Small Cap Value Report (29 Oct 2015) - EGS, OMG, MTEC, SOLI

Thursday, Oct 29 2015 by
40

Good morning!

(I'm running late today, so will keep updating this article this afternoon, after lunch)

I enjoyed the latest small caps broadcast from Share Radio, with my friend David Stredder giving his views on a number of stocks. Of particular note, as ever, is the topic of Director greed. This time, my attention has been brought to the ridiculous remuneration of the CEO at eg Solutions (LON:EGS) who has plundered this tiny, and usually loss-making company for extraordinary levels of remuneration over the years.

I've looked at the last few Annual Reports, and extracted the following key data;

Year-ended31-1-201531-1-201431-1-201331-1-2012
Turnover£7.5m£4.5m£5.0m£4.7m
Profit/(loss) before tax£407k(£1,479k)(£458k)£146k
CEO total remuneration£372k£390k£439k£450k


Adding up those figures, in the last 4 years this company made a total loss of nearly £1.4m, and paid its CEO £1.65m! You have to ask, what planet is this CEO on?! No wonder the company had to do a £3.2m Placing last year, to replenish its bank account - as the CEO's emptied it basically!

I am told that at a recent ShareSoc meeting, where the questioning can be tough, this CEO retorted to a question about her remuneration by saying, "If you don't think I'm worth it, then I don't want you as a shareholder!". Unbelievable.

So this stock is going on my Bargepole List as a result. It's always worth comparing Director pay with profits. It can then become alarmingly clear whose benefit the company is run for - and it's not shareholders, that's for sure.

There's nothing worse than management who use a small, loss-making company as a personal piggy bank. As an aside, it's a pity that Director expense accounts are not disclosed in Annual Reports, as I'm certain there are some horror stories there too at some companies - I've been told about some small cap Directors who enjoy lavish entertaining, first class flights, posh hotels, etc., all on the expense account.

I do wish shareholders would step up, and exert better restraint/control on Directors. No wonder we have so many corporate scandals, excessive pay, bonus culture, etc. The managerial class is totally out of control! I don't think Directors understand how angry private investors are getting about executive greed.


OMG (LON:OMG)

Share price: 41.9p (up 1.6% today)
No. shares: 117.4m
Market cap: £49.2m

Trading update - a solid update from this software specialist;

Vicon and Yotta have traded…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
41 thumbs up
1 thumb down
Share this post with friends



eg solutions plc is a back office workforce optimization software company. The Company's software is used in various industry sectors, including financial services, healthcare and utilities. Its principal activity is that of information technology (IT) and software support services business providing improvements in operational management. It uses software packages and an operations management methodology based on production management techniques. It delivers measurable operational improvements in back office environments. The Company provides IT and software support services by operating two companies in the United Kingdom (EGUK) and in South Africa (EGSA). The Company, through its subsidiaries, is engaged in the consultancy and software business. The eg principles of operational management training is designed to coach and support operational and team managers to understand workloads and to balance demand with available resources. more »

LSE Price
111.5p
Change
 
Mkt Cap (£m)
25.3
P/E (fwd)
30.4
Yield (fwd)
n/a

Oxford Metrics plc, formerly OMG plc, is the United Kingdom-based international software company. The Company develops and markets analytics software for motion measurement and infrastructure asset management to clients in over 70 countries worldwide. The Company helps highways authorities manage and maintain their road networks, hospitals and clinicians decide therapeutic strategies and Hollywood studios create visual effects. The Company operates through two subsidiaries: Vicon and Yotta. Vicon is engaged in motion measurement analysis. Yotta provides cloud-based infrastructure asset management software to central and local government agencies and other infrastructure owners. The Company provides software for the government, life sciences, entertainment and engineering sectors. more »

LSE Price
58.75p
Change
 
Mkt Cap (£m)
72.3
P/E (fwd)
16.8
Yield (fwd)
2.2

Gattaca plc, formerly Matchtech Group plc, is a human capital resources business dealing with contract and permanent recruitment in the private and public sectors. The Company operates through two segments: Engineering and Technology. The Engineering segment comprises Barclay Meade and Alderwood recruitment consultancy brands. The Technology segment includes the Connectus recruitment consultancy brand. The Company is a provider of specialist recruitment services to the engineering and technology industries, both in the United Kingdom and internationally. The Company offers three core solutions: Contingent Workforce Solutions, Permanent Recruitment Process Outsourcing (RPO) and Total Workforce Solutions. more »

LSE Price
315p
Change
1.6%
Mkt Cap (£m)
97.9
P/E (fwd)
8.6
Yield (fwd)
7.4



  Is eg Solutions fundamentally strong or weak? Find out More »


27 Comments on this Article show/hide all

spglet 29th Oct '15 8 of 27
1

I'd like to "second" the request for an opinion on the Inland Homes results. I have a some of these despite a few misgivings I had about some of the very financially complex (to me) announcements they made this year about adoption of new accounting standards (31/03) and a complex looking holding company loan by a subsidiary using zero dividend preference shares (13/08). Thank you, Simon

| Link | Share
ACounsell 29th Oct '15 9 of 27

Paul, One suspects that the CEO of eg Solutions (LON:EGS) talks a very good game but as you say doesn't deliver! The media coverage over the last few years suggests that her PR machine is very good at putting her in the public eye - to the extent that she was awarded an MBE in 2012.  Click on her name from the Stockopedia list of directors and it pulls up plenty of press articles highlighting the fantastic success of her business.  As you say the financial data doesn't back up the claims.

Echo a previous comment - would be interested to hear your views on Inland Homes (LON:INL). Today's results even allowing for accounting adjustments seem way ahead of market expectations - even those updated on 23rd July yet the share price has hardly moved.  

| Link | Share
Brackendale 29th Oct '15 10 of 27
10

I owe an apology to whoever it was at the Sharesoc event grilling the CEO of EG Solutions - I thought his aggressive questioning overstepped the mark. She was upset by the end of the presentation and I sympathized with her. I now feel utterly, utterly stupid. Your figures are astounding.

| Link | Share
Sully8786 29th Oct '15 11 of 27

Hi Paul, like you I've held OMG (LON:OMG) before and received some nice divis. The elephant in the room for me was the failure to mention OMG Life in any way, shape or form - still an interesting company, particularly if they can sell the loss making one.

Regards,

Sully.

Company: Dave Sullivan - Talking Stocks
| Link | Share
PUDSEY 29th Oct '15 12 of 27
3

Hi Paul, The EGS situation is more alarming when you factor in her daughters salary as well, it certainly merits entering your bargepole list.

| Link | Share
Damian Cannon 29th Oct '15 13 of 27
2

Maybe Elizabeth Gooch is just misunderstood? After all she rushed back to rescue the company just a couple of years ago when it looked like going belly up: http://www.telegraph.co.uk/finance/festival-of-business/10806545/How-Elizabeth-Gooch-came-back-to-save-eg-solutions-the-company-she-founded.html

OK the above bit is just a joke in case anyone thinks that I'm being serious! However the joke is really on shareholders isn't it?

Blog: Ambling Randomly
| Link | Share
Chrisfarrell21 29th Oct '15 14 of 27

Hi Paul,

Any comment on £REDD? I'm not a holder but they fit in line with Ed's recent articles about buying good quality shares hitting 52 week highs. This one is bolstered by the excellent recent record in dividends.

Ta

Chris

| Link | Share
simonty 29th Oct '15 15 of 27
1

EGS loving the comment about her daughter. Come on, enlighten us ????

| Link | Share
Bezhe 29th Oct '15 16 of 27
4

Re Solid State (LON:SOLI): This is what the RNS says: "“Following a customer meeting on 27 October 2015, delivery expectations for a material contract have been varied which will impact the second half of the year. The contract is high profile and a high priority for the customer and Solid State is confident that it is fulfilling its obligations to the customer."

This is how I interpret it: "The customer told us that they are very unhappy with the performance of our software and the progress of the installation and they have suspended further work by us until the performance issues are resolved. We think, however, that we are doing fine and are trying to persuade them that everything is ok. However, because they are big and important, we will have to incur lots of cost to put it right and to keep them happy."

Does "contract variations" mean "contract suspensions" by any chance?

| Link | Share | 1 reply
Dennism 29th Oct '15 17 of 27
3

You asked if you may be missing something on the cause of the low SP for MTEC. Maybe the present depression in the oil and gas sector with its commensurate reduction in engineering vacancies will have a larger impact than you expect over the near future?

| Link | Share
jonesj 29th Oct '15 18 of 27
2

The managerial class are out of control, possibly because most stocks are held by fund managers who do a fairly good job of feathering their own nests.
So any questions they ask might lead to the same question going in the opposite direction.

If the underlying owners of the fund and hence the stock had a mechanism to influence the process, perhaps the situation may change ? Although this is difficult to arrange in practice.

| Link | Share
Mark Carter 29th Oct '15 19 of 27

I just had a skim through OMG (LON:OMG).

Its revenues have hardly budged in 5 years, and has an average ROCE of 6.3%. Free cashflow looks weak, and it looks like they're heavily capitalising expenses. Plus they raised £9m in 2013.

They make "image understanding solutions", which reminds me of Autonomy.

"The Group has ended the year with a strong cash balance at £11.7m". Yes, well, they raised £9m a couple of years ago, so that's hardly a major achievement on their part.

Can't say I'm enthused.

BWTFDIK

| Link | Share | 1 reply
Richard Goodwin 29th Oct '15 20 of 27
1

In reply to Mark Carter, post #19

@Mark Carter OMG doesn't do it for me either but they are brave. Every few years they start a new business based on a different market for their technology. Sometimes they work (Vicon/2D3) and sometimes they expensively don't (OMG Life) and sometimes it takes a long time to establish as the firm learns about the market (Yotta - to be fair no-one saw Google Streetview coming). So unless the leopard has changed it's shorts you are betting that the next new business will work, or that the company will stick with developing Yotta and Vicon which both now seem to be relatively successful. It is OMG Life and House of Moves which cost money in recent years.
If OMG Life had been successful then it could have been very successful but introducing a new consumer gadget was always going to be a long shot.

| Link | Share
Richard Goodwin 29th Oct '15 21 of 27
5

Guys, I think that you are being a little unfair about the "Managerial Class." I am Managing Director of a small private company and unless there is money left in the pot at the end of the year I pay myself less than anyone else - even the apprentices!
I suggest that most readers of this board are "managerial" or "professional" class - this certainly includes Paul by background - so can we please be more specific when we take a swipe?

| Link | Share | 1 reply
Cisk 29th Oct '15 22 of 27
2

In reply to Richard Goodwin, post #21

Hi Richard,

I don't think many here are knocking the small business owner-manager; I'm interpreting (rightly or wrongly) the type of director of a relatively small plc, typically with a small shareholding but a huge salary and share package relative to the size of the company.

These folk go on paying themselves over generous salaries and then on top of that large options with low or non-existent hurdles.

On top of that, sad excuses of NOMADS, auditors and other so-called advisors all have their snouts in the trough, gorging themselves on their fodder, which unfortunately is some hapless investor who has been mislead either by some crap tip in the daily mail, some discussion on a BB or worse some tin-pot broker such as the like that Rob Terry would invest in.

It's a wonder any of us still invest, given how much the deck is stacked against us.

| Link | Share
Booboobeaker 30th Oct '15 23 of 27

Yo dawg, you missed year end results for SMJ, which offer great value. Mkt cap 47 mil, ntav 90-odd mil, of which 13 mil is cash.

| Link | Share
PabloAguas 30th Oct '15 24 of 27

In reply to Bezhe, post #16

The MOJ contract appears to have issues over IP that won't bounce back until next year , rumor has it Solid State is cutting staff, and the under performing Operations Manager at the Steatite business is to go ....

| Link | Share
OsullivanB 25th Dec '15 25 of 27

Paul, do you attach any importance to the fact that the only Stockopedia screen for which MTEC qualifies is the Beneish M-Score Short-Selling Screen?

| Link | Share | 1 reply
herbie47 26th Dec '15 26 of 27
1

In reply to OsullivanB, post #25

I would take too much notice of that screen, HCM was added July 2014, since then it has gone up 2.7x, also on there is Trakm8 which has also done very well, since added it has doubled in price.

I think one reason its one there is the distortion of figures because of the Networks take-over.

| Link | Share
OsullivanB 26th Dec '15 27 of 27

Thank you, Herbie. That's very helpful.

| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are eg Solutions'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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis