Small Cap Value Report (25 Aug 2016) - STV, PVCS

Thursday, Aug 25 2016 by

Good morning!

Our internet has gone down this morning unfortunately. However, I have found an ingenious solution - by positioning myself at the perimeter of our plot, I can pick up the WiFi of a nearby small hotel. They gave me the password when we were there having a couple of ice cold glasses of Mythos the other day.

As an aside, I am reliably informed by one family member that there are no Pokemon on Paxos. Although she did find some in Corfu old town.


Share price: 376p (up 2.5% today)
No. shares: 39.5m
Market cap: £148.5m

Interim results, 6m to 30 Jun 2016 - the financial highlights look good - a few snippets;

Revenue up 5% to £56.2m for the 6 months

Pre-exceptionals operating profit up 28% to £11.0m - so a very good operating profit margin of 19.6%

Net debt significantly down 17%, to £29.1m. At 1x EBITDA, this looks reasonable.

Digital revenues are mentioned a lot in the narrative, but at £3.5m this is only a small part of the business.

The company claims to have a strong balance sheet - which is an amber flag for me, because very often companies which claim to have a strong balance sheet, don't! That reminds me of Mrs Thatcher's quip that,

Power is like being a lady - if you have to tell people you are, you aren't.

I think the same is true of strong balance sheets. The figures do the talking. In this case, STV has negative NAV of -£26.7m, clearly not a strong balance sheet. Although its working capital position looks fine, with a current ratio of 3.1, which is excellent actually.

The problem is a huge jump in the pension deficit, from £7.8m last year, to £53.9m this year - which seems to have mainly been driven by mortality assumptions being extended by several years. A swing that large indicates a pension fund problem that seems onerous. Note that the 2016 deficit recovery payment was £7.8m, which takes quite a large bite out of profits.

Actuarial deficits can be considerably more than the accounting deficit. With interest rates reaching new lows recently, pension deficits are only likely to get worse. So who knows what the overpayments needed in future might be?

My opinion - overall, I think the pension deficit is enough to scare me off.

Also I've never properly researched this sector, so am not au fait with the business…

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STV Group plc is a United Kingdom-based digital media company. The Company is engaged in the production and broadcasting of television programmes, Internet services and the sale of advertising airtime and space in media and lottery management services. It operates through four divisions: Broadcast, Digital, Production and external lottery management (ELM). Its Broadcast and Digital divisions deliver content to attract audiences across multiple platforms which are sold to advertisers. Its Production division produces content for broadcast networks in the United Kingdom and overseas. It is also engaged in charitable activities. Its ELM division provides operational services, such as ticket sales and marketing to charitable society lottery, Scottish Children's Lottery. The Company's subsidiaries include STV Central Limited, STV North Limited, STV Productions Limited, Scottish News Network Limited, STV Publishing Limited, STV Out of Home Limited and STV Appeal Trading Company Limited. more »

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PV Crystalox Solar PLC is a supplier to the photovoltaic industry, producing multicrystalline silicon wafers for use in solar electricity generation systems. The Company's three-stage production process includes Ingot production, block production and wafer production. The Company's subsidiaries include Crystalox Solar Limited and PV Crystalox Solar Silicon GmbH. The Company operates in Japan, Taiwan, Canada, Germany, the United Kingdom and Rest of Europe. more »

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

32 Comments on this Article show/hide all

Bezhe 25th Aug '16 13 of 32

In reply to post #148221

Not necessarily a great indicator but the accounts for Hanwha QCells linked by Simoan show "litigation accruals" of $2.1 million - less than 10% of the market cap of PV Crystalox Solar (LON:PVCS). This contrasts with the PVCS hope for "a multiple of the Group's market capitalisation".

If Hanwha is the customer, then there is obviously some wishful thinking on one or both sides.

You pays your money and you takes your chances.

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pastybap 25th Aug '16 14 of 32

In reply to post #148233

jonny71, I made a similar change last year. I had always been a longish-term holder (typically 2-5yrs+) but decided to trade much more heavily. 2015 was fantastic and my "portfolio" returned over 60% in the year. However, it all went tits up in January and I completely lost my way for most of the year to date. I'm back to long-term investment again- much better for my sanity and blood pressure! Moral is, it can seem great for a while, but when the markets go against you, it not only hurts the value of your current portfolio, but also the quality of your subsequent decision-making. I realised this after being -16% for the year and everything I touched turned to dust! I'm slowly clawing this back and am now -6%.

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Paul Scott 25th Aug '16 15 of 32

In reply to post #148227

hi freng,

I wouldn't want to be specific, but in general terms, I look closely at liquidity, and only buy so much of any share that I could sell quickly, in maximum 2 days, during a downturn.

so I largely ignore avg daily volume, and instead focus on what liquidity exists in market sell-offs.

Regards, PAUL

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FREng 25th Aug '16 16 of 32

In reply to post #148260

Good advice - but hard to achieve, as you have commented yourself in earlier SCVRs. After a profit warning, small caps become illiquid. So it becomes hard to own enough shares to make a useful profit if you get it right, whilst avoiding a substantial risk of loss if the dreaded profit warning appears.

I'd welcome any guidance you can give, if you have found an algorithm that works.

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Nujinho 25th Aug '16 17 of 32

In reply to post #148191

Cool - understand the ebb and flow, was just wondering whether there was info out there that I didn't know. I'll sit tight! Cheers

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RMundy 25th Aug '16 18 of 32

In reply to post #148200

Hi Paul, Ramridge

Given you haven’t looked at Sopheon yet Paul I just thought I’d highlight that finnCap put out a pretty thorough note this morning. For those who haven’t seen it / don’t have access below are some of the key front page points:

- Revenue growth (+37%) and margin improvement (EBITDA from 12% to 25%)
- Sopheon delivered EBITDA of $2.9m (+193% vs 1H15) from revenue of $11.5m (+37%)
- Visibility remains very strong, extending to 80% of the FY16 revenue forecast.
- The upgrades in the March 2016 prelims combined with these interims led finnCap to increase FY16 EBITDA forecasts 13% & FY17 +4%
- Net cash grew to $2.6m from net debt of $0.3m at 1H16, with further promise from an “unusually large debtor balance due to period end licence sales".
- Strong growth in licence and services revenue is complemented by steady growth in maintenance and hosting, which now provides annualised recurring revenue approaching $9m.
- ?Visibility for FY16 has climbed to 80% giving confidence in delivery of revenue forecasts, a trend which would be further enhanced by any development in SaaS revenue streams.
- finnCap's new valuation equivalent to 7.1x EV/EBITDA FY16 (6.4x FY17); and 17.8x FY16 P/E falling to 14x.
- A take out multiple from a (probably US) acquirer would suggest a price closer to 600p.

Hope that helps. With the big positive swing in cash generation it certainly looks worth spending some time on.


Website: Research Tree
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melody9999 25th Aug '16 19 of 32

I used to work in the solar industry.. Don't know Spectra. Suspect PVCS might be wasting time if its Hanwha or Suntech - the latter went into bankruptcy at one point and Hanwah has also changed its shape / ownership. So looked at Schott .....

Interestingly "The parent company, SCHOTT AG, has its headquarters in Mainz (Germany) and is solely owned by the Carl Zeiss Foundation."

is it a coincidence then that: "The evidentiary hearing of the arbitral tribunal had been scheduled to take place in Frankfurt in July 2016"...... ie just down the road!

My sense is that Schott are also most likely because as a glass provider, they probably saw the opportunity to sell their product within a PV module. But they needed a module manufacturer and therefore placed an order with PVCS to supply cells using their glass.

All conjecture on my part - pls DYOR.

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jonny71 25th Aug '16 20 of 32

In reply to post #148251

Hi Pastybap, I think you make a good point about risk reward and it takes some get used to taking a loss when the market turns and you have to make quick decisions. However I've chosen to 'day trade' the shares I was long time holding. If I believed in the long term story and invested in them, then day trading them should also be safer than random companies I know nothing about.

Take Boohoo for example I decided to split my holding by 50% putting one half to one side and waiting for the long term outcome, the other 50% I've traded, buying the dips and selling the profits, earlier this week I was in at 84p and it retracted to 81p so I sold everything, both the long term hold and short term loss, this yeilded a profit overall, yesterday I bought the 50% long term hold part back at 77p, once some stability is established I'll start day trading again.

I've got the point now that my profit since April is more than any single holding, so if any one company goes bust I can afford to loose the money. The companies I invest in are well known to me, so are unlikely to go bust, it's just unexpected shocks or profit warnings which could catch me out.

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Ramridge 25th Aug '16 21 of 32

In reply to post #148275

Hi RMundy -
Many thanks for the finnCap info. I don't have access to broker notes, so that's welcome.

Bit puzzled by their new PE valuation , 17.8xFY16 P/E. Let's do some maths.
- so forecast full yr eps according to them = 280/ 17.8 = 15.7p ( taking today's closing price of 280)
- we know from today's HY report that SPE made adjusted & diluted eps of 18.31 cents in the 1H
- which is 18.31*0.76 = 13.9p
- which suggests finCap expects only 1.8p earnings in the 2H. ?????

Doesn't make sense to me. Happy to be corrected, anyone.

ps. what I have read elsewhere is that finnCap have increased their target price from 150 to 360. Quite a steep hike.

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RMundy 25th Aug '16 22 of 32

In reply to post #148287

Hi Ramridge

Sorry may not have been clear earlier. Just to clarify:
- Their target is 17.8x their 2016 FY EPS forecast which is 26.7p per share. Hence 17.8x26.7p = 360p
- Alternatively it is equivalent to 7.1x EV/EBITDA for FY2016 forecasts. Their EBITDA forecast is $4.7m which makes the targeted EV as $33.4m, plus the net cash of $2.6m makes a target value of $36m = $36m / 7.3m shs = $4.92/shr ~ 360p

Website: Research Tree
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Ramridge 26th Aug '16 23 of 32

Hi RMundy -
Yes, now I understand. It is based on their target price of 360p.

So the forward PE for FY2016 as we would see it on the StockReport, for example, will now be:
280/ 26.7 = 10.5 (based on yesterday's closing price)

Many thanks

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gus 1065 26th Oct '16 24 of 32

On PV Crystalox Solar (LON:PVCS) , looks like the can has been kicked down the road again as the defendant has successfully pushed the arbitration hearing back from November to March 2017.

PV Crystalox Solar (LON:PVCS) are in the meantime looking at a non-binding arbitration discussion but one wonders whether the only winners here will be the lawyers. Experience suggests even a pre-hearing agreement is unlikely until both parties are standing on the front doorstep of the court.


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gus 1065 17th Oct '17 25 of 32

On PV Crystalox Solar (LON:PVCS) , I wonder if there is (finally) a resolution imminent? The Court of Arbitration (as per the last company release on Sept 7th) was due to make its judgement by the end of September with the formal ruling being given within 4 to 6 weeks.

Shares were up 11% today on about 3.5x average daily volume. May just be punters piling in or possibly a leak of news of a favourable ruling.


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gus 1065 9th May '18 26 of 32

News that PV Crystalox Solar (LON:PVCS) finally received €14.5m of the total €36m arbitration settlement in the last few days.

Ongoing discussions about timing of the payment of the balance and possible “adjustment” in resolution of PVCS not having to provide the disputed 22m cells that the customer presumably doesn’t want. Market seems pretty sanguine - shares up about 2% at the open.


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extrader 11th May '18 27 of 32

Hi Gus,

It's good to see that the customer has acknowledged part of the judgement. AIUI, he has to make full payment before any adjustment re the 22m cells. Not sure whether he also has to pay the accrued interest (abt Euro 3.1m, from memory) before said adjustment.
Should get some clarification on these matters, status of remaining lease (s/b relinquished by 31/ March), and maybe German plant wind-down/on-sell at next week's AGM 17th May.
And maybe even some news re outcome of the long-in -works strategic review....


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Lgarvey 11th May '18 28 of 32

In reply to post #148266

On a similar note I would be interested to know how many holdings you have. I was wondering when
it became to many to keep track of. I currently have 21 and much more than that I think would get tricky.


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FREng 11th May '18 29 of 32

In reply to post #363031

32 - and it's certainly too many.

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gus 1065 14th Sep '18 30 of 32

Half year report from PV Crystalox Solar (LON:PVCS) this morning. The story seems to be getting “cleaner” as the big outstanding litigation has been settled and the various residual operations are being closed down or potentially sold.

Seems close to the point of becoming a cash shell at which point there will hopefully be a payout to shareholders. Slight concern that the board is still chuntering on about spending the cash on another line of business. A conflict of interest, perhaps, for turkeys not wanting to vote for Christmas.


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gus 1065 2nd Feb 31 of 32

As Bob Dylan once sang “there’s a slow train comin’“. In a similar vein, wheels are slowly grinding forward to a resolution for PV Crystalox Solar (LON:PVCS) with this announcement yesterday. Tick up in share price of about 6% as a result suggesting the market prefers certainty of cash distribution to the idea of management going off on a frolick using the funds for an acquisition.



“PV Crystalox Solar PLC

Update on Group strategy

PV Crystalox Solar plc (the "Group") announces that following an extensive review of the strategic options for the future of the Group, the Board has concluded that returning a large proportion of available cash, as part of an orderly resolution of the Group's affairs, would be in the best interest of shareholders rather than the pursuit of acquisitions. The Board expects to be in a position to set out a detailed proposal and timetable at the time of the announcement of the preliminary results for 2018 which is expected on 21 March. Operations at the Group's subsidiary in Germany continue as good progress has been achieved using existing capabilities to develop new business opportunities in the cutting of non-silicon materials. A sale to a third party or a transfer of the business to the existing management team remains under consideration.”

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gus 1065 21st Mar 32 of 32

Year end results/confirmation of the 24p pay out plus a possible rump of indeterminate size and timing from sale of any residual assets.

24p to be paid out following approval at a GM in May by end of Q2.


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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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