Small Cap Value Report (26 Sep 2014) - PEN, IMO, BMK, STAF, MANX, PIL, ASY, RIC, FTC

26th Sep '14 by Paul Scott

15 comments 22361 reads

Good morning! What an interesting day yesterday, I saw five company presentations in total, and briefly comment as follows;

Pennant International (LON:PEN) - Met the CEO, Chris Snook, and had a quick whizz through what the company does (simulation software & equipment). Looks an interesting & reasonably priced company.

IMImobile (LON:IMO) - A recently floated company. I met the CEO, Jay Patel, and was very impressed with him - very much the type of CEO I like to back. It's not a sector I understand (complicated software to allow companies to communicate better with clients' mobile phones), and the valuation doesn't jump out at me as being value, but it's certainly a company I shall do some more research on, to better understand its prospects.

The following 3 companies presented at last night's EDIF;

Benchmark Holdings (LON:BMK) - a very interesting-sounding company, but I haven't got the slightest clue how to assess the company's prospects, nor how to value it. So it's in the too difficult/speculative tray for me.

Staffline (LON:STAF) - the shares have been a spectacular success, but my judgment on this share is completely tainted by the fact that I bought cheaply in 2012, but sold far too early. Hence I'm not interested in revisiting it after it's gone up so much. Probably fully valued for now, but still has impressive growth aspirations. I've got nagging ethical concerns about companies which facilitate a large section of the population living on low wages. We need to get back to companies giving people proper jobs, full time, on decent wages, not an army of agency workers being subsidised by the taxpayer (through working tax credits & housing benefit).

Manx Telecom (LON:MANX) - niche telecoms company that has been passed around by various owners, before ending up with its own recent IPO. The near-6% dividend yield is the (only?) attraction here. For me that's nullified by the pension deficit, too much debt (always the case with companies sold on by Private Equity), and that it operates in a regulated sector (telecoms).

Produce Investments (LON:PIL)

Share price: 285p
No. shares: 26.5m
Market Cap: £75.5m

This company is worth a look - it's a…

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Jedidiah

26th Sep '14

Any chance of an update on IKA .. risen 45pc since you mentioned it on 1 Jul .. maybe bit overvalued for now?

Paul Scott

Hi Jedidiah,

I'm amazed at the strength in share price of Ilika (LON:IKA) - of all the companies in my portfolio, it was so speculative that I decided it had to go, when the market went bearish on small, speculative stocks a while back.

So it's been staggering to see it roaring up even more, flowing completely against the tide!

Just goes to show, sometimes the market can do the opposite of what you expect it to do! I'm not going to revisit it at these levels.

Regards, Paul.

Beginner

Hi Paul
Just to say thank you for all the reports, especially yesterday's, which reminded me so much of your old blog. Essential reading pre-0830! Also regarding Produce Investments (LON:PIL) the Jersey Royal acquisition was brilliant: that is the most valued-added sector of the spud market! The one thing that has been putting me off investing here has been the ridiculous spread: it would take two years to recoup that difference through the dividends! (There was also a small director sell in June at the 280 level).

grumpy5

Re PIL be aware that Tosca bought into it large in the last 6 months. Martin Hughes, the owner, is no fool. However he has had some bloopers of late - SLE for one, and FDL is trading aggressively sideways. I think he might have to be rather patient on PIL, altho I don't know his in price.

MichaelFBS

Hi Paul

Thanks for an excellent column.

"I've got nagging ethical concerns about companies which facilitate a large section of the population living on low wages. "

I can understand what you mean but the counterpoint to that is that nearly everybody wants everything cheap and cheaper or free (read provided by government) and this means getting more per pound of wages and with lower wages everything has to be cheap or state subsidised (there was some amazing stat quotedyesterday on Today about the amount of social security going to people who are working but at the minimum wage. I was (possibly still am) against state imposed minimum wage and I am a right of centre capitalist but this does seem crazy.

This leads nicely to Produce Investments (LON:PIL). If you lived where I live you would be a bull on a potato producer. They are a cheap staple which because of the squeeze on incomes I suspect people are buying more and more with.

Hi Can you explain

"The ridiculous spread" on Produce Investments (LON:PIL)

Stocko has bid offer spread of 275.0 - 285.0

Not a killer for me

Hi Beginner,

Thanks for your feedback.

I found it too stressful rushing out 8am reports every day. So hence these days, I take my time each morning, but go into more depth. This also hopefully means there are now very few mistakes, and having more time to think means a more considered view I think.

A good broker should be able to get well inside the bid/offer spread on any small cap. I hardly ever pay the quoted spreads - it would be uneconomic on most things - as you open up an instant 5-10% loss!

Regards, Paul.

Aislabie

I very much appreciate your daily column and as a PIL holder I agree all round with your observations. Given the cost of the Jersey acquisition and the impact on debt it is crucial that this shows results in the coming year.

In another area, are you looking a little askance at an old favorite in Synety? It appears to be going downhill without brakes although the interims did not seem to alarm greatly once you accept that this blue sky investment is still moving strongly in its planned direction

Thegrimester

Anyone know whats happened at Synety (LON:SNTY) down 15% in the last hour? I cant see any announcements or news.

I was about to top up

Re Synety (LON:SNTY) - I see there is a print for 25,000 sold at 160p.
Hence the MMs have marked the price down to clear that stock.

Oh the joys of micro caps!!

P.

Gostevie

Hi Paul,

Good meeting you again at the ED Forum yesterday evening. I agree with your comments on the three companies that presented but would add that the speaker from Staffline was keen to point out that it takes its role in the Welfare to Work programme very seriously and that none of their staff are on zero-hours contracts.

You ask for bearish comments on Andrews Sykes (LON:ASY) but I'd say you mentioned a fair few yourself:

- Very illiquid
- Bizarre ownership structure (Why are they listed at all?)
- Disappointing interims
- Vulnerable to adverse weather patterns
- Competitive pressures

I would add to that list:

- No Finance Director/CFO on the board
- The Chairman is 94!

I'm not suggesting it is a bad investment - I haven't done anything like enough research on it - but those factors combined are enough to put me off.

Very best wishes,

Steve

Quite an interesting piece on the ownership structure of Andrews Sykes (LON:ASY) here:

http://www.iii.co.uk/news-opinion/richard-beddard/almost-perfect-andrews-sykes-and-london-security

Hi Steve,

Great to see you last night at EDIF. I do enjoy those evenings, more for the social aspects - I really enjoy discussing shares with other investors over a glass or four of wine!

I'm a great believer in meeting management, to get a feel for the type of people they are, and personally I pick up on so many useful pointers from body language, style of presenting, nuances, etc. It's invaluable. Obviously you have to take a lot of what they say with a large pinch of salt - management are always going to be presenting the positives only, and glossing over the negatives - it's our job to work out the bits they're NOT telling us! That's half the fun of investing - it's like doing a big puzzle.

Thanks also for your points on Andrews Sykes (LON:ASY) - I am trying to encourage more debate & bull-bear discussion here, as we don't want one-sided nonsense such as you see on inferior bulletin boards elsewhere!

Regards, Paul.

DLG12

1st Oct '14

And just to observe that Commerzbank sold almost 100,000 Shares on Monday if my reading of the RNS is correct. Doesn't do much for the price!

Indeed. It looks like there may be a forced seller at Synety (LON:SNTY) - maybe a spread bet/CFD client who is unable to meet margin calls? I'm ignoring it - the share price does whatever it does, it's the fundamentals that matter.

PP.

Small Cap Value Report (26 Sep 2014) - PEN, IMO, BMK, STAF, MANX, PIL, ASY, RIC, FTC

Produce Investments (LON:PIL)

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Paul Scott

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