Small Cap Value Report (23 Aug 2016) - PSN, JNY, HSW, BVXP

Tuesday, Aug 23 2016 by

Good morning!

We've settled into our villa in Paxos, and I'm starting to unwind. We have a 2 hour time advantage here, so 7am UK time is 9am Greece time. So I can both have a lie in, and make a prompt start reading RNSs. This is a good thing, and is making me wonder whether I should permanently relocate to a time zone which better suits my body clock?

Further good news is that the mosquitoes which normally eat me alive in this area, seem largely absent. We can't decide whether this is a natural phenomenon, or whether our liberal application of every imaginable type of mosquito repellent, is doing the job? So far I don't have a single bite, which is very pleasing indeed.

Persimmon (LON:PSN)

Share price: 1794p (pre market open)
No. shares: 308.3m
Market cap: £5,530.9m

Interim results to 30 Jun 2016 - this was one of my favourite Brexit plunge shares, and it's already come roaring back, so has been a very good trade.

However, the outlook comments today almost made me fall off my chair. The company is not only reporting strong interim figures, but it appears the new house market is not only surviving, post-referendum, it's doing rather well:

"While the result of the EU Referendum has created increased economic uncertainty, customer interest since then has been robust with visitor numbers to our sites around 20% ahead year on year.

Our private sale reservation rate since 1 July is currently 17% ahead of the same period last year. The Group is now trading through the traditionally slower summer weeks but customer demand remains encouraging and we anticipate a good autumn sales season."

So, as we've seen with many other companies reporting of late, the referendum result has been shrugged off by UK consumers. Although as others have pointed out in the comments section here, nothing has actually changed as yet. So we could yet see longer term disruption, but so far, so good.

So expect a strong day for housebuilder shares.

Journey (LON:JNY)

Recommended bid at 240p per share - Christopher Mills of Harwood Capital has done it again! This is the latest in a series of takeover bids he has made for companies in which Harwood has a shareholding. The trouble is, he finds undervalued companies, then puts in a cheeky bid…

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Persimmon Plc is a United Kingdom-based holding company. The Company is engaged in house building within the United Kingdom. The Company trades under the brand names of Persimmon Homes, Charles Church, Westbury Partnerships and Space4. The Company offers a range of homes from studio apartments to family homes in approximately 400 locations under Persimmon Homes brand. The Company builds homes under Charles Church brand in a range of locations. The Company focuses on affordable social housing and sells these homes under Westbury Partnerships. The Space4 business operates an off-site manufacturing plant producing timber frames, insulated wall panels and roof cassettes as a fabric first solution to the construction of new homes. more »

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Hostelworld Group plc is an Ireland-based company, which provides hostel-focused online booking platform. The Company operates through over 20 different languages by connecting young travelers with hostels around the world through its brand Hostelworld and supporting brands Hostelbookers and The Company, through its subsidiaries, provides software and data processing services that facilitate hostel, hotel and other accommodation across the world, including ancillary online advertising revenue. The Company focuses on hostels, which maintains a global hostel database with over 13,000 hostels and approximately 22,000 other forms of budget accommodation available across the world. The Company builds a progressive internal training policy that includes ongoing skills training, personal development training plans and management development. The Company has over eight million reviews across approximately 33,000 properties in over 170 countries. more »

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

26 Comments on this Article show/hide all

bicboy100 23rd Aug '16 7 of 26

As you have discovered the 2 hour difference makes life so much easier when needing to check 7AM notices. One of the reasons why my trips to our place in Cyprus is so relaxing is that I can chill until 9am before needing to check morning RNSs. Gives plenty of time to react to whatever news.
If I didn't have other commitments, I'd definitely spend a lot more time there just based on that reason alone.


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stepone 23rd Aug '16 8 of 26

The trouble is your body clock will adapt, and you'll find you need to move further east every year or two. Eventually you'll end up back home :-)

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paraic84 23rd Aug '16 9 of 26

Thanks for covering Hostelworld (LON:HSW) Paul, I agree with many of your comments. I would have liked more info in the RNS about the impairment charge and there is a risk it could have another with although it could certainly afford it. Why have three websites in the first place? In some ways I wonder if it might benefit the business to have these other domains as often punters like to check 2 or 3 other websites to make sure they're getting the best price and it might be advantageous to own the alternatives!

The big risk with Hostelworld (LON:HSW) is competition from Tripadvisor and AirBnB. I picked some up in July because I thought the price looked too low, the dividend is decent, and because a lot of its revenue is derived from outside the UK so helps my portfolio to be less UK centric post Brexit.

There is a positive in today's RNS about good growth in Asia which could potentially help revenue growth but agree this looks fairly ex-growth now.

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browndogwork 23rd Aug '16 10 of 26

In reply to post #147963

Having stayed in many hostels over the years, I cannot see how AirBnB or any other platform is going to steal market share from the hostel crowd. With hostelling, it's not just down to cost, but the social element which draws in younger people to meet other backpackers and like-minded people. You just don't get this with hotels or any other form of accommodation, except the odd B&B here and there. I've been travelling on extended trips and not actually wanted to stay in any other form of accommodation, for fear of not meeting people and having some people to hang out with.

Hostels are few and far between in Asia, so I think this region is ripe for growth.

Disclaimer - I haven't stayed in a hostel for about 2 years, so things may have changed!

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JohnEustace 23rd Aug '16 11 of 26

In reply to post #147975

I agree hostels have a good niche, but that doesn't necessarily translate to success for Hostelworld. If you search on Tripadvisor for hostels you can book them via, expedia, agoda, and others as well as hostelworld. I think the site has much better in depth information but they don't have any exclusivity.

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smatthews1 23rd Aug '16 12 of 26

In reply to post #147930

This concerned me as well, hopefully with their expertise they should be able to add value to it. They mention they will be paying asda commissions, business rates and costs of utilities for these, is this normal practice for them to pay rates and utility costs on top of commissions?

So I hope there is enough margin in it for them to make it worth while, and not just getting impatient sitting on their massive cash pile.


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apad 23rd Aug '16 13 of 26

Hi Paul,
The only thing I disagree with you about yesterday's coverage of BVXP is vulnerability to loss of key staff. In my opinion there is only one key person and it is Harrison. The model is principal investigator supported by research assistants, who are bright graduates that do as they are told.
Recent scientific papers report huge sensitivity increases to cardiac troponin, but nowhere have I seen this related to delta, which is the key to success as it specifies the time gap between tests.

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gsbmba99 23rd Aug '16 14 of 26

Thanks for the updated Bioventix (LON:BVXP) forecast.

They've normally just had (with the benefit of hindsight) an extremely conservative +5% EPS for the current financial year. I think I'm right in thinking that FY16 was upgraded to 53p or 55p around this time last year. While they reported very good growth for 1H16, at the half year stage, forecast EPS was upgraded to 57.3p for FY16 which still looked absurdly low considering 1H16 was 27.2p and 2H15 was 29.0p (diluted) ie 56.2p assuming 0% 2H16 on 2H15 growth. Now FY16 expected to be 64.9p.

I'm not entirely sure what to make of the jump from 64.9p FY16 to 71.2p FY17. That's almost 10% forecast EPS growth compared to their normally very conservative 5%. Is this a bolder forecast or a more confident Bioventix with a bit better visibility into demand?

One of the interesting things about this company is they have both forward looking and backward looking revenue streams. The sales of antibodies are forward looking in the sense that the licensee has to buy them to create the reagent which is then sold to the end user customer who consumes the reagent when the test is run. The royalty revenue (2% of test revenue) is backward looking in the sense that it can be reported to Bioventix months after the test has been run and many months after the initial antibody was sold. What could give Bioventix a more positive outlook on FY17 than has ordinarily been the case? I'm going to guess that they've seen an encouraging rise in antibody sales (or perhaps sales of a new antibody) which they see as a precursor to enhanced royalty sales in FY17 (or maybe a large batch order post period end). As I've just stated, this is a guess. It's just me theorising about the mechanics of their business model and what circumstances might give management additional visibility. At any rate, it still looks reasonably conservative relative to the company's historical financial performance.

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topvest 23rd Aug '16 15 of 26

Hi Paul - agree with you that Chris Mills is a shrewd investor. I'm happy enough to take 240p as it's the second time I will have profited from Journey, buying back in 9 months ago on the contract news and following Chris Mills adding. Think its a fair exit at this point albeit Chris Mills has probably pounced just as things are about to "take-off". Two thoughts: Harwood have been loading up on Journey whilst much better thought of investors such as Rothschild sold out at about £1 2 years ago. Secondly, Chris Mills is well worth following through North Atlantic Smaller Companies Investment Trust which is a great small company value investor fund with a 30 year record of 14/15% per annum return. Possibly this is a better way for investors to have continuing exposure (through NASCIT or Oryx) to Journey going forward, rather than the private company option. Thanks for your article. Hold Hostelword as well and think that is still undervalued.

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Boros10 23rd Aug '16 16 of 26


I think the Bioventix upgrade for FY 17 is down to a mixture of continuing growth in Vit D and other royalties streams and a positive currency effect post the Brexit vote (95% of its revenues are earned in USD and Euro both of which have appreciated by approx. 13%).

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FREng 24th Aug '16 17 of 26

Aug 24: 09:44 Paul: are you back on UK time already :-)

What do you think about the Molins (LON:MLIN) interim's today? Equity Development say "Given the tough short term outlook, we reduce our target price from 120p to 90p a share. At 61p, we rate the shares as good value, trading at a 19% discount to net tangible assets (75p) and on modest EV/EBIT and PE multiples of 7.7x and 8x respectively, whilst also offering a 4.5% prospective yield (2.7x covered).".

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herbie47 24th Aug '16 18 of 26

In reply to post #148047

Even better value now at 52p!

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hayashi22 24th Aug '16 19 of 26

I think Molins is dead money -seems to have been struggling for so long now..........

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gus 1065 24th Aug '16 20 of 26

From memory, Molins (LON:MLIN) had/has issues with a large pension deficit, presumably made worse by the recent cut in UK interest rates and Gilts buy back. Also, given the pension issues are not currently picked up by Stockopedia, the Stock ranks probably give a flattering view of the company's true position. One to be careful with even if it does appear cheap.



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herbie47 24th Aug '16 21 of 26

In reply to post #148047

It's on Paul's bargepole list, they have a pension deficit problem. Debt has also soared and profits are falling.

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hayashi22 24th Aug '16 22 of 26

Some guy at Equity Development thinks its good value -but as he is paid by Molins to say that his view is worthless....

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VegPatch 27th Aug '16 23 of 26

In reply to post #148026

Boros10, I think H2 16 has already benefited from Sterling devaluation, so the FY17 will only benefit from one half ie H1, of a weaker Pound. This is because of the payment methodology that BVXP employs. It gets paid twice a year in arrears by its customers. So Siemens etc pay the royalties in August for testing they have done in Jan through to June and in Feb for testing they have done in June through to December. The royalty revenue is booked for the first half all in one go as it gets a bullet payment by the customer, so unlike for normal companies that get paid throughout a period, the average rate does not apply. The exchange rate that the company gets is the rate on the day in August or February when the royalty payments are remitted to BVXP then translated from euros or dollars to GBP. So while sterlings crash has happened around the end of June post brexit, the post June 30th further devaluation has already benefitted BVXP. Hope this helps

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Boros10 28th Aug '16 24 of 26


Excellent post. You are quite correct.

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gus 1065 3rd Oct '16 25 of 26

Looks as though the Journey (LON:JNY) shareholders have given Harwood Capital the finger in their small premium cash offer for the company.

Pyrrhic victory for shareholders against the offer in the short term as the shares are down more than 10% on the news, but perhaps a longer term reward if the company performs and/or Harwood come back with a revised offer.


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gus 1065 4th Oct '16 26 of 26

Might be back on again after all .....

Same cash offer price of 240p indicated but a lower acceptance threshold requirement. The Grand old Duke of York springs to mind ....


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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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