Small Cap Value Report (28 Jan 2016) - SSY, AIR, QRT, FLYB, MTEC

Thursday, Jan 28 2016 by

Good morning!

A shortish report today, as I have to travel up to Oxford, for a brainstorming afternoon at Stockopedia's HQ. It's a pleasure working with the Stockopedia team, as they're not only super-intelligent, but also super-decent people. After one particularly bad experience in 2013, I now only work with people that I like and respect. Life's too short for anything else.


Share price: 73p (up 6.6%)
No. shares: 29.0m
Market cap: £21.2m

Trading update - this sounds encouraging to me, and it looks as if the company has moved on from the problems encountered in H1;

The Directors are encouraged by the performance of the Group during the second half of 2015 and believe that the underlying results will comfortably meet current market guidance.

Despite the continuing headwinds created by adverse foreign exchange movements, the Group's trading performance for the second half of the year indicates that the Board's previously-expressed confidence, that problems encountered in the first half were a temporary anomaly, was well founded.  As announced on 14 October 2015, the isolated contract that had been the cause of the problems was brought to a mutually satisfactory conclusion, ensuring that SCISYS could fully focus its efforts on its unaffected activities which represented the vast majority of the Group's projects.

It's good to see that the problem contract which gave rise to the profit warning in Jun 2015 has now been resolved. Although I would still like to know how this problem arose, and what internal controls have now been put in place to prevent a recurrence.

Outlook - this sounds reasonable;

The Directors remain confident that current market guidance for 2016 will be achieved.  Although we anticipate that the relative weakness of the euro will continue to have an impact on our financial performance in 2016, we have implemented currency hedging contracts to mitigate the risk and this is reflected in the guidance.

My opinion - It seems to me that a business model which is susceptible to major problems occurring without warning on a large contract, needs sorting out. Perhaps stronger internal review processes are needed before contracts can be signed? Perhaps a complete re-think of what contract terms are used is needed? If another accident is just waiting to happen, then I wouldn't want to repurchase the shares I used to hold in this group, even though it has some attractions, such…

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SCISYS group PLC is a United Kingdom-based company, which is engaged in developing information technology (IT) services. The Company develops application solutions and products, and provides supporting services. The Company provides IT services to corporations and public sector organizations through four divisions: Space; Enterprise Solutions & Defence (ESD); Media & Broadcast (M&B) and ANNOVA Systems. The Space division provides various aspects of a space system, from fundamental research and onboard software solutions, to supplying ground segment infrastructure and services. The ESD division provides software solutions across various markets, including defense, security, marine, public sector and commercial. The M&B division is a supplier of digital radio production, archiving, asset-management and playout solutions. The Annova systems develops a portal for ARDAktuell based on the ground-breaking, product OpenMedia Newsboard. more »

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Air Partner plc is a United Kingdom-based aviation services company. The Company provides worldwide solutions to industry, commerce, governments and private individuals. The Company has two divisions: Charter division comprising air charter broking and remarketing and the Consulting & Training division comprising the aviation safety consultancies, Baines Simmons, Clockwork Research and SafeSkys, as well as Air Partner's Emergency Planning Division. In addition for reporting purpose, the Company is structured into four divisions: Commercial Jets, Private Jets, Freight (Charter) and Consulting & Training (Baines Simmons, Clockwork Research, SafeSkys and Air Partner's Emergency Planning Division). more »

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The Quarto Group, Inc. is an illustrated book publishing and distribution company. The Company is engaged in creating content and publishing books from a diverse portfolio of imprints. The Company operates through segments, including Quarto International Co-Editions Group; Quarto Publishing Group USA; Quarto Publishing Group UK, and Quarto HK. The Quarto International Co-Editions Group segment creates illustrated books that are licensed and printed for third-party publishers for publication under their own imprints. The Quarto Publishing Group USA segment creates and publishes illustrated books in North America and sells co-editions of them internationally. The Quarto Publishing Group UK segment creates and publishes general non-fiction and illustrated books in the United Kingdom market. The Company’s books are sold in approximately 50 countries and in 39 languages. more »

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

25 Comments on this Article show/hide all

andrea34l 28th Jan '16 6 of 25

I had a look at FLYB update and it looks poor to me - 10% increase in seat capacity and yet only 2% increase in volumes and 3% in passenger revenue??? But maybe the slower revenue growth is as they are passing fuel cost cuts to customers...? Anyway, my mind is thinking of pressing the Sell button at this stage... :-/

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peterg 28th Jan '16 7 of 25

I don't follow Flybe closely, but am I not right in thinking that they have over the past months started using some of the E195s themselves to increase capacity on some routes, rather than have them sitting idle, and costing?

In that case failure to use all the additional capacity efficiently may not be either unexpected, or bad news in terms of overall profitability - better to have the planes in use, even if not as full as ideal, than have them unused.


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fek47 28th Jan '16 8 of 25

In reply to post #119873

From memory, the balance sheet is much weaker than it appears at first glance. If Air Partner (LON:AIR) were to categorise customer deposits on their jet-card scheme as debt rather than other creditors, the company would be in a net debt position rather than appearing to have net cash.

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brucepackard 28th Jan '16 9 of 25

In reply to post #119885

@fek47 Ah - thanks very much. Didn't know that. Will mind my eye.

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snickers 28th Jan '16 10 of 25

This is a general question..

Is there a list somewhere of companies with a description of their business, but at a level of detail higher than the 'subsector', down to which the LSE (& so stockopedia) goes with it's numbering classification? For instance 'Recuitment agency' rather than 'Professional & Commercial Services'.
Or better still, a paragraph like the Profile summary given at the foot of each company's page here.

Thanks if you can help.

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john bradney 28th Jan '16 11 of 25

match tech poor rating

noticed that debtors have made a quantum leap from £3 to £33 million and the return on capital has dropped from 30 to 11 %.

might have something to do with the low rating .

bit red flaggy


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FREng 28th Jan '16 12 of 25

SCISYS (LON:SSY) is a sound company, as far as I can tell. (I'm long, it's my industry, and I joined the PI lunch the company held after the profit warning.

As for catching falling knives, the graph shows that you could wait for the knife to bounce a bit, catch it more safely, and still be in with a good profit!

I see no reason why this shouldn't recover steadily to the pre-profit-warning level).

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jonno 28th Jan '16 13 of 25

In reply to post #119891

If you look at the September interims for Air Partner it reported net cash of £1.4m after allowing for £13.6m of jetcard deposits. An issue that has tended to detract from the company's rating is a lack of visibility of earnings. The recent purchases of Baines Simmons and Cabot Aviation should over time improve the quality of earnings and hence the market rating, all being well. For what it is worth I made a small purchase this morning.

Good Luck

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gus 1065 28th Jan '16 14 of 25

In reply to post #119894

Hi Snickers.

If you put the list of companies you are interested in into a portfolio and the click on the second (of four) grey icon by the "Holdings" heading this will pull up for each company the summary of its business, rankings and key valuation parameters.


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AstonGirl 28th Jan '16 15 of 25

In reply to post #119897

Matchtech (LON:MTEC) John- the purchase last year of Networkers International (LON:NWKI) for £57.9m at the start of 2015 is the reason for the debt increase to 33m.
Given the synergies which will occur through owning both businesses, profitability should improve & with it ROCE
Disclosure: I hold £MTEC

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snickers 28th Jan '16 16 of 25

I see it, thanks! But in case I'm actually interested in firms I'm not yet interested in, I want a comprehensive list.. for instance Matchtech (LON:MTEC) have a smaller rival Interquest (LON:ITQ) which I didn't know about til recently.

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cig 28th Jan '16 17 of 25

In reply to post #119882

Only true if operational costs < ticket revenue, which is not a given for the wrong kind of plane on the wrong kind of route (dunno the situation in FlyBe's case).

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gus 1065 28th Jan '16 18 of 25

In reply to post #119915

No need to only put actual investments in a portfolio. I use virtual portfolios all the time to assess groups of stocks and analyse them using my preferred customised screens. You can always delete some or all of the stocks in a given portfolio quite easily.


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grumpy5 28th Jan '16 19 of 25

Paul, Couldn't agree more with conclusion of your first para!

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jonesj 28th Jan '16 20 of 25

Ref: Flybe
Given the hopeless history of the airline industry, I would need a very good justification to break my "no airline stocks" rule & invest in Flybe. I just don't see it.

Running the E195's is clearly just a "least worst" option as they cannot sell them. No surprise, considering Embraer had almost no waiting list for this aircraft, therefore suggesting it was not much in demand.

I would have thought they should be making good money at this stage in the economic cycle, with low oil prices as well. Do we have to wait for their fuel hedging to expire ?

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adamsid 28th Jan '16 21 of 25

In reply to post #119885

Not being an accountant your point about booking of jet card has interested me. Having had a look at their annual report for 2014 I note it states:
"Amounts invoiced to customers in respect of future ights, including amounts related
to the JetCard product, are deferred at the balance sheet date and only recognized in income once the ight has taken place."

Doesn't it therefore mean that the revenue is deferred as a liability on the balance sheet at least until the flight takes place and the amount becomes an asset? I'd really appreciate your explanation.

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rhomboid1 29th Jan '16 22 of 25

In reply to post #119948

I don't hold but I'd suggest that wording "invoiced" means that it doesn't encompass non specific points accrual as result of prepaid jet card subscriptions. You'd need to ask Air Partner or someone who knows them better than I to confirm that.

I'd imagine IAG have a similar issue over accounting for Avios as the number in circulation is mind blowing.

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cig 30th Jan '16 23 of 25

In reply to post #119948

The potential issue is that net debt looks better than it otherwise would be, because the liability matching the pre paid cash is not taken into account in the net debt calculation, while the cash is.

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Carcosa 7th Apr '16 24 of 25

Flybe (LON:FLYB) trading Statement (April 7/16):

Continues with excessivle low load factors in a growing market. Buys aircraft to improve margins (due to lousy passenger growth etc) which just pushes the can down the road a bit until those asset values go to naught pretty quick (expect write downs in a few years) because those aircraft types depreciate very quickly....

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serg 29th Jan '17 25 of 25

Interestingly the Air Partner (LON:AIR) stockrank has now gone down to 64 now from 99. And there is a split announced for the 31st of January which may cause a bit of volatility.

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 Are LON:SSY's fundamentals sound as an investment? Find out More »

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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