Small Cap Value Report (4 Mar 2014) - IDEA, HYD, ISG

Tuesday, Mar 04 2014 by

Good morning! It's a fairly quiet morning for small cap news, which is handy as I'm off for an investor lunch later this morning. Also, don't forget that it's the quarterly "Mello Central" event tomorrow, Weds 5 Mar kindly hosted as usual by FinnCap in New Broad Street, London. The evening of four company presentations starts at 5pm, and booking details can be found here. I understand that it is almost fully booked.




Ideagen (LON:IDEA)

I last looked at this small software company in mid Jan 2014, on publication of its interim results, and concluded that whilst it looks a good company, making progress, the shares looked expensive at 30.6p.

The share price is now slightly higher at 32p, valuing the company at around £40m.

This morning the company has issued a trading update. It has a 30 Apr 2014 year end, so this covers most of the financial year. Various contract details are given, but the conclusion sounds positive, saying;


The Company therefore continues to trade in line with market expectations and looks forward to providing a further update in May following the end of the current financial period.


So given that the share price is already quite lofty, this is not likely to do much other than reassure holders.


As you can see from the Stockopedia growth & value graphics on the right, Ideagen shares look fully priced on a forward earnings basis, with a forecast PER of 16.5, and a poor dividend yield of only 0.5%. To my mind the only reason to buy this stock is if you think it will materially out-perform these forecasts in future.

Bear in mind that the company has grown through acquisitions, so one would need to take that into account when valuing it.

The Balance Sheet is strong here.






Hydro International (LON:HYD)

Shares in this waste water specialist have probably been rising due to the flooding, in anticipation of improved business. There's not much sign of that in today's final results for calendar 2013.

Reading my notes from 3 Sep 2013, when I reported…

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Ideagen plc is engaged in the development and sale of information management software to businesses in various industries, and the provision of associated professional services and support. The Company is engaged in supplying governance, risk and compliance (GRC) solutions primarily to the healthcare, transport, aerospace and defense, manufacturing and financial services sectors. The Company’s portfolio products include Q-Pulse, Coruson, Pentana Audit, Pentana Performance and PleaseReview. Q-Pulse, which provides quality and safety management. Coruson,which provides cloud-based software solution. Pentana is an auditing software within its internal audit.It has operations in the United Kingdom, European Union, the United States, Middle East and Southeast Asia. more »

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4 Comments on this Article show/hide all

kevanp 4th Mar '14 1 of 4

Hi Paul

Thanks for your comments on ISG (LON:ISG), which I've held now for a couple of years. I've enjoyed an annualised total return of 23% so far, so I've no complaints, but I do question the sustainability of the recent growth spurt. And I certainly take your point about low margins! The other issue that I have to say worries me a little is the scale of "non-underlying items", arising from reorganisation and acquisitions, which reduce the diluted EPS from 9.3p to 4.4p. Mind you for the year to 30 June 2013 they reduced it from 20.5p to 7.8p, so I guess that represents an improvement!

The thing which puzzles me, and on which I'd welcome some guidance from you or anyone else who understands the figures better than I, is the issue of "non-controlling interests". In the six months to 31 Dec 12 net profit was £1.713m; in the period to 31 Dec 13 it was £1.736m — a very slight increase, thanks to large jump in the aforementioned non-underlying expenses. Yet the net profit attributable to the owners actually fell, from £1.875m to £1.696m. As you can see, in the six months to 31 Dec 12 this was actually higher than the net figure, since the amount attributable to non-controlling interests was actually negative.

Am I right in thinking that these non-controlling interests relate to minority holdings in other companies? If that is the case, how can they be negative?

Any insights on this issue gratefully received. I guess it only becomes relevant because the profit margins are so small.

Many thanks, Kevan

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aiminvesting 4th Mar '14 2 of 4

In reply to post #81752

I believe you are right that non-controlling interests relate to minority holdings in other companies - in this case, a 20% stake in ACE, a Brazilian company (see note 14 of the interim statements). 20% of ACE's profits or losses goes to the consolidated statement of income of ISG (LON:ISG).

In the half year to 31 Dec 2013, that represented a 40k profit. The year before, they must have had non-controlling interests in other companies, and these companies made losses, hence the negative figure. To understand the negative figure, you have to keep in mind we are talking about the share of profit or losses, not the value of the investment in the other company.

I also believe you are right to observe that if you take out those minority stakes, profit in £ISG's subsidiaries actually fell between Dec 2012 and Dec 2013.

Hope this helps,


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kevanp 4th Mar '14 3 of 4

In reply to post #81765

Thanks Thomas. It hadn't really occurred to me that you could share in a loss — but now you explain it, of course it makes sense.

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pkumar8354 6th Mar '14 4 of 4

Thanks for the report. We have huge opportunity with Ideagen

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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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