Small Cap Value Report (28 Jan 2015) - FTC, NWKI, MTEC, STAF

28th Jan '15 by Paul Scott

19 comments 19294 reads

Good morning! This morning's small caps space is dominated by news from three smaller recruitment companies.

Filtronic (LON:FTC)

Share price: 17p
No. shares: 106.9m
Market Cap: £18.2m

Profit warning - not again?! Yes, unfortunately it's yet another profit warning from this maker of telecoms equipment. The investors who stumped up £2.1m in a 22p Placing in Nov 2014 won't be best pleased, one imagines. Repeated disappointments will probably make it more difficult for the company if it needs to raise money again.

The chart looks a bit like a descending staircase, with each step down being a profit warning - so it looks as if there have been five disappointments in the last year;

The wireless division has had production delays for a number of new products, so production is starting four months later, plus other contracts have been delayed or orders not received. This has resulted in the company today saying that;

"...results for the Wireless business in the current year will be substantially lower than current market expectations."

This is bad news because, checking back to the last set of full year results (y/e 31 May 2014), the Wireless division is by far the more important of the two divisions, generating 70.4% of group turnover, and all the profit.

Their Broadband division has traded "slightly below the level we had expected", so that's not too bad.

Outlook - the company tries to sound upbeat in its outlook statement today, but given serial disappointments, I'm not sure how much faith can be put in this statement;

"Despite these setbacks, we remain confident in our strategy and the sales growth potential from the qualified OEM products we are supplying and are continuing to develop. This should lead to a much improved trading performance over the medium-term."

My opinion - I've been sceptical about this company for a while now, as it seems so accident-prone. The balance sheet looks OK though, although it was surprising that they needed a £2.1m Placing in Nov 2014.

It's not clear to me that there is a viable business here, based on current performance. However, if the company's confidence in its medium-term prospects turns out to be well-founded, then who knows, the disappointments of the last year could be a buying opportunity?

It's too much of a gamble for me, I'd rather wait until the first positive trading statement, and…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Rusty2

28th Jan '15

Hi Paul,
Thanks for the update on NWKI I nearly bought them last week, bought MTEC instead oh well.

Do you know whats happening at Flowgroup, sp has fallen 1/3 to 32p in last few days can't see any reason for it? Director bought some shares last week.

pkarnezis

Dear Paul,

All good stuff. Any thoughts on a recent FT article re Plus500 (LON:PLUS) (responsible for a sudden drop in sp) would be welcome:

http://ftalphaville.ft.com/2015/01/26/2095622/the-trading-magicians-of-plus500/

Ramridge

re. Matchtech (LON:MTEC) I don't understand market reaction of 4.6% down as I write. My reading is the same as Paul's. The results are good and the NWKI deal is also good. MTEC fundamentals are solid. So I have bought a few @502p

I think sp oftens goes down when a takeover is announced. Just initial reaction?

beatingmrindex

@ramridge - there were a couple of board movements in separate RNS - that could be the reason....

@ pkarnezis, does not seem to be much of a fall?

Yes, well, it started yesterday, about -6% at some point, ended the day ca. -5%. i suppose not a huge deal in the grander scheme of things (it's AIM after all), I am just interested to know if others think FT's comments re Plus500 (LON:PLUS) are fair (it's not in my portfolio - yet).

I can't read all the article as Im not a member of FT. If its about the Swiss Fr then yes some companies will be holding some large losses, small companies could be wiped out. As you say small co. on Aim sp can move on slightest news. Flow has fallen 33% for no apparent reason, now recovered by 10% today. Plus500 sp back to about 1 week ago so no big deal.

lucien2k

I sold my Plus500 (LON:PLUS) a while ago, I read all the reviews and was concerned that actually there might be something more sinister going on.

If its true that they only focus on retail customers and almost all of them lose money (and they close accounts of anyone that makes a profit). Then surely at some point they'll run out of customers?

Also the capex cost in 2013 of $92k seems very low for a tech company (would that even cover buying computers for staff, let alone servers etc?).

AlanJenkins2

If they really close accounts of winning customers then that suggests that they don't hedge.

When a company takes over another paying a high proportion of the consideration in shares,there is always the likelihood that some of the shareholders in the company being taken over will sell some or all of their new shares.So the market anticipates that.NWKI 's market cap is not insignificant in relation to Matchtech's.
One way to mitigate that effect is to give shareholders of the company being taken over some option over cash or shares,offering a discount over the current price if they opt for shares.

shanklin100

pk

If you go on to the PLUS thread on ADVFN, you will find a link to a Numis note refuting the FT article. BTW, registering on the FT site is free and will enable you to see their allegations re PLUS; you only have to start paying once you try to access a certain number (20+?) in a given month.

HTH. Cheers, Martin

I don't use ADVFN. I tend to agree with Paul about BBs, has cost me money in the past believing some of the stuff on them.

Thanks for this Martin (and herbie47 and lucien2k), the Numis report makes for an interesting read.

Paul Scott

Hi,

I've never liked Plus500 (LON:PLUS) - as overseas companies making irrationally large profits, listing on AIM, is usually an accident waiting to happen.

Having said that, I can't see anything wrong with their accounts, other than the bizarrely high profit margin.

The usual giveaways of dodgy companies (excessive debtors, capitalising costs into intangible assets, and lack of cashflow) are not present at all with Plus 500. It seems to generate bucketloads of cash, and pays it out in dividends - which is a sign of a genuine company.

So I don't think it's a scam, and if it is, it's an extraordinarily sophisticated one.

The big question to my mind is whether it can maintain such a high level of profit, which is inevitably driven from naive customers blowing up their accounts. Sooner or later you run out of such customers, because they run out of money. That said, casinos continue operating successfully, so their clients manage to find enough money to keep pouring down the drain at their favourite casinos. So perhaps Plus are able to generate enough new users to punt on their platform, to keep it all rolling?

For me personally, if something doesn't feel right, then I don't invest.

Regards, Paul.

Thanks for taking the time to reply, Paul. Not one for widows and orphans, I suppose. Well, since I'm neither maybe it could go on the watchlist for the time being, and I'll study it a bit more.

Re. Plus500 (LON:PLUS) PLUS boasts that they have developed their own proprietary platform that gives them an edge over the competition. The strange thing is that after examining their accounts, it appears that their platform requires practically no maintenance or development effort. It is as if they produced the perfect platform that requires no further maintenance or development spend, despite rapid expansion and evolving their products.

Well, you all know the phrase but I will say it anyway, "if it is too good to be true, then it probably is".
I had no interest in this share before, and since reviewing their accounts, even less.

Regards, Ram

cig

You don't need your own servers for a web service these days, you just rent cloud services on demand as your requirements evolve. For example, trade.plus500.com is from rackspace.com (you can look up the IP address).

So if they expense developer wages (as recommended by Paul) and marketing activities, the only capital needed is indeed just desks, chairs and low-end desktops to access the cloud.

jonesj

I have a slightly off topic question about data. Perhaps another reader can help.

The FT used to publish global PE ratio and yield data for each major market. That was in each edition until the restyle earlier last year & on the website until 31 Dec 2014, after which they stopped publishing it.

Does any one know where I can find global PE data by market, updated on a reasonably regular basis? At least monthly.
The data currently in the FT seems pointless. Whether a particular index is up or down 0.5% in a day is just noise. This might be of interest for traders, but they would presumably just use live data rather than a newspaper.

Small Cap Value Report (28 Jan 2015) - FTC, NWKI, MTEC, STAF

Filtronic (LON:FTC)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

19 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...