Small Cap Value Report (4 Sep) - BLTG, KNOS, BNN, IQE, BVXP, JSG, TAX

4th Sep '17 by Graham Neary

48 comments 21474 reads

Good morning!

It's Labor Day in the US which tends to make the global financial markets a lot quieter than usual. US institutions will be taking the day off.

And while the North Korean hydrogen bomb test might have spooked a few people, the FTSE is only a few points lower as of 8.45. Gold is up another 1% around its 1-year highs.

I don't usually devote any time to macro issues here, but Wall Street being closed and a hydrogen bomb seemed worth mentioning!

I will be starting stock coverage with Blancco Technology (LON:BLTG).

Cheers,

Graham

Blancco Technology (LON:BLTG)

Share price: 77p (-25%)
No. of shares: 64 million
Market cap: £49 million

Updates on Revenue and Management

There has been a sea of red flags here for considerable time, both at Blancco and at its predecessor entity Regenersis.

In stock investing, there is such a thing as a smell test, and when a company fails it then you are nearly always better off staying away.

For a review of the various ways that Blancco has stood out as a low-quality offering, have a look through the archives here. It's very genesis as a stock market company was in a failed growth strategy dreamed up by investment bankers. Its accounts have been a mess, cash flow and balance sheet weak, key people have left, etc.

The red flags keep piling up here:

Blancco Technology Group plc announces that, following matters that have recently come to the Board's attention, the Board has decided to reverse £2.9m of revenues represented in two contracts that had previously been booked during the financial year ended 30 June 2017.

Revenue growth is still expected to be quite large (15% in constant currency), and cash flow is not impacted. But it confirms over-aggression in the company's revenue recognition policies.

The CEO tacitly takes responsibility by leaving with immediate effect, and the CFO becomes the new Interim CEO.

Remember that the Chairman is leaving next month, and we already had a CFO resignation in March this year.

Something has been rotten about this share from the beginning. In my opinion, it's not yet investible from a corporate governance point of view. Well done to the Stockopedia algorithms for identifying it as a Sucker…

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langley59

4th Sep '17

This IQE discussion has brought to mind something about which I have always been confused, namely the definition of trading on inside information. If a select group of analysts obtain information from a company's management which is not generally available to all and is price sensitive and that information is subsequently conveyed to clients and they trade on it is that not market abuse? Similarly if Paul or anyone else has a meeting with management, or if there is a non public meeting such as Mello, would this not potentially be also? I imagine the safeguard is that the management team must not disclose anything which is not publicly available, but then if that is the case what is the benefit of an analyst meeting with them?

Laughton

Email on its way to IQE from me too.

Sniggolb

the prohibition of the likes of Paul is a total disgrace and IQE should tell their advisors to stop being so pompous

Modform

Paul,
BVXP, the knowledge is not in the people but the process, if the staff leave the company can employ some graduates to the same job as the process has been defined. This will be another ABC,which I have held since Adam was a lad.
A remarkable company.... Buy it, sleep on it imo

pka

Hi PhilH, You wrote:

"Re: IQE ...Speculation (http://www.macworld.co.uk/news/iphone/iphone-8-release-date-rumours-price-features-specs-3639808/) is suggesting that the new iPhone will be launched on Sept 15th and onsale in the UK by Sept 22nd. Surely that means that any IQE technology that is included has already been manufactured and shipped to component manufacturers that supply Apple. IQE production would have had to have been in place months ago. But IQE with Welsh Assembly Support has only just acquired further manufacturing space. What am I missing?"

IQE has 7 manufacturing facilities around the world. In the Mello presentation in January 2016, the Finance Director said IQE's utilisation of its manufacturing capacity was about 50% at that time. So IQE had plenty of spare capacity to ramp up its manufacture of VCSEL wafers for the launch of the new iPhone. I assume Apple will not want to manufacture too many of the new iPhones before it knows definitely what the demand for them will be from the public. Presumably the further manufacturing space to be leased from the Welsh council will be for the anticipated increase in demand for VCSEL wafers next year, which suggests that IQE's existing 7 manufacturing facilities will be running at near full capacity by then.

PhilH

Hi pka,

Thanks for your response.
Wouldn't increases in things like inventories, purchasing of materials show up in the previous financial reporting?

TIA
Phil

willrimmer1991

Hi all,

Does anyone have any idea about the reverse takeover at caml? (central Asia metals)

Am newish to investing and can't get my head around what possible outcomes there may be as it isn't a situation I have come across before.

Thanks in advance

Regards, Will

crazycoops

Re: Central Asia Metals (LON:CAML) rhomboid1 offered a thesis earlier in today's comments which seems plausible. I'm not thrilled about today's news but there is nothing to be done other than wait for details of the proposed transaction and accompanying prospectus. I had one similar earlier this year in Diversified Gas & Oil (LON:DGOC) which worked out well but I am less confident in this instance.

Re: IQE (LON:IQE) They also invested in further capacity in 2016 which some people were questioning at the time. The new facility might not even be for Apple supply chain or even for VCSELs - perhaps it is for their base station work with MACOM? Or it could be for other high demand products.

Re: Bioventix (LON:BVXP) I have just been looking at the Finncap upgrade - 89.3p eps for 2017 and 2018 forecasts are under review,pending new guidance. Happy holder.

cholertonandrew

Hi, I mentioned Nanoco a week or two ago on here. Just in case anyone was looking at it, I'm very cautious at the moment following the recent update. It has promising technology but in my opinion it's probably best to tread very carefully until there's evidence of strong revenues building.

Regards
Andrew

ls2g08

They will have to sign an NDA or similar to receive privileged info if they are wall crossed. I also imagine this may be a factor as Paul wont have a formal compliance dept. and they are worried about the risk of insider info leaking out.

gsbmba99

Theoretically, all the price sensitive information is contained in the results announcement.

Personally, I find watching or listenting to analyst presentations very useful some of the time. It really depends on the management team. The Q&A is usually most useful since the questions are normally asked by people who know the company well. Some management teams are very good at punctuating their presentations with useful factoids that help make the points. I would cite the recent results announcement from NCC (LON:NCC) (available on youtube). That presentation contained a number of factoids that weren't in the results announcement. For example: 1) there was no systematic performance review system under the previous management team 2) the company only billed completed contracts once per month leading to a significant amount of deferred revenue 3) the company, when asked to perform consulting work, frequently didn't ask the customer to issue a purchase order leading to invoices being rejected and subsequently having to get the paperwork sorted 4) the company undertook multiple office moves in the same year with, at times, double office running costs 5) after acuiring Fox IT, a contractor to the Dutch government, the previous management team didn't inform the Dutch government that the cryptologically advanced secure communications system they were delivering to the Dutch government now had a non-Dutch, eventually non-EU parent company leading to a months long suspension of the contract. Are any of these price sensitive? No. However, the mosaic effect of learning these things helped me understand how a company growing organically at 20% could suffer such a huge loss in profitability last year and why management were confident going forward.

AnonymousUser252054

There could so easily be a major improvement with AIM - if current boss Marcus Stuttard was replaced by Tom Winnifrith.

purpleski

Thanks Bruce.

Shows our little I know! But for me information that is deseminated by the managers of a quoted company should not be for the chosen few any more than, for example, the company's accounts are or information that they choose or are obliged to put out on RNS.

Certainly shareholders (if not everybody) should be able to at least hear these analyst meetings even if they can not ask questions. After all they do own the company and the managers are working for them not the analysts! (I can accept that if all attendees were allowed to ask questions the meetings would become impossible).

Surely if information is being placed in the "public" domain i.e. outside of the direct managers, accountants, lawyers and advisers of the company then the information should be available to all, in this day and age, in real time, even if all are not allowed to ask questions. For me it is more about the "all" being able to hear the information at the time.

Anyway I will take John Eustace's advice but I would like the LSE take a stand on this and make (as Ramriddge says) it a listing requirement that analyst calls/meetings are webcast.

Emperor

FREEDA do you think you could get the good people at IQE (LON:IQE) to share their Investor presentation that will be aired at tomorrow's meeting with us mere mortals? They could even put it on their website....

here's hoping

Michael Mortphew

He's very well connected!!

Might be a difficult person to deal with if he tried to throw his weight around. Still Nick Clarke always comes across as a very sound and reliable.

Bushranger

I hope that is not true ref Central Asia Metals (LON:CAML). I can only see that as being bad as I would guess a reason for doing that might be to then sell it off as it is monetised as shares.

gus 1065

5th Sep '17

IQE (LON:IQE) interims statement link below:-

https://www.investegate.co.uk/iqe-plc--iqe-/gnw/iqe-plc---h1-2017---interim-results/20170905070017H1432/

Results per se are not especially exciting but plenty of Delphic comments in the notes about investment and growth potential with an "H2 mass market consumer device association" to keep the next generation I-phone speculation bandwagon going.

Gus.

Samsgrandad

There might be a connection between institutional investors not challenging high executive pay and cosy meetings at some companies. Just saying.

JonBirdy

Hi Rhomboid

Saw this on ADVFN. In tune with your Central Asia Metals (LON:CAML) speculation. I hold btw.

Could be Kenges Rakishev is lining up a London quote for SAT & Company?

Since November 2006 Kenges Rakishev is the large shareholder and chairman of the board of SAT & Company (KASE: SATC), a diversified industrial holding combining more than 30 companies across different industrial sectors, such as mining, metallurgy, construction, mechanical engineering, oil trading, minerals exploration and recycling.

From 2008 Sat & Company rapidly increased its international presence through acquisition of the new assets in China and Turkey (ferroalloy plants and mining companies exploring ferroalloys, chrome, nickel, zinc and coal). According to Bloomberg, by the beginning of 2013 market capitalization of Sat & Company made up $500 mln. By December 2015 Rakishev gained control over 75,61% of the company's shares.

In June 27, 2013 Central Asia Metals (LON:CAML) became the sole owner of Kounrad copper project in Kazakhstan by exchanging 20% of Central Asia Metals (LON:CAML) shares into 40% of Kounrad stake owned by Kenges. Thus, Kenges was appointed as non-executive director of Central Asia Metals plc.

On March 13, 2014 Kenges Rakishev joined the board of directors of JSC "National Company "Kazakhstan Engineering" - large holding combining 27 enterprises of the defensive industry and munitions factories of the Ministry of Defence of the Republic of Kazakhstan. He left the board one year later, upon the appointment of Imangali Tasmagambetov as the new Minister of Defence.

mrosbiston

probably already been mentioned - but IQE has formed a fairly clear VCP pattern. As a stage two stock it seems to be on its third base, the pick up in volume shows the increase in institutional attention. The reaction today seems very positive, could be another 1-2 bases left in the stage two move - definitely likely to pick-up in volatility

Small Cap Value Report (4 Sep) - BLTG, KNOS, BNN, IQE, BVXP, JSG, TAX

Blancco Technology (LON:BLTG)

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Graham Neary

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