Small Cap Value Report (4 Aug 2017) - FRP, OnTheMarket, YOU, SUS | Graham Neary

4th Aug '17 by Graham Neary

34 comments 13863 reads

Good morning and happy Friday!

Fairpoint (LON:FRP) (suspended)

This should be the last time we mention this legal services / debt management firm.

Last time I covered it, I said it was hard to imagine the equity was worth anything. £20 million in bank debt had been sold off to a sector specialist, who was continuing to finance the subsidiaries.

Those selected subsidiaries continue to trade, but the holding company (i.e. the company which some of us bought shares in) is entering administration:

...ongoing support for the Group's subsidiaries outside of the Legal Businesses is made more difficult due to the existence of the onerous lease on the Group's head office which has an annual commitment of c£1m per annum for a further 4 years. As a result, and following detailed discussions and the evaluation of a number of options, the Board has concluded that the holding company of the Group, Fairpoint Group plc, is no longer able to continue trading as a going concern and has filed notice of intention to appoint administrators.

People should have mentally written this down to zero some time ago, in my opinion.

I haven't sold anything short in a good while but this is an example of where, if the shares had been still trading up to this point, it might have been a good idea. You only need a limited number of people to think that the shares are not worthless for the share price to remain at a level greater than zero, and for a 100% negative return to be achieved!

Additional comment from Paul: I agree with Graham that Fairpoint has been a terrible mess. I've certainly learned a lot from this one, which we've discussed here before.

I'd just like to come back to Graham on the point of possibly shorting this type of thing (Fairpoint). DON'T! It's way too risky. There are a number of issues. Firstly, when the shares are suspended, the Spread Bet or CFD provider will usually increase it to 100% margin, on your original transaction price. This can suddenly swallow up a load of funds on your account, which are now effectively frozen. It can take months, and sometimes even years, for the stock to be valued at nil, and hence to get your funds unfrozen. So what seemed like a win, soon…

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andrea34

4th Aug '17

Anyone know please why some of the housebuilders are taking a bit of a bruising this morning? PSN were down over 6% at one point, BWY less so...

loudenr

I noticed this to but cannot find anything obvious other than the comments from BoE that rate rises will happen and be quicker than people might expect

Carcosa

A report in in trade publication Property Week cast doubt over the future of the government's "Help to Buy" scheme which is aimed at boosting home ownership among first-time buyers.

Boon

OnTheMarket: one has to be careful about this. There are essentially three property portals in the UK: Rightmove, Zoopla, and OnTheMarket.

Rightmove is the leader in terms of listings, agents, and traffic.

Property portals work on a network effect. As a buyer, you probably don't want to sign up for all three, search all three regularly, and get spam from all three. I suspect most buyers definitely use RightMove, and then if adventurous choose either Zoopla or OnTheMarket.

Therefore it feels somewhat like a winner takes all market. Like Facebook.

Sorry, another 'has anyone' type post.... does anyone have a view on the AIM admission today of GETB? It's pretty small in terms of revenue, and disappointing there are no historic profit figures in the announcement... although perhaps that is difficult to ascertain from the pre-demerged entity.

GetBusy, based in Cambridge, UK, has been formed by the demerger of the document management software business and assets of Reckon Limited ("Reckon"), an ASX listed technology group......

Two document management software products, "SmartVault" and "Virtual Cabinet", have seen encouraging growth rates amongst their target customer bases, which are SMEs and larger organisations in the Enterprise Content Market ("ECM") respectively. In order to capitalise on the market opportunity, it was decided that these products would be best served in a separate business entity that did not have the same organisational restrictions as Reckon. The Directors believe that Admission will position GetBusy for its next stage of development, further raising the profile of the Group in its core markets...... etc

Growth Opportunity

The need to manage digital data and hard copy documents is a significant challenge for businesses using traditional digital storage and retrieval methods in standard computer operating systems. These systems are typically cumbersome, slow, insecure and lack a standardised approach.....

The Group's core SmartVault and Virtual Cabinet software products seek to address the potential for information chaos by optimising the capture, management, preservation and delivery for each individual document in the business. These products are already well established with over 51,000 individual customers across the UK, USA, Australia and New Zealand and more than 617,000 users registered to share documents on the online portals.

Aggregate sales for both products in 2016 totalled approximately £8.0 million (2015: £6.8 million) with subscription revenue accelerating by 21 per cent. during the period to £6.5 million, or 82 per cent. of total revenue in 2016, highlighting the increasing levels of visibility due to its subscription based revenue model. The UK currently accounts for the majority of sales at £4.9 million in 2016, followed by £2.3 million from the US and £0.9 million across Australia and New Zealand.

Significant Market Opportunity

Wasted time dealing with information issues are estimated to cost organisations c.US$19,732 per information worker per year, amounting to a 21.3 per cent. loss in total productivity. The total addressable market for GETB is therefore significant. The total ECM market alone, excluding SMEs, was estimated to be US$5.9 billion in 2015. Whilst the SME market is underserved in terms of professional document management software currently, the Board of GetBusy believes it has innovative and disruptive technology to address this market segment, at the right price point in terms of both delivery and total cost of ownership.

Graham Neary

Hi, I agree - it looks like two large competitors can be supported because people always want to check for an alternative, but three large competitors might be difficult to sustain over the long-run.

gsbmba99

If I'm not mistaken, Agent's Mutual was formed to benefit the agents by creating their own portal. In essence it was designed to capture the benefit of the money the agents were spending on portal advertising. If they convert it to a plc, the arrangements between the majority (in aggregate) shareholders and the plc need to be very carefully managed. If shareholders are allowed to sell their shares in the plc, it could substantially weaken the economic linkage between the shareholders who provide the listings and the plc.

dfr1

all house builders are down, but i would like to think this is a good time to top up on any you have(i hold bellway,persimmon and redrow ) and i bought some more this morning. the government are complaining theres not enough houses being built,so i can't see how there going to stop the help to buy program over night, and at the moment all building companies are in a purple patch just read any of there statements and i look forward to reading bellway next week.

MikeBrenner

The other concern for Onthemarket should be PURP who will be doing similar national advertising to Rightmove, Zoopla and On the market encouraging people to go direct to their site.

As PURP build scale its going to make it more expensive (TV, above the line and search key words spend) and more difficult (PURP and Rightmove are using a lot of sophisticated technology to support their conversion / marketing) to bring traffic to their sites. The only USP Onthemarket has is unique properties that are listed by its estate agents and then only shown there and 1 other portal ... A supply model driven by estate agents is not a sustainable model if you are trying to monetise eyeballs and traffic for investors which means PURP and their big $$$ of marketing spend would need access to display their properties ... all of which cannibalizes the estate agents even further!

Rusty2

I also saw this: UK interest rates may have to go up by more than the market expects in the future, Bank of England deputy governor Ben Broadbent has told the BBC.

I've held BWY for quite a while, was thinking of picking up some PSN as they are down more than most for some reason; their last trading update I thought was pretty good though, they are showing good margin increases, and the Stockopedia rating looks good

i think PSN would be worst hit buy the help to buy program if it were to be phased out, but still think its a good company to have in any portfolio

jonesj

If "On the Market" is controlled by agents, then presumably the business direction would be to undercut Zoopla & Right Move fees, to grow the business and leave more money with the agents. Therefore less money for the shareholders.

I don't see how that can be in shareholders interests. Furthermore, I wouldn't want to be a minority shareholder in a business controlled by estate agents.

I suppose it is also good timing for them to float off a proportion of the business before interest rates go up.

Thanks dfr1 and others on your comments on housing stocks; have a nice weekend :-)

Small Cap Value Report (4 Aug 2017) - FRP, OnTheMarket, YOU, SUS

Fairpoint (LON:FRP) (suspended)

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Graham Neary

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