Small Cap Value Report (4 Jul 2014) - OFF, STAF, SRT

Friday, Jul 04 2014 by

Good morning. Time for me to stop messing around on Twitter, and write a report!

Office2office (LON:OFF)

In a brief trading update this morning, the company says that trading in H1 to 30 Jun 2014 has been in line with expectations.

Please see my previous reports for details on the extremely weak Balance Sheet here, hence the shares are ultra high-risk in my view. So I won't be even considering investing here unless & until they fix the Bal Sheet.

Staffline (LON:STAF)

The staffing company also issues a trading update for the six months to 30 Jun 2014 today.

The key sentence says;

 ...the Board today reconfirms that current trading remains positive and earnings for the six months ended 30 June 2014 are in line with market expectations

The company has made three acquisitions since May, which I've not looked at. Can't believe I sold these around 330p, after spotting the value & GARP at 226p per share in Sep 2012, what a stupid decision. Not running my winners is definitely me main flaw as an investor - I always seem to sell my best stock ideas far too early. This is probably down to a fixation on valuation, whereas one perhaps needs to be more flexible on good growth stocks, and let the valuation stretch a little higher than you're comfortable with?

Still, in a way, selling great stocks too early is a quality problem to have! At least I've got a good knack for finding the bargains in the first place, that's the most important bit. Selling too early is a problem that can be fixed.


I can't bring myself to revisit the shares at almost three times the price I sold them at, which is ridiculous as the market neither knows, nor cares about our previous transactions!

They are not looking expensive on broker forecasts, even after such a huge re-rating over the last couple of years, as you can see from the usual Stockopedia graphics below, the valuation is still reasonable. It also has a very high StockRank of 94 (Stockopedia's proprietary ranking system).

The low operating margin of 2.14% above (in the Quality section) is a bit of a red herring. Staffing companies include the temporary employee wages within turnover, so it's really best ignored. Gross profit is…

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Staffline Group plc is a holding company, which is engaged in the provision of recruitment and outsourced human resource services to industry and services in the welfare to work arena and skills training. The Company has two segments: Staffing Services, which includes the provision of temporary staff to customers, and PeoplePlus, which includes the provision of welfare to work and other training services. Its Staffing Services focuses on providing complete labor solutions in agriculture, food processing, manufacturing, e-retail, driving and the logistics sectors. Its recruitment business operates from well over 300 locations in the United Kingdom, Eire and Poland. The Staffing brands include Staffline OnSite, based on clients' premises providing both blue and white collar, out-sourced, temporary workforces. Its Employability includes work program, prime contractor in over nine regions and sub-contracts in approximately five regions in England. more »

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SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

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18 Comments on this Article show/hide all

Cisk 4th Jul '14 1 of 18

Hi Paul, I know what you mean by selling too early - a good friend (who is also a broker, so maybe he's talking up his commissions?) always said to sell half on a double...

I try and follow the advice (when there are 'doubles' to sell of course). My biggest failings are always to not sell the losers when they've breached a stop loss, which I invariably fail to set / monitor.



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it_trader 4th Jul '14 2 of 18

Paul, nothing wrong with twitter. I use it mainly as a voyeur to be fair, but have noticed my last 3 tweets have been to you. I'm not stalking you honestly!

Have you ever heard of/looked at £TMZ? I've been in it for a long long time now and it is just starting to commercialise it's heavily researched Sensium patches, with growing NHS trust interest. It's not just reliant on that for future growth either with an added twist of value with an established digital radio component part of the business too.

It's grown a lot in the last few months and hopefully will meet your small cap criteria when it reports its interims in September.

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MrContrarian 4th Jul '14 3 of 18

Year ago I read a great quote in 'Money Makers'* where the fund manager John Carrington was told, early in his career, "You're a profit snatcher. Stop it."
Just the bluntness of the instruction struck me forcefully.

*by Jonathan Davis. Excellent read and best of all, bought for a pound in a remaindered sale.

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Paul Scott 4th Jul '14 4 of 18

In reply to post #84530

Hi it_trader,

Yes, I know Toumaz (LON:TMZ). It seems to have a revolutionary product (a low power wireless device that enables hospitals to monitor patients vital signs all the time), but the mkt cap is very high for a heavily loss-making outfit that has been promising a lot for several years now, but not delivered anything much so far.

You would need to look into what competitor products there are, any Patents, barriers to entry that Toumaz have, etc. That's the crux I think.

But it certainly looks a great story.

Cheers, Paul.

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it_trader 4th Jul '14 5 of 18

There is so much conflicting advice out there on how you handle winners and losers that you really need to pretty much treat each investment differently.

I don't think you can mechnically treat all winners/losers the same unless you are inherently overly emotional that is ;)

A lot of decisions should come from reading RNS/account statements carefully, market sentiment and ultimately your gut, although I do think you should write down your plan for each investment and review it as new info arrives.

  • Winners - some you should leave well alone, some you should add too, some you should half, and some you should definitely 'Profit Snatch'!
  • Losers - some you should mechanically get rid of after a % stop loss, some you should leave alone as they become bigger bargains, and some controversially you really should be adding to them.
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Maddox 4th Jul '14 6 of 18

Hi Paul,

The self-examination of your own investment style and occasional mistakes is unique and highly valuable. Firstly, it's reassuring when we find our foibles shared with someone so insightful. Secondly, I certainly need to do likewise and exorcise my own demons.

Regards, Maddox

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it_trader 4th Jul '14 7 of 18

In reply to post #84532

Cheers Paul,

I think they are hoping to break even this year after many years in R&D, so the interims in September will be interesting.

It's been a long hard slog but finally doubled up on this, and like you say probably up to this point simply on the story alone, but there does seem to be a real buzz developing in the media, business and now price action.

It was one of my first ever, probably naive, investments, where I got in way too early, but my stake was so minimal I'm going to see this one through!

IT Trader
I am hoping

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byglenn 4th Jul '14 8 of 18

Hi Paul

Any thoughts on Puricore? the share price is tanking at present


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JMLDutch 4th Jul '14 10 of 18

In reply to post #84533

Very true. Same with bottom feeding I think. From my very limited experience it appears that some stocks, notably FTSE100 stocks (e.g. recently RDSB, SSE, BATS, IMT and potentially housebuilders) have been bargains at depressed prices.

For less established companies I think that bottom feeding, or not cutting losses, is much more risky.

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Splode 4th Jul '14 11 of 18

Paul -

When assessing the significance of a director's Buys I think one should look at how much the director has previously taken out of his company by selling options/restricted stock. On this score Simon Tucker is exemplery since as far as I can tell he has not sold any stock in SRT (although seven years ago he did exercise but did not sell options for about £10k) - which is unusual.

(NB - I do not hold or intend to buy shares in SRT)

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Roger Lawson 4th Jul '14 12 of 18

Re SRT and WH Ireland, was it not WH Ireland who organised the placing for Crawshaw that you so recently criticised? Incidentally I recall talking to the Chairman of SRT a couple of years ago about his attitude to placings and appropriate discounts and he said they would not do a highly discounted one. I suggest it's more about the attitude of the directors and the market appetite than the broker. Incidentally perhaps on Crawshaw potential investors were sceptical. Crawshaw seems to be a typical retail roll-out story, but most retailers have great positive cash flow and finance such roll out from their resources - for example look at Dunelm who generate so much cash they also do special dividends.

Website: Roliscon
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CliveBorg 4th Jul '14 13 of 18

Hi Paul,
RE: SRT. Very sorry to learn that there isn't going to be a rant today. Perhaps this joke will get you started:
A former Enron executive walked into the local unemployment office, marched straight up to the counter and said 'I'm in need of a job'. The man behind the counter replied 'Your timing is amazing. We've just got a listing from a very wealthy client who wants a chauffeur for his daughter.
'You'll have to drive around in a big black Mercedes, uniform provided, meals will also be provided and once a year you will also be required to escort the young lady on her month-long Carribean holiday. 'The salary package is £200,000 a year.'
'You're joking!' said the ex-Enron man. The man behind the counter said: 'Well you started it'.

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melody9999 4th Jul '14 14 of 18

Seems to me placing prices can reflect a larger or smaller discount depending on the share price movements in the last month. For example with SRT, the SP might have been 26p when the placing price was agreed. See the chart for the share price in April/May. That would be a 40+% discount. If the SP had moved up since May, rather than down, the discount would have been even greater.

Am I missing the point here or is a bit of a lottery when a company determines a placing price because they have no idea how the SP will move in the following weeks before the RNS is issued?

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Paul Scott 4th Jul '14 15 of 18

In reply to post #84543

Hi melody9999,

When I've taken part in Placings the process is quite quick. So you're realistically looking at about 3-4 weeks from the Directors deciding to do a Placing, and it being completed & announced to the market.

Also you can find that the share price goes inexplicably soft in the run up to a Placing occurring - since despite it being illegal, there's no doubt that some people tip off friends or family to sell the stock before a discounted Placing is announced. You are "taken inside" if you are made aware of a Placing before it has been announced to the market, and hence cannot deal in the shares until it is announced, nor tell anyone else about the Placing. This is vital, as the penalties for Insider Dealing are severe, usually prison.

That's one of the reasons that Placings have to happen quickly - because information leaks out.

By the time I get to hear about the odd one (which was not the case with this one) the deadline is usually just a couple of days. I suspect that sometimes people like me are only told about Placings if they haven't had much take-up from more important clients!

Although you can get into Placings if you build a relationship with the company management, and ask to be put on the list for any future Placings. You have to be classified as a professional investor for this to happen, and of course you have to be squeaky clean on keeping all info confidential until the deal is done & announced to the market. Also realistically, they usually want people who can write a reasonably big cheque, which is usually a bit out of my league at the moment (but wasn't pre-credit crunch!)

Regards, Paul.

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beatingmrindex 4th Jul '14 16 of 18

@byglenn what are your thoughts?

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melody9999 5th Jul '14 17 of 18

Tks Paul - on the basis of the SP action alone then, you could argue CRAW kept things quiet whereas there may have been a leak with SRT.. On the other hand the SRT SP may have moved downwards for other reasons.

But my main point is, if the process does take 3 - 4 weeks, then when a placing is announced, we have to look at the SP 3 - 4 weeks before to understand the company's perspective on how deeply they were discounting the SP to get the placing away.

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Paul Scott 5th Jul '14 18 of 18

In reply to post #84554

Hi melody9999,

But my main point is, if the process does take 3 - 4 weeks, then when a placing is announced, we have to look at the SP 3 - 4 weeks before to understand the company's perspective on how deeply they were discounting the SP to get the placing away.

Absolutely, that's correct. It's an embarrassment when the share price shoots up (or down) when a company is arranging a Placing.

However, if they attach an Open Offer for at least an equal number of shares, then it doesn't matter if the share price shoots up - because existing shareholders can buy at the discounted price.

The problem arises because existing shareholders are shut out of Placings.

In the case of Crawshaw, there was no particular urgency for the money, so they could have done an Open Offer alongside the Placing. Also they did not need to raise such a large amount, so the uncertainty of an Open Offer element to the fundraising would not have mattered.

The truth seems to be that Crawshaw were happy to shut out existing shareholders, in order to bring in Institutions at what turned out to be a very favourable price. It's no surprise that existing shareholders are furious about this, and the company has badly dented its standing with many existing shareholders.

I note that a new website has soft launched this weekend, which is campaigning for Open Offers to be used more frequently, as opposed to just Placings:

Regards, Paul.

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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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