Small Cap Value Report (22 Mar 2016) - LAKE, CTO, SNTY, VLK, HDD, BILN, JPR, XSG

Tuesday, Mar 22 2016 by

Good afternoon!

What a fascinating evening at Mello Beckenham last night, and great to see so many friends there! The draught Peroni is just magnificent at Sea Salt restaurant, it's worth going just for the beer. The barman told me it's that good because he is so fastidious about cleaning the pipes.

Lakehouse (LON:LAKE)

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

Management of Lakehouse (LON:LAKE) (CEO Stuart Black, and CFO Jeremy Simpson) came along and gave a presentation, and fielded questions in a lively Q&A session. I think they deserve great credit for coming along to speak to investors in such difficult circumstances - the founder has teamed up with Slater Investments to call an EGM to oust the NEDs, so this was a hot topic of discussion last night.

As I pointed out to the CEO, Slater Investments are a highly respected firm, so if they want to oust NEDs, then something really must be up. I thought the response was excellent actually - as they pointed out, there's no way that the company (or other shareholders) can possibly accept an attempt to oust independent NEDs, and replace them with appointees of two shareholders. The whole point of NEDs is that they're independent, and can't be appointees of particular shareholders. That's a totally valid point, which I accepted.

There's definitely a concern that the company is racking up heavy costs with advisers, dealing with the board room issues. So I hope this is dealt with quickly, and sensibly. It's certainly a major distraction for everyone, and has got to be sorted out.

Overall I thought the Directors didn't come over particularly well - mainly because the session was being filmed, and I think this made them clam up - there were clearly things they wanted to say, but couldn't. So I think most of us felt a bit mystified & frustrated by what's going on at the company, and that we've only been told part of the story.

That said, there were some useful snippets in the discussion, and I sat next to the CEO over dinner, and had a good chat with him. We discussed how the city firms tend to float companies with large, lumpy shareholdings placed with Institutions, in order to earn their huge fees for as little work as possible. The trouble is,…

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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TClarke plc is a United Kingdom-based building services company, which delivers electrical, mechanical, and information and communications technology (ICT) services. The Company provides electrical and mechanical contracting and related services to the construction industry and end users. Its geographical segments include London and South East, Central and South West, the North and Scotland. The Company's businesses include Intelligent Buildings Green Technologies, Facilities Management, Transport, Mission Critical, Manufacturing Services, Residential & Hotels, M&E Contracting and Design & Build. The Company within its M&E contracting business has capabilities in sectors, including commercial offices, retail, education, healthcare, financial services and media. Its Manufacturing Services business includes in-house precision prefabrication and engineering services. Its projects include Beckley Court, Chiswick Park, Kettering Hospital, Project Nova, Mitie Care Home and Rathbone Square. more »

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Cloudcall Group plc is a United Kingdom-based holding company. The Company and its subsidiaries are engaged in software and unified communications business. The Company provides a suite of cloud-based integrated software and telephony products and services under the name cloud. The Company is a full-service communication provider. The Company designs, develops and operates integrated communication services for customer relationship management (CRM) systems. The Company's CloudCall portal enables to manage organization’s call profiles, configures all settings and manages user and service accounts and access real time activity reports and call recordings. Its automatic call distribution (ACD) feature routes the callers directly to available team members in the organization. The Company’s subsidiaries include Cloudcall Ltd, Cloudcall BY. LLC and Cloudcall, Inc. more »

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30 Comments on this Article show/hide all

dscollard 22nd Mar '16 11 of 30

In reply to post #124894

meant to post as a reply .....
9.62M shares traded in LAKE on 1 Feb: I use Sharescope Pro as free sources of data are often wrong. With 157M shares on issue that is 6% of the company on one day
Reckon it is highly likely that chunk of that was from one major holder: under 3% doesn't require a TR-1...

Having looked through the previous TR-1, on 30 Sep 15 , SFM UK Management LLP reduced their holding to just under the 3% threshold....... they may have seen this coming and had their exit ready

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ExpectingValue 22nd Mar '16 12 of 30

In reply to post #124921

Fair enough - you are right on the data issue! Lots of institutions will deliberately set a threshold near the 3% level (say 2.99%) so they don't have to file. Burning through that would be 4.7MM shares, so more or less half the day's volume.

Seems reasonable to suppose the rest could be made up of larger institutions trimming and traders enjoying the volatility.

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dscollard 22nd Mar '16 13 of 30

tks, the data supports what the CEO said to Paul which further supports that a considerable amount of other trades on that day were technical in nature as stops were hit following a major dump by a big holder

The resulting big slide in price causes fear and doubt which then drives negative sentiment.

However as Paul points out the fundamentals do look good and if the CEO is right (again) on the updated forecasts then this is a screaming buy and not a sell

This is evidence-based contrarianism which often does well. It will take a fact-based catalyst (like the actual results) to redress the negative sentiment.

FWIW I have been long since 36p and happy to hold for a bit longer : I reckon the path of least resistance is north of here

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Paul Scott 22nd Mar '16 14 of 30

In reply to post #124918

Hi Mike,

Re Mortgage Advice Bureau (Holdings) (LON:MAB1), I don't usually cover companies in the financial sector. Sorry about that.
I have to filter the market down to a manageable number of companies, so I exclude certain sectors (e.g. financials, natural resources, etc).

Regards, Paul.

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JDW72 22nd Mar '16 15 of 30

Fascinated that for Vislink it's not about the morals but making money but that the same doesn't apply to Molins.

I'm not judging either way (I hold neither having held both in the past) and I'm sure you have very good reasons to feel as you do about the tobacco business but I thought it was interesting.

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gaustin 22nd Mar '16 16 of 30


First up I must confess to massive errors of judgement re this share in that I have held shares in this company since the days when it was called Silvermines and run by [Bob] Morton. I seem to recall in the dim and distant past that it might have once dropped as low as 14p so over about 12 years and based on today's price one could have made an annualised return of something ridiculously small.

It is in a market that should provide plenty of scope for growth but seems not to have a clear competitive advantage, a killer product or exciting management.

The prospective PER looks low but I guess that this factors in the lack of growth in the company over many years. Sure the price was up at 60p within the last two years but I fear that was on hope / momentum buying rather than fundamentals.

There may be the chance to make a 20% gain but the timing would, in my view, have to be spot on. The share has traded in a pretty small band over the last 6 months and I don't recall any great trading volumes. The company rarely seems to release trading updates so I fear one may have to wait 6 months until the interim results for anything to happen here, unless heaven forbid that anyone in the press falls in love with this and decides to publicise its perceived virtues.

I am pretty sure that the company is planning another investor love in event within the next few months, so if you have an interest in Vislink it would probably be good to attend. .

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DurhamMike 22nd Mar '16 17 of 30

In reply to post #124954

Of course, I've followed this report for long enough to know that, sorry! Cracking little company though, if you or anyone else wants to wander into that sector sometime. Thanks

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Graham Fraser 22nd Mar '16 18 of 30

Paul, in JPRs figures did you notice how they had magicked away most of the pension deficit ? I wonder what you thought about it because they say they have done an extensive reevaluation of the deficit and come to a new figure- I presume with the agreement of the pension fund trustees.
Could be highly significant for JPR and others in a similar situation eg TNI ?

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Paul Scott 22nd Mar '16 19 of 30

In reply to post #124966

Hi JDW72,

With all due respect, you're not comparing apples with apples.

A greedy CEO is an issue that's easy to fix - sack him - and doesn't necessarily mean there's anything else wrong with the company.

Whereas a company which makes tobacco machinery is, for me personally, just a horrible business that I want nothing to do with. My personal battle to give up nicotine, after 20 years of being a heavy smoker, and it ruining my health at the time, is why I despise the tobacco industry with a deep passion.

You may hold a different opinion. I didn't enjoy your implication of hypocrisy on my part, in your comment, so am happy to clarify.

Bottom line, the ethics of investing are a personal choice, and there are lots of shares which are in a grey area.


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seadoc 23rd Mar '16 20 of 30

Thank you Paul,


I used to hold, it was a darling in IC circa 2008 but by 2013 I found it too difficult to understand what was going on, for example from last year's AR:

"An acquisition was made during 2012, where the consideration is being settled through agreed contractual price discounts. Subsequent to the measurement period, any adjustments to the recorded fair value of contingent deferred consideration are taken through the income statement within other income as an exceptional income or expense. The revenues of products sold which are subject to this discount are recognised at full market value."

This had the effect of increasing eps from 0.25 p to 2.51p !

However if they have really got eps up to 3p, on same sales, then a major corner has been turned and p/e is now only 5??? However... Intangibles, goodwill/IP has increased from £33m in 2011 to £86m in 2015. Over that period the "reported" profit has been about £7m each year. 7x4 = 28 and 86-33 = 53. Creative? No idea but watching with interest.

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Paul Scott 23rd Mar '16 21 of 30

In reply to post #124993

Hi Seadoc,

I also don't understand the business model of IQE (LON:IQE)

A broker note I read today said something about one-off licensing receipts connected with Cardiff University spin-outs. It sounds pretty complicated. Maybe one to delve into in detail over the long weekend?

Regards, Paul.

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seadoc 23rd Mar '16 22 of 30

Evening Paul,

In NZ so afternoon tea time here. Yes Cardiff put in £12m, IQE bunged in some equipment for its share of £12m and claimed a profit on difference between what it was worth on balance sheet and the £12m and presumably now has 2x£12m on positive side of balance sheet. Its all in note 4, too complicated for me, have a good Easter.

Regards, John

Edit: from memory a new, state of art, clean room was built in Singapore around 2007.  This "equipment" to the value of £12m will be the old production facilities in Cardiff, or machinery therefrom..

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Matissian 23rd Mar '16 23 of 30

In connection with the discussion on non executive directors, I do not believe it is correct to say they have to also all be "independent". A company needs to identify its "independent" vs its "non independent" non executive directors, but it may have both categories. See below from the ACCA website:

"The majority of non-executive directors should be independent. Factors to be
considered in assessing their independence include their business, financial and
other commitments, other shareholdings and directorships and involvement in
businesses connected to the company. However, holding shares in the company
does not necessarily compromise independence."

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daveinthelakes 23rd Mar '16 24 of 30


This company is run for the benefit of the shareholders, sorry I meant to say a few shareholders and one in particular..

Read the RNSs for 15th and 16th Sept and 10th Oct 2014.

Everything appeared to be moving forward for the company with results due out on 16th Sept14. The day before they dropped a bombshell about a collaboration/jv in Singapore, placed a large amount of assets into this without detailed financial explanation and took a big impairment. This huge impairment then appeared in the results the following day.

The shares collapsed from about 20p to 12-14p. I decided they could not be trusted but that the announcement on the 15th appeared a ploy to get the share price down and bought a few more shares to average down.

10th October and it is announced that the directors had lumped on at under 13p. The shares rallied, I sold out having recovered all my losses and vowed never to go near the company again.


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herbie47 23rd Mar '16 25 of 30

Morning Paul, only just seen your comments on Victoria (LON:VCP). They are a lot of acquisitions recently, the lastest TTM debt has shot up from -4m to 80m, so that is something to consider. They are currently also looking at making another acquisition. Yes I agree they do not look expensive but I think there is some risk if there is a recession soon.

RE IQE (LON:IQE), I did have some until fairly recently, sold out for a small profit became concerned about semiconductors if demand in China falls. Funny how the markets work, fears about China seem to be forgotten even though the bad news is still flowing.

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Paul Scott 23rd Mar '16 26 of 30

In reply to post #125002

Hi Matissian,

That makes sense re NEDs. Thanks for clarifying the point.

Regards, Paul.

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JDW72 23rd Mar '16 27 of 30

In reply to post #124981

Hi Paul,

I didn't mean to accuse or imply any hypocrisy on your part. I know you well enough to know that would not be fair or true so my apologies if that's how it came across - my mistake.

It was simply a comment on different perspectives and views.

My view is that people should be free to make their own choices with regards tobacco and alcohol etc. and live with the consequences but that greedy directors are really engaged in theft through loopholes in the law and we have no choice but to accept it (or vote with our money). But then I've never been in the grip of tobacco or alcohol and would quite possibly feel differently if I had.

Anyway - no offence or sleight intended and I apologise if I did offend.


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Paul Scott 23rd Mar '16 28 of 30

In reply to post #125032

Hi James,

Thanks. No worries, it was probably just me being a bit touchy. Sometimes things come across differently in text to how they're intended.

Regards, Paul.

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muckshifter 25th Mar '16 29 of 30

Just reading the recent Vislink accounts this morning, I get the distinct impression that the "Value Creation Plan" culprits have given up on their hopes of instant riches after the reception their plan received, and painted a black picture of 2015, with the intention of making a big comeback in 2016, presumably with the hope of triggering said plan about a year from now. (Presumably after all the annoyed existing shareholders have left the scene and a fresh bunch of optimistic holders are in place)

But one area in the accounts which baffles me is " the Group has used a roll-back method for both trade receivables and inventory.
Trade receivables at the end of the financial year analysed using a monthly revenue countback method
Net inventory at the end of the financial year analysed using a monthly material costs of sales countback method"

Could anyone explain this to a non accountant?
Thanks and regards.

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AlanJenkins2 25th Mar '16 30 of 30

Only fair to point out that Lucian Miers actually recommended Victoria as a short a few months ago !

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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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