times you get more from reading a research piece that arrives at a different conclusion compared to the others; an outright sell is much rarer these days

Having said all that I have found it useful at times when a piece of equity research has a decent overview of a company (as a starting point), its competitors and the industry etc. Also when there is very limited coverage it can be insightful to see how the forecasts / expectations have been derived; you can then judge whether this is conservative/aggressive/about right etc.

I applaud your efforts on this and appreciate it "ain't easy". My concern is that the subscription price you have to offer to make it work for your business is perhaps tough to justify by the quality of the actual equity research itself (based on the list of brokers included to date) i.e. the actual equity research itself is not that insightful or valuable.

muckshifter

A couple of months ago Lakehouse was discussed on Paul's daily report, and I thought I would apply a contractors eye to their results, to see if I could understand what had gone wrong, even though they are nothing like the sort of contractors I've worked with.

By the time I'd had a good look at them, everyone had gone from the thread, and as I've often provided the final post on scvr without any reply, decided not to bother.

But I do remember the overall impression I came away with after trying hard to understand their likely "claims" situation. It looked to me like the company had gone from an understandable and controllable sort of contractor into a really uncontrollable "dogs breakfast" of numerous newly obtained subsidiaries, which I would defy anyone I knew in the past to control, without a huge increase in staff loyal to the CEO. Several of the many new subsidiaries had, afaics, unique cashflow and reporting properties which would allow either a dishonest subsidiary manager bent on getting a bonus, or a main board MD bent on showing the world good news for a while, to play havoc with the true numbers.
Didn't buy any!
Regards.

dfs12

Hi Paul, thanks from me too, both for trying to put these stupid rules right and also for finding options for PIs. Research Tree is certainly worth a look and like Santa I'll give them a go once the summer hols are out of the way. Glad it was a fun lunch! I must be one of the only people in world who is generally impressed by estimates put out by brokers... not all of them obviously - but when one looks at big companies covered by half a dozen brokers, the concensus estimates are usually damn near right give or take a few percent. And often estimates for smaller companies aren't far off too. Clearly the buy/sell recommendations and the price targets are utter garbage but the rest is well worth having. Although I do remember reading a research note on our old friend Globo shortly before they went bang that was pure fiction!

Andrew L

Research Tree - The concept is interesting but I would probably use it as a reference tool. I.e. if there is a company you like have a look at the research on it. A huge amount of "research" is not particularly useful. I had a brief look at Research Tree's reports that are available and it is swamped by daily notes, company updates etc etc... so creates a huge amount of noise. While a site like Stockopedia certainly isn't perfect is is without the noise and is more fact driven. A look of research also fails to see the wood for the trees and is from analysts focused on a particular sector. It is also often quite alarmist in nature. I.e. downgrade Unilever as the quarterly sales growth at 3% was lower than our forecast 4.5%.

If this research from Research Tree was so excellent then why don't fund managers, who have access to it, all outperform?

gus 1065

23rd Jul '16

I wonder if part of Friday's sharp rise in Lakehouse (LON:LAKE) following the appointment of Bob Holt might be down to speculation that he offers a bridge to a possible future acquisition of Lakehouse (LON:LAKE) by Mears (LON:MER) ?

At roughly 10x Lake's market cap it would be a bite sized acquisition for Mears and given Lake's recent troubles could be available at a knock down price. Mears (LON:MER) itself has been treading water recently so some sensible corporate action might give it a lift. There is a clear crossover between the two businesses and the tapping of Mears' client base with the provision of Lakehouse (LON:LAKE) 's services could be a win win for both companies. Add in possible synergies from shared overhead savings and increased purchasing power and a longer term tie up might make sense. Might be worth taking a trawl through the share register to see if there are any significant common shareholdings (other than Holt himself when his options vest!) that might form the basis for the acquisition.

Gus.

00mrmark00

Hi Ram,

I'm sure I read in the admission document that they intended to pay down £40m of the debt from the gross £43m placing proceeds. But there was no mention of this in the YE results. Probably due to the timing of the IPO etc.

There was some mention of having paid down the Bank Debt and Lease debt with a new £18m or so RCF.

The bit that did interest me, was that the majority of the debt which is owed to the founding family and Northedge Capital with an annual interest payment of 10%. Not a bad return if you can get it ;)

I'm hoping it is this £40m that is going to be paid down. Reducing net debt to approx £20m.

Cheers, Mark

shawsdale

Regarding Accrol Group (LON:ACRL):

There is a presentation on the results available on the company web page which indicates that post-IPO debt was reduced by £37.5m.

Quoting from some of the bullet points on p10 of the presentation:

"First three elements of debt (which I presume are bank loan, finance leases, shareholder loan) all repaid on listing, replaced with £18.0m RCF with day 1 draw down of £13.0m"

Disclosure: I have some doubts about vulnerability to sterling weakness once the current hedging arrangements expire but (in a very modest way) decided to buy some shares in a company growing above 15% p.a. in a sector less likely than many to be impacted by a possible recession, and with an intended dividend of 6p per share in the coming year.

MichaelFBS

Yes I agree one does have to be careful on how much cost you load up. I trade very little (though looking back more than I should so must still try and be more focused and trade less) plus Stockopedia (UK only adding US is something I would like to do but it is a lot so I have held back), plus a couple of other services which comes to about 0.5% of portfolio.

Sharescope Plus is the other service I have been toying with but I am not sure how much it would add to the investing process. Any comments welcome.

As an aside on Terry Smith I bought £1,700 for my sons JISA in April 2015 and it is up 35.49%! I should have invested my whole portfolio with him and gone to the beach! At the moment what keeps me from doing it is I enjoy the investing process and still feel that I can achieve a sufficient return to make it worth while but at the moment not 35%/16 monghs; that said if Mr Smith keeps returning 35% every 16 months I think will give up!!!)

I can not believe that frequent trading is a sign of a sophisticated investor. (Buffett talks about having a punch card with 20 spaces fir ones whole investing life for heavens sake). It is frightening that the people who make up these rules are the same ones who police the financial services industry. They really are clueless. No wonder the financial crisis of 2007/2008 happened.

JohnEustace

Hi Purpleski,
I'm a Sharescope Plus user for a couple of years now plus Stockopedia UK+US+EU since the start of this year. I would find it very hard to give up Sharescope because I have developed a non standard chart setup that works for me in terms of timing buys and sales. I've generally found selling to be the more difficult decisions to make - I usually have a list of things I would like to buy.
If you are a buy and hold investor then the charting side is probably not so relevant for you.
The share screening functions and filters in Sharescope are excellent but a bit old fashioned in their interface. There's a lot of functionality in it for those who like to get stuck in. It has the feel of a legacy product being a programme that is installed and run on your PC and these days they seem to be pushing their web based Share Pad product more than Sharescope. I haven't tried that yet. Phil Oakley's regular articles for them are excellent and he bases his write ups on using Share Pad.
Re Fundsmith, I have a similar tale in that I told my sister that was the best place to put her savings last year. Perhaps we should start following our own advice!

Hi Shawsdale, thanks for pointing that out. I was reading through the YE results RNS, which annoyingly doesn't include the latest information. I.e. events since year end. However, these do seem to be covered albeit in less detail on the results presentation you have highlighted. So many thanks for that.

Cheers, Mark

Paul Scott

I tried Sharescope for a few months, but didn't get on with it - probably because I have got too used to using the Stockopedia StockReports, and so get everything I need from this site, supplemented with bits & pieces from elsewhere (e.g. >3% ownership data from Morningstar's free service).

I find anything that is a just a sea of numbers on the screen quite offputting. So I like the colour-coded graphics on the StockReports. Suppose it's all about whatever you get used to.

In my view, people who develop financial sites forget that the typical user is not an expert in databases, and finds anything that resembles a database, setting up filters, etc, really very fiddly & off-putting to do. I find that even with the stock screening tool here - it's quite tricky to use I find, trying to select which fields to filter on, from a gigantic long list, and it not always doing what you thought it would do, then having to work out why, etc. Hopefully a new, and easier to use interface could be dreamed up? Maybe a wheel of options by type, in a circle, with drop down items from that, sorted in order of most frequently used?

Ramridge

24th Jul '16

Hi Mark -
Yes, I have gone through the admission document and the recent results and I think you are right.

Admission doc:
"The Placing will result in the issue of 43,328,144 Placing Shares, raising approximately £43.3 million, all of which will be used to settle existing debt within the Group and to pay the Company’s costs in connection with the Proposals of approximately £1.9 million."

From the company's recent accounts and presentation, they have confirmed that they have paid off the 'first 3 elements' = £55.6m and replaced with a new RCF with £13m drawndown, which makes a net debt reduction of £42.6m , pretty much aligned to the admission document commitment.

That makes net debt as at July = £60.6m - £42.6m = £18m.

A lot healthier which makes me think of re-buying at current sp level.

Regards, Ram

jonesj

10 trades per quarter ?

The law makers are obviously so unsophisticated that they do not know the difference between an active trader and a sophisticated investor.

Then how does this work ? I typically make over 10 trades in the first quarter of the financial year, as it includes some new year tidying, followed by some realisation of capital gains at the end of the tax year.
So am I sophisticated in the first quarter and ignorant for the remainder of it ?

MPs, MEPs and European Commissioners should interfere less in our affairs.

Considering state borrowing is out of control in many countries, particularly our own, they should fix that before having the damn cheek to control what we do.

dscollard

not sure I would compare ShareScope and Stocko but that is based on my personal use and experience. I use both and have been a Pro user of ShareScope for over 5 years and a Stocko user for 3. ShareScope is much more fiddly but much more powerful as a trading tool. In my view (and based on my use), Stocko is more fundamentally driven and is better for investing.

Broadly I use ShareScope for trading and Stocko for Investing. That said even for Trading, my trading universe uses Stocko to select good candidates while ShareScope gives me the insights on the physics of price - combining good fundamentals with good technicals gives high probability set-ups. I use charting with volume-price interactions in the main to fine tune my timing and have built a few modified indicators that are predicated on volatility and break-outs.

It's a bit of work but any trading or investing system needs rules imo . I now handle crank these , it allows me to review prospects, rank them and commit capital to candidates based on probability of success within defined timescales

FREng

31st Aug '16

muck

Thanks for this. Posts get read long after they are posted, as PIs use them to do research, through Stocko's "discuss" link on the stock reports. I hope your 9 "likes" (and counting ...) encourage you to keep posting, even if it is the final post on a thread at the time.

Source

14th Oct '16

Very solid results today by Inland! NAV at 91p, dividends up 29% and landbank up by a third.

Not sure why Inlands been attracting weakness in shareprice given this progress.

Hopefully sense wil return.

Regards,
Source.

Small Cap Value Report (22 Jul 2016) - LAKE, INL, SPRP

Lakehouse (LON:LAKE)

PMI data

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

51 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...