Small Cap Value Report (27 Oct 2015) - AMO, SHOE, DIA

Tuesday, Oct 27 2015 by

Good morning!

ShareSoc Masterclass

These events are great fun, with lively discussion, followed by drinks, excellent buffet, and friendly chats with pleasant people, so come highly recommended.

The next one is being held at the offices of IG, very near Cannon Street station, in London. The date is 4 Nov 2015, so next week. There is an entry charge for these events, to help raise funds for ShareSoc, and to cover the catering costs.

I've been asked to sit on the panel, and give my views on the topics - finding multibaggers, and lessons to be learned from Quindell. I've also managed to get Globo added to the agenda, to make it more topical. Roger Lawson is also appearing on the panel, and so there should be some lively discussion, as neither of us tend to pull our punches!

Last few tickets are available - details here. In particular also note the high security issue - so bring photo ID to gain access to the building.

Amino Technologies (LON:AMO)

Share price: 115p (down 26.5% today)
No. shares: 70.3m
Market cap: £80.8m

Trading update - this must be a profit warning, as the price is down heavily this morning - bad luck to holders. It doesn't look that bad to me actually, so if you like the share, then this could be a good time to buy more, perhaps? I always try to decide whether a profit warning is something that is fixable relatively quickly (which means it could be a buying opportunity), or whether there is something more sinister underlying the warning (in which case it's a bargepole job).

The Company now expects to report a second half shortfall in revenue versus expectations within its core Amino business.  As a result, the Company expects profit before tax, before exceptional items, to be below expectations, but in line with that achieved in the previous financial year.  The Company also confirms that revenue and cost synergies arising from its recent acquisitions of Entone Inc. and Booxmedia Oy are tracking ahead of plan and both the teams and product lines of each acquired company are integrating well.  

The acquisitions are significant, because Entone Inc in particular was a very large deal - the total purchase price being £46.7m, of which £21.0m was raised in a Placing at 130p.

Dividends -  the company today reiterates its progressive dividend policy, so the…

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Amino Technologies Plc (Amino) is a provider of media and entertainment technology solutions. The Company works with over 250 operators in around 100 countries. Using Internet protocol (IP)/cloud innovation, it enables operators to meet the challenges they face as broadcast television (TV) and online moves to an all-IP future with managed over-the-top (OTT) offerings. It also helps operators to provide the features and functionality that the consumers are looking for in a multiscreen, multi-device entertainment world. Amino’s products include Amino TV, Amino OS and AminoVU. Amino TV is a multiscreen video platform designed for the subscriber segmentation. Amino OS is the software solutions for deploying and managing connected devices. AminoVU is the Company’s media server suite with home networking features for simultaneous streaming of live and recorded TV to a multiple of TVs, tablet and smartphones through the home using any combination of wired and wireless technology. more »

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Shoe Zone plc is a footwear retailer in the United Kingdom and the Republic of Ireland. The Company offers women's shoes, men's shoes, boy's shoes and girl's shoes. The Company's online offering combined with its store network enables customers to shop through multiple channels. The Company operates from a portfolio of approximately 550 stores. Its customers purchase all of the products available in stores, as well as an additional approximately 400 product styles. The Company sells over 20 million pairs of shoes per annum. The Company has operations in various countries, including Germany, Italy, Spain and France. The Company's distribution center is located in Leicester, England. The Company's subsidiaries include Castle Acres Development Limited, Shoe Zone Retail Limited, Zone Property Limited, Zone Group Limited, Shoe Zone (Ireland) Limited, Shoe Zone Pension Trustees Limited, Stead & Simpson Limited, Zone Footwear Limited, Zone Retail and Walkright Limited. more »

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Dialight plc is a holding company. The Company manufactures and sells lighting products in the industrial market. It operates through two segments: Lighting, and Signals and Components. Its Lighting segment develops, manufactures and supplies light emitting diode (LED) lighting solutions for hazardous and industrial applications, and includes anti-collision obstruction lighting. Its Signals and Components segment develops, manufactures and supplies status indication components for electronics original equipment manufacturers, together with industrial and automotive electronic components and LED signaling solutions for the traffic and signals markets. Its LED lighting solutions include Vigilant Industrial Solutions, DuroSite Industrial Solutions and StreetSense Infrastructure Solutions. Its LED signaling solutions include transportation signals, obstruction signals and SafeSite hazardous area signals. Its indication solutions include Circuit Board Indicators and Panel Mount Indicators. more »

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

18 Comments on this Article show/hide all

imranawan 27th Oct '15 1 of 18

Hi Paul

I'd be interested in getting your thoughts about Utilitywise (LON:UTW) as well as Dialight (LON:DIA) if time permits. I'm surprised Dialight (LON:DIA) hasn't fallen further given the update they issued this morning, and some of the issues you and other people have identified with the company. Its still expensive based on PER.

Best wishes,

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medlar 27th Oct '15 2 of 18

Thanks for your take on this. I've been in this company a long time and so am naturally disappointed at today's update.
Just one point: STBs have moved forward. Today's STBs are not just for people sitting in a corner watching a TV, but form just one component in distributing content to someone who holds an account with a TV platform such as Sky. Virgin, BT, Freeview etc . (For example I watch most of the output that is available on my Virgin account via Ipad when not in front of the TV and can do this anywhere in the UK).
The acquisition of Boox Media strengthened Amino's footprint in this "TV Everywhere" world.

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paraic84 27th Oct '15 3 of 18

Paul, SHOE's suggested revenue is marginally below broker forecasts of 169m. Same brokers have said this should translate into an EPS of 15.8p (a slight fall from last year). Given year-on-year declining revenues the main benefit of this share is the dividend at the moment in my opinion. Their shops look incredibly dated and their shoe collection uninspiring so I am sitting on the sidelines until there is more evidence of progress.

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imranawan 27th Oct '15 4 of 18

Hi Paul,

For Shoe Zone (LON:SHOE) the Stock report is showing EPS of 15.8p for 2015, and DL list this as a 16.20p for 2015 and 18.30p for 2016.

Disc: I'm have a long position in Shoe Zone (LON:SHOE), and was also tempted to add, but also have a little too much exposure to UK retailers, so decided to hold off.

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jonesj 27th Oct '15 5 of 18

Will the set box technology be around in 10 years ?

That's one for the "too difficult" pile, so I would pass on it.

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darlocst 27th Oct '15 6 of 18

Re Dialight: Canaccord the house broker have made cuts to their 2015e and 2016e forecasts today. They've cut Adj. 2015e EBIT by 61% to £6m and 2016e EBIT by 44% to £10.5m resp

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whitmad 27th Oct '15 7 of 18

Will the set box technology be around in 10 years ?

No. Everything will be in software, either downloaded or already installed in any device that you might use, whether it most resembles a TV, phone, tablet, PC, or laptop.

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Brackendale 27th Oct '15 8 of 18

Contrasting Dialight and FW Thorpe may prove illuminating!

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paduardo 27th Oct '15 9 of 18

Hi Paul, thank you for all of your great work writing these reports. They are really helpfull. Any chance you could look at the Utilitywise (LON:UTW) results?


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ACounsell 27th Oct '15 10 of 18

Hi Paul, Can I echo some of above comments and ask if you had any time to look at Utilitywise (LON:UTW). The statement alongside final results looks to be on one of your favourite topics - revenue recognition! Initially shares were up 5% but now down 5%!



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TMFMayn 27th Oct '15 11 of 18

I am not Paul, nor follow UTW, but a 2-minute skim of this company's numbers shows this alarming cash-flow situation:

Essentially ALL of UTW's reported accounting profits were not converted into cash -- which is quite an achievement. 

It seems to me UTW has booked revenue in advance, and the 'profit' as such is awaiting to be received as accrued income on the balance sheet. All told, the accounting here looks cavalier and aggressive to me. I see there is very little mention of the cash-flow situation in the management narrative (not good) and there is also an accounting restatement for the two prior periods (not good either).

I would suggest UTW holders investigate this cash-flow situation further. Hopefully there is a very good explanation and I could be raising a false alarm (apologies if so). 

That said, (and there will always be exceptions of course), in my experience, companies exhibiting  such significant cash outflows in the working-capital department tend to end quite messy for investors.


(PS -- here's something I wrote earlier about companies exhibiting such poor cash conversion:

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John Eustace 27th Oct '15 12 of 18

I sold my Amino holding this morning. Partly driven by the old adage that profit warnings come in threes, and this was a proper old fashioned profit warning in my eyes, partly enhanced scepticism having followed but managed to stay clear of the Globo mess. I'm not suggesting any wrongdoing at all at Amino, just that events elsewhere have coloured my mood. In a way it's to their credit that the warning comes out of the blue, it makes me think they are being been upfront in tackling the issues .
And as someone who is about to cut the Virgin cord I do think the set top box is being superceded.

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Mark Carter 27th Oct '15 13 of 18

In reply to post #109809

Maybe it's entirely coincidence (it probably is), but I see that £UTW's auditors are BDO, the same auditors that walked away from Globo (LON:GBO).

It's complete speculation on my part, of course, but I wonder if BDO reviewed the situation, and said to UTW that they would have to do better in their reporting.

My estimation of BDO has gone up the last few days.

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jonesj 27th Oct '15 14 of 18

The first i-phone was launched in 2007.

Now 10 years ago in 2005, I wonder how many investors predicted smart phones would grab market share from calculators, sat navs, MP3 players, budget cameras, alarm clocks, portable games & diaries ?

I'm very cautious about investing in areas where technology might make the investment obsolete. That's why set top boxes go in the too difficult pile*.
Of course if I were smart enough to identify which companies will do an Apple, then which will do a Nokia, Blackberry or HTC and get in and out at the right time, tech investment would be easier.  

Right now I'm still trying to figure our if Paypal will be knocked off their perch by some extension of Apple pay, or if they might make a nice takeover target for them.

[* Terminology plagiarised off Buffet/Munger, obviously]

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Roger Lawson 27th Oct '15 15 of 18

Yes Utilitywise seem to recognise revenue from contracts that extend into the future, which is why their cash flow is poor and why I sold them after discovering this. Maybe we should put that company on the agenda at the ShareSoc Masterclass Paul? Looks very much like the kind of thing Quindell were doing.

Website: Roliscon
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BrianGeee 27th Oct '15 16 of 18

Hadn't looked at Utilitywise (LON:UTW) previously, but a quick glance reminded me of Independent Energy Holdings (IEH), which some may recall, and was my first total loss after switching from telephone to internet broking! They were wonderfully profitable, but couldn't collect the cash from customers due to some mysterious billing issues!

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cig 27th Oct '15 17 of 18

In reply to post #109833

Paypal's website is a pile of dung, symptomatic of a rotten technical culture (can't imagine what state their fraud detection code is in). World+dog wants to be in their space, both fintech and incumbent banks. Now they separated from ebay they may lose (some of) that market to alternatives. And it's a fad spin off with a LOL market cap. Possibly one of the best short candidates in US large caps.

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Paul Scott 27th Oct '15 18 of 18

Re Utilitywise (LON:UTW) - I didn't have time to write about this one today, because I had to finish early to travel back to Hove, after a fortnight's stay in London. I'll try to circle back to it when time permits, but have got an awful lot on at the moment, there don't seem to be enough hours in the day!

The issues with UTW's accounting are long-standing, and have been widely discussed (here and elsewhere) before, so nothing new. I don't like their accounts one bit, and their revenue recognition policy certainly seems very aggressive, and imprudent. But everything has a price, and whilst I've written bearishly about the company in the past at much higher share prices, I think it looks interesting at the current relatively depressed level (and disclosure, I hold a few personally & for my fund's clients - but it's not a high conviction trade, we just picked up a few when it dropped to 167p a little while ago).

I did a comparison of the aggressive revenue recognition policies of Utilitywise (LON:UTW) with the more prudent policies of competitor Inspired Energy (LON:INSE) in this article on 19 Au g 2015.

Also note this article, where Neil Woodford strongly defended the accounting policies of UTW (and his fund has been buying aggressively, and now holds 26.1% of the company).

The cashflow statement linked to above certainly looks scary, so I'll definitely look into this in more detail. Note though the good & rapidly increasing dividends at UTW, which is reassuring, as you don't usually see that where there is serious financial manipulation going on.

There was another announcement from UTW today, saying it has amended the payment terms from a key supplier, resulting in a £3.6m cash receipt today, so they are clearly trying to improve their cashflow.

Roger - in principle I'm happy to discuss UTW at the ShareSoc Masterclass next week, but it's yet another thing to research & prepare for, but will do my best!

Regards, Paul.

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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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