Small Cap Value Report (27 Mar 2017 - Part 2) - YOU, ELCO, KBT

Monday, Mar 27 2017 by

Good afternoon! 

Paul has already written a Part 1 article (at this link) which covers Bioventix (LON:BVXP), DP Poland (LON:DPP) and Spaceandpeople (LON:SAL).

In this article, I'm covering YouGov (LON:YOU), Elecosoft (LON:ELCO) and K3 Business Technology (LON:KBT).



YouGov (LON:YOU)

Share price: 263.5p (+0.4%)
No. shares: 105.1m
Market cap: £277m

Interim Results

Some strong percentage growth numbers here:

  • Revenue growth of 24% (2016: 15%) - Constant currency growth of 8%
  • Adjusted operating profit1 up by 33% to £5.7m - Constant currency growth of 14%
  • Adjusted profit before tax up by 27% to £6.3m

Paul has previously analysed the discrepancy between YouGov's adjusted and statutory numbers (see here) and today's results again show a large gap. 

Statutory PBT is also rising strongly, but at the lower level of £2.5 million for the six month period to January 2017 (versus the £6.3 million adjusted measure given above). And FX gains have played a big part in these results (so are unlikely to be repeated).

The gap between the numbers above arises primarily from £3.1 million of amortisation, broken down as follows:

  • Consumer Panel (£1.05 million)
  • Software and Development (£1.65 million)
  • Customer contracts and lists (£0.3 million
  • Patents and trademarks (£0.1 million)

YouGov added £1.6 million of software & development in the period, and amortised £1.65 million.

In the prior six-month period, it added £1.6 million and amortised £1.7 million.

In the period before that, it added £1.3 million and amortised £1.5 million.

If it simply expensed all of this, the statutory profit figure would barely change.

But the adjusted number would collapse, since it would start to reflect these costs!

Data products

It's a shame we have to concern ourselves with this, since the underlying business does appear to be doing really well.

Yougov's brand intelligence tracker ("BrandIndex") helped its Data Products division grow revenue by 43% (24% at constant currencies), and operating profit in this division grew by 50%. This is perhaps competing with similar products offered by Brainjuicer (LON:BJU) ? On a standalone basis, this division looks like it would be worth a premium rating.

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All my own views. I am not regulated by the FSA. No advice.

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YouGov plc is a United Kingdom-based data and analytics company. The Company's segments include Custom Research, Data Products and Data Services. Its suite of products and services include syndicated data products (YouGov BrandIndex, YouGov Profiles, YouGov Pulse and YouGov Reports); data services, including the YouGov Omnibus, and Custom Research. The YouGov Cube, its connected data library, supports all of its products and services. YouGov BrandIndex is a daily brand perception tracker. YouGov Profiles is its tool for audience profiling and segmentation for use by brand owners and the agencies. YouGov Pulse is its real-time online and mobile behavior tracker. YouGov Pulse enables brands and agencies to capture real-time and actual online consumer behavior across laptops, smartphones and tablets. YouGov Report showcases its connected data. YouGov Omnibus finds out people's opinions, attitudes and behaviors. YouGov Custom Research conducts quantitative and qualitative research. more »

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Elecosoft plc is a United Kingdom-based company. The Company is focused on providing software and related services to the architectural, engineering, construction and digital marketing industries. The Company’s software programs cover project management, construction site management, estimating, timber engineering, 3D design and visualization, and cloud-based digital marketing solutions. more »

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K3 Business Technology Group plc is a provider of integrated business solutions. The Company's business solutions encompass Enterprise Resource Planning (ERP) software, Customer Relationship Management (CRM) software, Business Intelligence and e-commerce, hosting and managed services to the supply chain sector. The Company's segments include Retail, and Manufacturing and Distribution. The Company's offerings to manufacturers and distributors comprise SYSPRO, Sage, and Microsoft Dynamics AX and Microsoft Dynamics NAV solutions. The Company's ax l offering is a retail and wholesale solution. The Company's products include modules for CRM, planning and scheduling, warehouse management, pallet management, data integration, payroll and human resources (HR). The Company operates from various locations in the United Kingdom, the United States, Holland, Singapore, Denmark and Ireland. The Company's subsidiaries include K3 BTG Limited, K3 Business Solutions Limited and K3 CRM Limited. more »

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  Is YouGov fundamentally strong or weak? Find out More »

9 Comments on this Article show/hide all

ricky65 27th Mar 1 of 9

Hi Graham

Thanks for covering ELCO, which I have a long position. I understand it may look "expensive" from a value perspective. However, in Mark Minervini's book he mentions that some of the best growth stocks have a P/E of between 30 to 40 which puts ELCO in that category.

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Samsgrandad 27th Mar 2 of 9

Re KBT Graham, when people want to pull the wool over your eyes, they write horoscope style like this. I worked in IT all my life and I have no idea what they are saying. Throw in buzzwords, a shiney smiley web site with pretty girls and hope that the hard of thinking will take a punt. I'm with safety margins these days, "invested" my punt money years ago and never saw it again.

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Paul Scott 27th Mar 3 of 9

In reply to ricky65, post #1


I also liked the results from Elecosoft (LON:ELCO) . It's vaguely been on my watch list for a couple of years, as I thought it looked potentially interesting. Today's results look really good - strong growth in profits, and the accounts look pretty clean, as Graham says.

I've picked up an opening long position in it today - am a bit late to the party, but if the profit growth can continue (and the outlook sounds positive), then I could see it growing nicely into the valuation.

I'm not too keen on its balance sheet though. It seems to be one of those software companies which finances the business from up-front payments from customers - see the large deferred income line. Still, I can live with that, since profits & cashflow are decent, and rising strongly.

It was rather too easy to pick up stock in it today, so looks like there is a seller in the market.

Regards, Paul.

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james1n 27th Mar 4 of 9

Hi Graham,

I was signed up for a while for YouGov's polls (but not any more) and I found the Brand Index questions the most banal of the lot, essentially asking whether I felt positively or negatively about a selection of brands and questions in a similar vein. I always opted out of these surveys and it makes me wonder whether they could really deliver a representative feedback on these brand surveys if people like me (whatever that looks like!) opted out of the surveys. For this reason, I struggle to hold this part of YouGov in any sort of esteem and cannot get excited about the company as a potential investment.

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Julianh 27th Mar 5 of 9

In reply to ricky65, post #1

I wholeheartedly agree with Samsgrandad re KBT. "Unified Omani-channel platforms" sounds like the gobbledegook spouted by Dilbert's pointy haired boss in Scott Adam's excellent daily cartoon. It could be that there is a scent product lurking buzz words but how would we know.
What I really like about Stockopedia and the SCVR is that between them they show up so many genuinely good companies. No need to take a punt on something like this.

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Nick Ray 27th Mar 6 of 9

K3 Business Technology (LON:KBT) are a reseller for SYSPRO, Sage and Microsoft Dynamics. They add their own customizations and modules, which is normal for resellers of these products.

They've used a few buzz words in their descriptions, but the bottom line is that they have a solid business model here.

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Graham N 28th Mar 7 of 9

In reply to ricky65, post #1

Fair point ricky! I don't believe that all high-PE stocks should be avoided.

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ricky65 28th Mar 8 of 9

In reply to Paul Scott, post #3

Thanks for the reply Paul. I don't think you're late to the party, I hope it's just started! I noticed it was up ~9% on Friday so perhaps the results were priced in.

What attracted me was the good growth and technical breakout @ 37p. Thanks for the heads up on deferred income. From the preliminary results I read that deferred income relates to "annual maintenance contracts which are non-refundable" and "Historically, there is a low level of maintenance cancellations each year". That seems like low risk of the money not being collected or perhaps i'm being naive?

Thanks again


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Trident 28th Mar 9 of 9


I would note that KBT talk about the possibility of changing their accounting period. This has become a bit of an obsession of mine (justifiably or not). They previously changed an accounting period some years ago, and in my view that allowed them to step over having to headline report a profit warning for the full year, by in effect extending the reporting period to 18 mths. That probably saved a few market linked options for the management (or is that too harsh?).

To change the accounting period again smacks of screwing up the comparatives, and puts quite a burden on the ordinary investor to read through it all. So for me this along with this sort of manoeuvre has a bad smell of engineering more feel good headlines. So a bargepole for me.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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