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

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

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.  

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.

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.

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

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?

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

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

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?

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?

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.

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

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.

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?

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.

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.

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 ....

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?

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.

Thank you, Herbie. That's very helpful.