Small Cap Value Report (3 Sep 2014) - TUNG, API, GOAL, BVM, PEG

Wednesday, Sep 03 2014 by

goalGood morning! Apologies for the technical gremlins yesterday, which coincided with me needing to travel back from London to Hove, but I completed the report when I got home.

Tungsten (LON:TUNG)

Share price: 347p
No. shares: 100m pre-Placing (c.103.5m post-Placing)
Market Cap: £347m pre-Placing (c. £359m post-Placing)

There was an interesting announcement just after the market closed last night from this innovative company which is aiming to revolutionise e-invoicing and integrate it with receivables financing. A small Placing of £12m is being undertaken through an accelerated book build (which will be completed by 9am today) organised by Cannacord. So in other words, Institutions & professional investors can ring Cannacord and bid for the new shares, and the deal is done at the price where demand meets supply.

I'll stick my neck out here, and guess that there is likely to be strong demand for these shares. It wouldn't surprise me if the deal is done at or near to the current share price. This company has a real buzz around it, although it's currently loss-making. It's one of my favourite more speculative shares, as the market opportunity they have is of potentially spectacular size & recurring in nature, if they can pull it off. It's a speculative share though, so as usual essential to do your own research.

The purpose of the fundraising is partly to finance a small acquisition of a company called DocuSphere (costing £4m), with the other £8m effectively being for increased losses due to large contracts being won with new clients, requiring integration into the Tungsten e-invoicing network.

What gives me considerable confidence is that five Board members are participating in the Placing, for a total of 569,825 shares plus £750k, which at an estimate of 340p per share equals £2.7m! That is some vote of confidence, where the Board stump up 22.5% of a £12m Placing, not something you see very often, if at all!

UPDATE at 07:57: I understand that the deal has been done, and that the price is 340p, so virtually no discount at all, as I suspected. This is bullish for the shares in my view.

Note that TUNG are presenting at a Proactive Investors event tonight, so there could be some feedback from attendees tomorrow.

UPDATE at 14:59: The company has now formally announced the Placing has been completed at 340p.


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Tungsten Corporation plc is engaged in e-invoicing, purchase order services, analytics and financing business. The Company's segments include Tungsten Network, Tungsten Network Finance, Tungsten Bank and Corporate. Its Tungsten Network segment includes e-invoicing and spend analytics business of Tungsten Network. The Company's Tungsten Network Finance segment includes the supply chain finance business. Tungsten Network connects buyers to their suppliers, enabling tax-compliant electronic invoicing. Its software translates and validates each supplier invoice, and allows suppliers to check invoice status online. All the users ' invoices are digitally signed, encrypted and stored within the Tungsten Network image archive, where the user can access them anytime. Tungsten Bank provides specialist banking products and services. It focuses on providing invoice financing solutions to small and medium enterprises (SMEs) in the United Kingdom, the United States and Europe. more »

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Goals Soccer Centres plc is a United Kingdom-based company engaged in the operation of outdoor soccer centers. The Company operates in the United Kingdom and United States, and operates in the operation of soccer centers segment. The Company offers 5-a-side soccer centers across approximately 50 centers in the United Kingdom and one in Los Angeles, the United States. The Company's centers are in locations, including Aberdeen, Beckenham North, Beckenham South, Chingford , Coventry, Sheffield, Norwich, Sunderland, Teeside, Bexleyheath, Birmingham (Perry Barr), Birmingham (Star City), Black Country (Wolverhampton), Kingston (Tolworth), Bradford, Bristol North, Bristol South, Glasgow South, Wimbledon, Plymouth and Heathrow, among others. The Company's subsidiary includes Goals Soccer Centres Inc, which is engaged in the trading business. more »

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

26 Comments on this Article show/hide all

Welshborderer 3rd Sep '14 7 of 26

In reply to post #85819

Additionally Stockopedia have no link for the company on the Tungsten (LON:TUNG) page

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thekingsgambit 3rd Sep '14 8 of 26

Nothing wrong with my PC settings Mike. Tried on Internet Explorer and Google Chrome. Poor form for a company not to have a working website. I thought I may have got the wrong company website or missed something obvious but asking IT consultant to check his settings isn't that helpful!

Thank you for the other links. I'll take a look.

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Welshborderer 3rd Sep '14 9 of 26

In reply to post #85822

I confirm there is nothing wrong with your settings the link also fails on Firefox so my conclusion is that Tungsten (LON:TUNG) have set up a new website which has yet to be fully circulated

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thekingsgambit 3rd Sep '14 10 of 26

Yes. This looks like the new website:-

Not registering in Google so difficult to find. Not a great start when you are trying to research a company.

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PhilH 3rd Sep '14 11 of 26

It's just sloppy. So easy to setup a redirect from the old site to the new site even if just redirected to new homepage rather than hitting a 404 not found page. Would take a techy 10 mins to fix.

Professional Services: Sunflower Counselling
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Ramridge 3rd Sep '14 12 of 26

Hi Paul - Re. Petards. A fair and balanced analysis. Thanks. Agree it is high risk for the reasons mentioned. Personally it just about falls on the right side of risk/ reward ratio, so have included a small stake in my "what possessed you?" fund, a small part of my SIPP.

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mikehunt 3rd Sep '14 13 of 26

Tungsten (Aviate Buy): feedback from call with management post the placing


It is clear to us from the announcement and talking to the CEO that things are developing more quickly than planned at the IPO. That is very positive, but requires investment ahead of the pick-up in growth. The acquisition, consuming £4mn of the £12mn raise, is designed to improve the speed and the costs associated with onboarding large MNC customers to the network. It also comes with 40 tech staff which will help relieve some bottlenecks as well as a modest customer base. The remaining £8mn will be used as working capital, also associated with onboarding customers. The CEO mentioned for very large corporates like GE, it can cost c.£2-3mn to fully integrate the business on a global basis taking several months, but also that demand from existing customers to roll out globally on the Tungsten network is exceeding expectations, hence the announcement today. That bodes well for growth of invoices as well as the factoring opportunity.

Our view is this equity raise is necessary given the growth, it probably won’t be the last but future capital raises will be success-based. It’s interesting to note that the CEO is also participating in the placement to prevent dilution, while non-executive Director Michael Spencer is increasing his position (buying 6% of the placing vs. a 1.8% existing stake). In our view, Tungsten has a lot of upside should it achieve 100% e-invoicing penetration of its existing customer base and factor 10% of invoices on the network (similar to what happens today in a non-electronic format). But one should expect more large buyers to be signed up.

We remain buyers: hxxp://


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rivaldo 3rd Sep '14 14 of 26

BVM is rather more exciting imo than the review might suggest.

EBITDA was £422k in H1 alone, well up from £172k last year. This is much more relevant than PBT. An annual EBITDA of likely more than £1m suggests a stock market listing is certainly appropriate. There is confidence that the H2 weighting will be achieved, though of course this remains to be seen. The bullish tone suggests it will be given BVM's usual caution.

Net cash is at £1.4m, so excellent against the £6m m/cap, though the reduction in debtors and increased creditors suggest perhaps the free cash pile is not as high as one might have thought.

However, the most striking part is the "Operations" paragraph narrative. This is really exciting for a £6m m/cap company and shows the progress BVM has made and the large opportunities it's looking at in a number of sectors.

This is really well worth reading closely imho. BVM has changed completely over the last couple of years, and this is reflected in the narrative, which, Paul, I really think you need to read in detail to understand the company's prospects.

This article on today's results on I.i.i is also enthusiastic, though omits to mention the EBITDA:

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Paul Scott 3rd Sep '14 15 of 26

In reply to post #85830

Hi Rivaldo,

I don't accept EBITDA as a valid measure of performance at companies which capitalise development spend. In this case Belgravium Technologies (LON:BVM) capitalised £204k of costs into intangible assets in H1, so the H1 EBITDA figure of £422k really drops to £218k in cash terms - which is pretty much the same as the operating profit figure of £215k.

So relying on EBITDA will just lead to you over-paying for shares in electronics or software companies.

Net cash may be £1.4m, but creditors went up £600k during H1, and debtors came down by c.£350k, so it was those favourable working capital movements (which may reverse in H2?) that inflated the cash pile. Bear in mind also that creditors shows "Deferred income" of £702k, so effectively half the cash is money that customers have paid up-front. Therefore in my view this company actually has zero surplus cash, and I would ignore that in terms of valuing it.

I know people like to talk up shares they hold, but the reality is these are not exciting figures. If the company does a strong H2, as they suggest they hope to, and strong figures are sustainable, then it might be worth another look.

Overall it's an OK business, but I really cannot see anything to get excited about at all. There are probably much better opportunities out there with other shares, in my view, particularly companies with mkt caps of over say £25m, where you can at least get some liquidity in the shares. Trouble with this type of share is that in quiet markets, you can really struggle to sell any shares at all, let alone if something goes wrong, then you're just left high & dry. Why take that risk?

I remember when we saw them at Mello a while ago, it sounded almost like a one man band, in terms of the sales effort. That worried me - what happens if that key person decides they want to leave, or drops dead?

Regards, Paul.

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rivaldo 3rd Sep '14 16 of 26

Hi Paul, thanks for the reply.

I prefer to take each case on its merits and don't like such generalisations about EBITDA. Sometimes EBITDA is useful and sometimes not, In BVM's case I believe it's useful, as it seems that the investment is already beginning to pay dividends in BVM's transition away from hardware to a mix of hardware and software products, which are penetrating a number of new and global markets.

I noted myself that the £1.4m cash wasn't as clean as perhaps portrayed.

I think the time to get in is before the company "proves" that it has turned around, since by then it will be too late, after the turning point which is now apparent has been reached. This is of course the great investment question - at which point do you invest?

For me, assuming BVM achieves its forecasts, the shares could well be at 10p-12p in 4-5 months' time with 0.8p EPS forecast next year, plus a dividend. I'd say a possible 70%+ upside is reasonably exciting.

No-one's talking about taking £100,000 of shares here - for many private investors an investment could be anywhere from £1,000 to £10,000, and for these amounts BVM's liquidity is fine at many times.

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Paul Scott 3rd Sep '14 17 of 26

Hi Rivaldo,

I wasn't generalising. I was very specific, that EBITDA is not a valid performance measure for any company that capitalises development spending. The reason I say that is because development spending is almost always ongoing, and just part of the cost of running the business. If you stop developing your products, then the business will just wither & die. Therefore you must consider either the amortisation charge, or the cash cost of development spending, when valuing the company. If you ignore both (as EBITDA does), then you are ignoring a chunk of costs completely, hence you're overstating the profits of the company.

EBITDA would be OK in a situation like say Goals Soccer Centres (LON:GOAL), where there are a lot of physical assets, and EBITDA is a good approximation for the cashflows from those physical assets once built. EBITDA can also be a good approximation to cashflows in other companies, and is useful for stripping out the amortisation of goodwill for example, which is a useless book entry really. However, EBITDA goes badly wrong as a performance measure when it leads to investors completely ignoring development spending - which is the reason why companies like to use it, as it inflates their reported profits, and gets their share price up!

Re your other points - all fair & reasonable.

I've followed Belgravium Technologies (LON:BVM) for about 15 years now, and invested once or twice along the way, but it's been a serial disappointer, so I wouldn't get too carried away with the latest reasons given for optimism. Just look at the 15 year chart - there have been a helluva lot of profit warnings along the way!!


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rivaldo 3rd Sep '14 18 of 26

In reply to post #85833

Looks like it's time for that chart to have one of its upwards surges then :o)),

I still believe you've missed the transformation which has happened at BVM, not least BVM's acquisition of Feedback last year looks to have been extremely canny and is paying off nicely. This was made out of BVM's cash..

It's your view that EBITDA is ALWAYS invalid which is imo generalising.

For many companies there comes a time when a large amount of investment results in new products reaching the marketplace. After that, investment may well fall away to a large extent and for a while - until the next round of investment is necessary. Until then, the company is in a very sweet spot indeed.

As you say, development must continue - but it's not as black and white as that since these things happen in cycles, and spending peaks and falls. The trick is to catch the time when the company is starting to benefit from the new products, as BVM is, without the accompanying necessity for investment.

Anyway, we'll see where the BVM share price is in a few months' time. The share price has certainly risen nicely so far this year.

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Paul Scott 3rd Sep '14 19 of 26

In reply to post #85834

It's your view that EBITDA is ALWAYS invalid which is imo generalising.

I didn't say that! Pls re-read my comments above!!!

In my experience development spending is almost always just people on the company's payroll, in permanent jobs. So to form a sensible valuation on the company, you need to expense those costs. If you look at EBITDA, then you are ignoring those costs, hence you will overpay for the shares.

Situations can arise (but are rare) where external contractors might be used for some specific project development, and are then laid off once the development is complete. There is a stronger case there for using EBITDA, but even then you're ignoring the amortisation of those costs, and their immediate cash effect, which is simply giving you a meaningless performance measure in the vast majority of cases.

Regards, Paul.

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thekingsgambit 4th Sep '14 20 of 26 is working now for anyone that is interested.

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steviej 17th Mar '16 21 of 26

Interesting that since above comments (roughly 18 months) Belgravium Technologies (LON:BVM) has almost halved and Petards (LON:PEG) flat lined.

Noticed as Petards (LON:PEG) suddenly has a StockRank of 100 and wondered what commentary there was on it.

[Disclosure: both are waaayy too micro cappy for me]

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rhomboid1 18th Mar '16 22 of 26

I bought a small stake in Petards yesterday, firstly I like the fact that mgt have been baptised by fire before ( with Evered, Water Hall etc) secondly it is crazy cheap given the quality of the contracts being won and the strength of the balance sheet. The catalyst for a re-rate will be the payment of dividends IMHO this year , PE is 5 after offsetting the convertible in full! I like it a lot other than the illiquid micro cap nature, but Volvere (LON:VLE) has done well for me and this shares some of the same attributes.

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herbie47 18th Mar '16 23 of 26

Actually Paul has covered Petards (LON:PEG) in the past, I agree with him about micro chips, wide spread and illiquid if anything does go wrong such as losing a large contract can cost a lot to get out. I'm inclined to invest more in larger companies esp. in the current market. I did buy a couple of micros last year Elektron Technology (LON:EKT) and Aukett Swanke (LON:AUK) but sold them, when the share price drifts down then you feel trapped, got out without losing much.

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rhomboid1 18th Mar '16 24 of 26

In reply to post #124256

I know the drawbacks but at the right price a small position can be a reasonable plan, to put in context I have less than 2% of portfolio in sub £20m micro caps and most of my holdings are in £B plus companies.

Micro caps are a cookie jar trap but I've also had multi bag companies that become more liquid in the process of making me a lot of money. Let's regroup in 6 months and see how this 100 Stockopedia ranked play pans out!


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rhomboid1 25th Mar '17 25 of 26

A year on I've exited Petards (LON:PEG), having nearly tripled my original purchase price and topped up along the way, I exited what was a fairly large multiple of NMS with few difficulties as Milton small companies fund was busy buying in so liquidity came with the growth in the business attracting institutional attention, I sold as the dividend had not been reinstated and I wanted to deploy more of my funds in other special situations.
I'm making this post because I had suggested we reconvene in a year to see how it all panned out.

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FREng 22nd May '17 26 of 26

In reply to post #177777

I'm still holding Petards (LON:PEG) because the fundamentals and orders look OK to me (and to Stockopedia's computers) and the company seems well placed to benefit from the current mania for developing Connected and Autonomous Vehicles, with its MoD track record. I see the Chairman sold a few last week, but it looks like a family business (CEO and Chairman have the same surname) and the Chairman still has a big investment, so he probably just needed some cash.

It seems odd that the broker recommendation is strong buy, yet the broker target is reported by Stocko to be below the current SP.

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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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