Small Cap Value Report (4 Aug 2015) - AMR, NWF, CTO, ZTF

Tuesday, Aug 04 2015 by

Good morning!

It's quiet for company news today, so I'll look into T.Clarke in a bit more detail, as it's a company that interests me. But first, a few other snippets.

Armour (LON:AMR)

Share price: 3.5p (down 26% today)
No. shares: 97.1m
Market cap: £3.4m

Suspension - shares in this tiny cash shell will be suspended tomorrow morning, because it has fallen foul of the rule that cash shells must invest in something within 12 months;

Unfortunately, in accordance with Rule 15 of the AIM Rules for Companies ("AIM Rules"), the Company's shares will be suspended from trading on AIM from 7.30 a.m. on 5 August 2015 as the Company has not been able to complete an acquisition which constitutes a reverse takeover under the AIM Rules, or otherwise implement its investing policy within the twelve months permitted.

This reminds me of a meeting I had about 8 years ago with the CEO of an acquisitive AIM-listed group. Well, I say meeting, it was more that he was in the area, and dropped in for a coffee at my place, and we had a chat about various bits & pieces.

One issue that we discussed was some cash shell which was being suspended because it had failed to find anything to invest in. The CEO was incredulous at this, and he quipped, "Why didn't they just buy a local hair salon, or a newsagent, anything!" in order to remain Listed?

Clearly such a small acquisition would not constitute a reverse takeover, but it could be described as the first in a series of investments, and thereby perhaps keep the shares listed?

What is also surprising, is that there seems to be a stampede for the exit today, the last day of trading for AMR shares before suspension, despite the 12-month rule being widely known. So how come AMR shareholders didn't see this coming, and sell their shares before today's announcement?

The company confirms that it had £3.7m in cash at the interim period end. Seeing as that was 28 Feb 2015, I cannot see the relevance of quoting today what its cash position was over five months ago. Surely it would have been more relevant to tell shareholders & other interested parties what the cash position is today?!

So, if anyone has a small company that you want to list, this cash shell might fit the bill, as it…

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NWF Group plc is engaged in the manufacture and sale of animal feeds, the sale and distribution of fuel oils, and the warehousing and distribution of ambient groceries. The Company operates through three segments: Feeds, Food and Fuels. The Feeds segment is engaged in the manufacture and sale of animal feeds and other agricultural products. The Food segment is engaged in warehousing and distribution of clients' ambient grocery and other products to supermarket and other retail distribution centers. The Fuels segment is engaged in the sale and distribution of domestic heating, industrial and road fuels. The Company's subsidiary, Boughey Distribution Limited, is engaged in warehousing and food distribution. Its subsidiaries, NWF Agriculture Limited, S.C. Feeds Limited, New Breed (UK) Limited and Jim Peet (Agriculture) Limited, are engaged in animal feedstuffs and seeds supply. Its subsidiaries, NWF Fuels Limited and Staffordshire Fuels Limited, are engaged in fuel distribution. more »

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OneView Group plc, formerly Armour Group Plc, is a holding and investing company. The Company is engaged in the development and sale of cloud-based software products for use in retail estates. The Company's segments include OneView Commerce and Unallocated central costs. Its OneView Commerce segment is engaged in licensing of software and providing the related consulting, support and other services related to the software sold. The Company has operations in the United Kingdom, the United States, the Netherlands and Germany. Its subsidiaries include OneView Commerce Inc., Armour Automotive Group Limited, Enactor Americas and OneView Commerce DE GmbH. OneView Commerce Inc. offers Oneview Digital Store Platform, a cloud-based platform that provides associates with access to an omni-channel view of customers, orders, inventory, detailed product information and reviews. Oneview Digital Store Platform offers Point of Sale (POS), OneView Inventory solution and OneView Promotions Engine. more »

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TClarke plc is a United Kingdom-based building services company, which delivers electrical, mechanical, and information and communications technology (ICT) services. The Company provides electrical and mechanical contracting and related services to the construction industry and end users. Its geographical segments include London and South East, Central and South West, the North and Scotland. The Company's businesses include Intelligent Buildings Green Technologies, Facilities Management, Transport, Mission Critical, Manufacturing Services, Residential & Hotels, M&E Contracting and Design & Build. The Company within its M&E contracting business has capabilities in sectors, including commercial offices, retail, education, healthcare, financial services and media. Its Manufacturing Services business includes in-house precision prefabrication and engineering services. Its projects include Beckley Court, Chiswick Park, Kettering Hospital, Project Nova, Mitie Care Home and Rathbone Square. more »

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

10 Comments on this Article show/hide all

shauniekent 4th Aug '15 1 of 10

Paul -you may now be interested in Zamano as its gone above £10m market cap after disclosing preliminary interest from an other company yesterday. Stock rank of 91. By my sums on a fcf/EV of about 5 with growth prospects as a bonus. It's a company that has dissapointed in the past, but is turning around yet investors don't want to know.

I'd also flag up a holdings statement in Synety today - Helium rising stars are increasing their position. I'm still excited by this and look forward to interim results.

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iwright7 4th Aug '15 2 of 10


One thing to be aware of with NWF (LON:NWF) is that it is heavily involved in the animal feed sector and with dairy farmers in particular. Disastrously low milk prices are causing huge financial problems for dairy farmers, so whilst the NWF directors are "confident and expectations are in line", I would add a big note of outlook caution to this one. NWF will do very well if they come through unscathed over the next 12 months.

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janebolacha 4th Aug '15 3 of 10

Paul, one does need to be cautious on interpreting the cash flow of contracting companies.
That's because there are likely to be advance (mobilisation) payments to the contractor,
progressive retentions held by customers until the completion of defect liability periods,
perhaps retentions held by the contractor for work done by sub-contractors,
besides possible "pay when paid" arrangements. Unless shareholders are supplied
with adequate information on these elements (as, imo, they ought to be), it becomes a
question of trying to read the runes of company announcements which can be
rather a minefield to interpret. None of that is meant to reflect specifically on
CTO's results announcement, other than that it's regrettable that more info is not given
so that we don't have to be trying to guess at what the position is.

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Paul Scott 4th Aug '15 4 of 10

In reply to post #103992

Hi Ian,

Thanks, good point. I checked back to my previous notes, and my report of 3 Feb 2015 covered the issue of dairy farmers.

I wonder if it might lead to more bad debts for NWF? That always worries me with low margin businesses - a few bad debts from customers who go bust, can easily wipe out all the profits for the year.

Regards, Paul.

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Crusty 4th Aug '15 5 of 10

I am also long CTO which seems, as you say, to be slowly advancing as contracts with more reasonable margins come through. Quite apart from this, I like the management: they are rightly proud of their 75 new apprentices from September; they value the quality and expertise of their workers and are unrivalled in their field.

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purpleski 4th Aug '15 6 of 10

In reply to post #103996

I know nothing about NWF (LON:NWF) and cant say I like low margin businesses but surely of there bad debt provisions over the years are prudent and sensible then they will have provided for bad debts?

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iwright7 4th Aug '15 7 of 10

In reply to post #103999

Farming is remarkably cyclical with good times and bad. Dairy, pigs and sheep are all bad at the moment so likely to be a contraction in livestock numbers and more farmers with cashflow problems or going broke. Add this to a low margin and there is very little financial wriggle room. Ian

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fanmail 4th Aug '15 8 of 10

I've known NWF since its days as a farmers co-op. All its businesses are low margin and all are liable to throw a wobbler from time to time, there being minimal barriers to entry. Quite how it gets such a high rank on Stockopedia beats me - the quant jockeys need to revisit their algo.

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Paul Scott 4th Aug '15 9 of 10

In reply to post #103999

Hi Purpleski,

Re bad debt provisions - companies tend to make specific bad debt provisions against known (or likely) bad debts. Some companies then also make a general provision, to cover as yet unknown bad debts. The trouble is, if there is a general downturn in a sector (such as dairy farming) which causes a dramatic increase in dairy farmers going bust, then that could leave NWF (LON:NWF) with unexpectedly high bad debts, in which case they would have to make an additional provision, thus hitting profits.

Another aspect of this is that companies can insure against bad debts, by using a trade credit insurer, although I doubt whether NWF do this, as it's too expensive for a low margin company.

I imagine NWF just use standard credit control procedures - so allowing customers a little slippage on agreed terms, but then putting their account on stop (i.e. no more deliveries) until they pay the old invoices. That way bad debts are at least minimised.

I imagine that NWF would have a fragmented sales ledger though - so probably thousands of customers, none of which is individually that significant. So that helps.

It would be worth getting more information on this from the company though - there's usually some detail about bad debt provisions in the debtors note (which will be referenced on the Balance Sheet with a note number) near the back of the Annual Report. It might also be discussed in the Key Risks section of the Annual Report.

Regards, Paul.

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purpleski 5th Aug '15 10 of 10

In reply to post #104011

Thanks Paul

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 Are LON:NWF'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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