Small Cap Value Report (28 Mar 2017 - Part 2) - CALL, PTSG, INL, GFIN, SUS

28th Mar '17 by Graham Neary

27 comments 14263 reads

Update: Paul is covering a lot of stocks in a Part 1 report at this link.

Paul is covering:

Tracsis (LON:TRCS)
Tasty (LON:TAST)
Severfield (LON:SFR)
Card Factory (LON:CARD)
T Clarke (LON:CTO)
Hostelworld (LON:HSW)
Fairpoint (LON:FRP)

In this report, I am covering:

Cloudcall (LON:CALL)
Premier Technical Services (LON:PTSG)
Inland Homes (LON:INL)
Gfinity (LON:GFIN)
S&U (LON:SUS)

And will see how I'm doing when they are all done. So please refresh through the afternoon (I will update the header of this as stocks are added).

Cloudcall (LON:CALL)

Share price: 102.5p (-0.5%)
No. shares: 20.1m
Market cap: £21m

Final Results

Highlights:

Group revenues up 47% to £4.9m, 85% of which is recurring
Recurring revenues up 63% compared to 2015
US revenues grew 160% to £1.3m (2015: £0.5m) underpinned by Bullhorn relationship
Gross profit up 50% to £3.8m (2015: £2.5m)
Operating loss before non-recurring items decreased to (£3.7m) (2015: (£4.5m))

Transition to profit is said to be "clearly visible".

Outlook comment from CEO:

"The encouraging revenue growth since the year-end combined with the strong January and February sales provides a solid base for the year and gives me considerable confidence in our ability to deliver in 2017. I am also increasingly confident that the Group's plans for the coming year will enable it to continue towards its objective of reaching break-even."

User numbers are up from 11,800 to 16,200 and the trend does appear to be one of accelerating growth.

Scrolling down to the separate outlook statement from the Chairman, his wording in relation to profitability is that "the pathway to EBITDA breakeven is now clearly within our sights".

In terms of product development, mobile apps and SMS/IM services will be added soon (the core product is a cloud-based telephone system).

Net cash is £2.3 million (£3.2 million cash minus £0.9 million debt which is currently due to mature in 2018).

My opinion

The after-tax loss was £3 million, slightly worse than the £2.9 million loss…

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rogergreen

28th Mar '17

Another vote for TAST and INL please if you are able!

Graham Neary

Hi, Paul is doing Tasty and Fairpoint, I will see what we can do about the others!

abiggins

Second vote for SFR please!

dahokolomoki

Ebiquity (LON:EBQ) announced fy results today. Very wordy, goes into much detail about the strategy. And then you get to the outlook section and it is so woolly!

Would love your thoughts on this company and the latest results, Graham.

dfr1

i would also be interested on your thoughts on Severfield thanks

denis gaffney

2nd vote for GMS please

Jaslive

Please can I cast a second vote for T Clarke (CTO)

Ben1

another vote for INL, GMS and CTO. CTO looks Ok to me but is down 5% as I type this

slopsjon

GMS please

wildshot

Hi Graham, a lot of requests today, I guess I'm back of the queue. Would love to know your views on the results today from S&U (Ticker: SUS £SUS). They show another great income statement with good growth and raised dividend. However they have increased gearing a fair bit and further after the balance sheet date. I wonder if this change in gearing is something I should worry about or be more confident with their great track record and family ownership.

Would love your views even if it is a couple of lines.

samholloway

Please T Clarke (LON:CTO) if you can. I'm a long-term holder and used to go to the AGMs. The management have been steady and sensible, but after a divi cut a good few years ago, the stock has dawdled. Today's results look strong but (as I type) the price is down, so maybe not as good as some as hoped?

Lion Tamer

Hi Graham

So may requests today! I'm interested is a few, but given the long list already I'll only adding Mortgage Advice Bureau (Holdings) PLC to the wish list. (The ticker is MAB1 but the "£" trick does not work with the "1" in the ticker).
It is a finance type of share, so may appeal to you. Basically a mortgage broker network with its own software product to support the agents in the network.

Nice revenue growth. up 23% to £92.8m (2015: £75.5m), profits up too pre-exceptional gain up 20% to £12.5m (2015: £10.4m). Dividends are up (excluding special dividends) to 18.3p, up 27%, for 2016. Cash of £18.7m (2015: £14.0m).

I've not yet gone through the detail (I got hung up on ploughing through a few others including CTO & Card) so I don't yet know if there are any nasties.

Thanks!

Aislabie

Interested in your view of Premier Technical Services (PTSG) where results are out today. The progress appears vert good but I am concerned that that, as with last year, the generous awards of Share Options ensure that management gets their piece of cake before anyone else. Also, excluding these regular handouts from the "underlying" profits is either trying to confuse the reader - or worse,themselves.

Paul will hopefully do CTO and SFR, and I will add some comments on SUS.

FREng

Graham

Thanks for your hard work and for your responsiveness to requests. You really do a terrific job and your insights are extremely helpful.

Graham Ford

Hi Lion Tamer

Firstly disclosure - I hold a long position in Mortgage Advice Bureau

I'm no expert at reading these reports but I noticed no nasties. The update on adviser numbers shows a further 26 have joined since year end. It looks like the growth in adviser numbers may be slowing slightly as a percentage but that's inevitable as the numbers grow. What I do take from it is that the business can expand this way at very little increase in capex requirements and there's still plenty of room to expand and take further market share.

What isn't clear to me is the financial contribution from their 4 strategic investments they made in 2016. 3 were minority stakes and the 4th a JV in Australia only got going very late in the year so probably the contribution from these investments were not particularly significant in 2016. I would have like an update on the progess of the Australian JV though.

I very much like this business.

The increased requirements for very detailed mortgage affordability tests seems to be driving people to use brokers (why go through the interview and info provision more than once if you don't have to). The early adoption of technology to streamline the process, add-on sales via protection products, innovation to ensure they are the disruptor rather than the disruptee from emerging trends like robo-advice, alignment with e-Estate Agents such as Purplebricks are all things to like as far as I can see.

Couple that with strong financial growth and a nice dividend and it looks pretty good to me.

Hi Graham F

Mortgage Advice Bureau
Thanks. Yes, having now read all of the announcement I agree with all you have said. Can't find any reason not to like. I may top up sometime, as what previously seemed a sensible sized holding is beginning to look a little overcautious.
(I should have disclosed before, I'm modestly long).

coniston

Thanks Graham for your views on SUS, have been on my watchlist , the one issue i have is the negative cash flow over the last 4/5 years.

gsbmba99

29th Mar '17

I really like Mortgage Advice Bureau too.

The investment thesis is pretty simple and predicated on expansion of the number of advisers. Growth in advisers +/- growth in the market = growth in revenue. So 15% adviser growth in a flat to modestly rising mortgage market should deliver >15% top line growth. Management is confident of 15% adviser growth for at least 2017 and 2018. You can get monthly updates three weeks in arrears on the health of the market from the CML which covers nearly 100% of the market. It generates lots of cash and has a working capital friendly business model where they get paid 100% of the commission which they then advance to the AR. Very little capex is needed to grow revenue. Mortgage advice is compulsory for the vast majority of mortgages. If you exclude the impact of collecting and paying the commission to ARs from the financial statements (ie their net share of commission payments) you can see they are extremely profitable (net income pre-exceptional is £10.2m on £22.1m of gross profit). They have committed to paying 90% of EPS in dividend which when combined with projected EPS growth offers very attractive income potential. The forward estimates look achievable assuming a modestly rising market. Expected revenue growth of about 19% in 2017 and 16% in 2018 with EPS growth of 13% and 13%. So estimates are assuming margin compression when this hasn't been the case previously.

I liked this statement in the results: "Intermediaries previously had limited access to the product switching market in which customers change products with their existing lender. However, more lenders have started providing intermediaries with full access to this market which is estimated to be equal in size to the remortgage market which was c. £90bn in 2016. The CML industry data excludes product switches with the same lender." Given this section of the market is not in the CML data and the CML data is running at about £240bn/year, this suggests that the MAB addressable market is up to 35% larger (£90bn/£240bn) than it is now. Given that they originated £10bn of mortgages in 2016 and the addressable market is up to £330bn/year in size, there is very significant room to grow.

There is also potential for the business model to be exported to other jurisdictions. The Australian JV was established in December. They own 45% of the JV and investor relations wouldn't tell me if they have a path to control. The other 55% is owned by management (10%) and a specialist, bespoke mortgage lender (45%). As near as I can tell, the Australian market is about 50% the size of the UK (about A$180bn mortgage issuance in 2014 judging by page 26 - http://www.securitisation.com.au/Library/Housing%20and%20Property%20Market/Standard%20&%20Poor%27s%20-%20An%20Overview%20of%20Australia%27s%20Housing%20Market%20and%20Residential%20Mortgage-Backed%20Securities,%20March%202015.pdf). In a few years, Australia could contribute meaningfully to results. MAB was founded in 2000 and you can see profit performance from 2005 onwards on slide 6 ("page 5) of the 2014 full year results presentation (http://mabnetwork.co.uk/wp-content/uploads/2015/03/Investor-Presentation-2014-full-year-results.pdf)

mpjubb

22nd May '17

Hi Graham,

I'd be interested to hear what you think of Gfinity (LON:GFIN) now. Computer game "esports" is becoming bigger and bigger. Gfinity have recently picked up contracts with Microsoft and HP and have also recently recruited some staff that have a great deal of experience of managing global events.

They've also just kicked off their own gaming series, so they are clearly proactive in setting up esports events rather than just managing them for oher company's.

Financially they dont look great yet and they did recently issue more shares to obtain more capital, but i t could be that their next trading report/statement will show a bog jump in performance.

Cheers

Martin

Small Cap Value Report (28 Mar 2017 - Part 2) - CALL, PTSG, INL, GFIN, SUS

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Graham Neary

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