Small Cap Value Report (5 Aug 2016) - MTEC, CALL, BOOM

Friday, Aug 05 2016 by

Good morning! Right, let's get this show back on the road.

Today I intend reporting on;

Matchtech (LON:MTEC) - trading update for y/e 31 Jul 2016

Cloudcall (LON:CALL) - Interim results to 30 Jun 2016, and another Placing

Audioboom (LON:BOOM) - interim results to 31 May 2016

I'll also have a leisurely stroll through yesterday's RNSs, later this afternoon, and will update on anything interesting.

Matchtech (LON:MTEC)

Share price: 361p (up 6.9% today)
No. shares: 30.9m
Market cap: £111.5m

(at the time of writing, I hold a long position in this share)

Trading update y/e 31 Jul 2016 - this is a recruitment agency, specialising in the engineering & technology sectors. In common with some other smaller recruiters, its shares have been really slammed hard over Brexit fears. So personally I held back on buying more, as I assumed something must be going wrong.

However, today's update begins with an (ambiguous) confirmation of performance;

The Board expects profits to be in-line with its previous expectations.

What do they mean by "previous expectations"? Is that different to current expectations? If so, in what way?

Total NFI (Net Fee Income) is up 45% to £73.2m for the year ended 31 Jul 2016. The big rise here is due to the acquisition of Networkers International, which was a major acquisition.

There's an excellent research note here from Paul Hill of Equity Development, which is well worth a read, because it includes graphs on competitors, as well as for Matchtech. This note points out what good value Matchtech shares appear, and that it is far less cyclical than some investors seem to think. Although he does rein in his forecasts to essentially flat earnings for the next 2 years. That's probably sensible in current uncertain economic times.

Valuation - based on 43.7p EPS for 2015/16, the PER is 8.3 - clearly good value.

Dividends - a particular attraction of this share is the good dividend yield. Based on a forecast payout of 22.8p this year, that gives a nice yield of 6.3% - which looks sustainable to me, because it's twice covered, and also the balance sheet is strong (see below).

Net debt - is £27.5m at 31 Jul 2016, down 18.2% from a year earlier.

Although it should be noted that net debt is up 10.9% from 6…

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Gattaca plc, formerly Matchtech Group plc, is a human capital resources business dealing with contract and permanent recruitment in the private and public sectors. The Company operates through two segments: Engineering and Technology. The Engineering segment comprises Barclay Meade and Alderwood recruitment consultancy brands. The Technology segment includes the Connectus recruitment consultancy brand. The Company is a provider of specialist recruitment services to the engineering and technology industries, both in the United Kingdom and internationally. The Company offers three core solutions: Contingent Workforce Solutions, Permanent Recruitment Process Outsourcing (RPO) and Total Workforce Solutions. more »

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Cloudcall Group plc is a United Kingdom-based holding company. The Company and its subsidiaries are engaged in software and unified communications business. The Company provides a suite of cloud-based integrated software and telephony products and services under the name cloud. The Company is a full-service communication provider. The Company designs, develops and operates integrated communication services for customer relationship management (CRM) systems. The Company's CloudCall portal enables to manage organization’s call profiles, configures all settings and manages user and service accounts and access real time activity reports and call recordings. Its automatic call distribution (ACD) feature routes the callers directly to available team members in the organization. The Company’s subsidiaries include Cloudcall Ltd, Cloudcall BY. LLC and Cloudcall, Inc. more »

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Audioboom Group plc operates an audio platform for hosting, distributing and monetizing content. The Company works with approximately 2,400 active broadcasters, content creators and podcasters around the world, and hosts in over 7,400 content channels. The Company's hosting and distribution platform allows partners to embed, share through social channels and re-syndicate their content. The Company receives over 40 million listens per month. It also works with its partners to monetize their audio through live in-reads, the dynamic insertion of pre and post roll audio adverts and video advertisements. Its audio, cloud-based, software as a service (SaaS) platform enables the creation, broadcast and syndication of digital audio content across various devices, networks and geographies. Its subsidiaries include Audioboom Limited, Audioboom Inc, One Delta Limited and Audioboom Pty Limited. more »

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

29 Comments on this Article show/hide all

Aislabie 5th Aug '16 10 of 29

I would be interested to know what you think about today's placing by Benchmark (BMK) where amazingly that have placed a significant amount at a price - 65p - well above the market price of 57p. I find this very impressive or maybe I am missing something

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tabhair 5th Aug '16 11 of 29

Audioboom claim to have had 300M listens in the last year, on a TTM revenue of £100k, that translates to revenue of just 0.0003p for each time a podcast was listened to. That is just appalling, even for a unicorn stock. If there are business development or sales people working for this company, they ought to be sacked!

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Paul Scott 5th Aug '16 12 of 29

In reply to post #145704

Hi Andrew,

I think companies only really need to do Open Offers when they are doing a Placing at a deep price discount. If no price discount, then there's no need for an Open Offer - you can just buy in the open market.

Also, Open Offers cost money to do, and often the take-up is very poor, especially when there's no price discount available, as in this case with Cloudcall (LON:CALL) .

I've just written up a new section on this, published above a few minutes ago.

Regards, Paul.

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cholertonandrew 5th Aug '16 13 of 29

Thanks Paul, I appreciate your take on things. I still like the stock, they're growing at I think close to £2m annualised and I think the amount of money raised this side of breakeven suggests they believe they have very good growth opportunities to go after. I think in two years time they could have probably doubled revenue and possibly the market cap/revenue ratio could dramatically increase too so I plan to continue holding.

Even without a discount I assumed they would include an open offer which is why I was disappointed. I've got limited experience though of these sort of situations so appreciate your take on things.

Thanks for the reply.


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truegent 5th Aug '16 14 of 29

hi Paul, of particular note today has to be Blue Prism (LON:PRSM)....up 55% !! i did read the RNS this morning and was going to trade this at 8am but then i read the interims (they dont have any full year accounts yet due them being a new IPO) and i think they actually still made a loss for the 6-month i didnt bother ! ah well...

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TraderTim 5th Aug '16 15 of 29

Have you seen the two other RNS' from Audioboom (LON:BOOM), Paul?

Placing of £2.55m at 2.5p and a 'Strategic Update' saying a Chinese fund is putting in a strategic investment of up to US$8 million to be made at no less than 2.5 pence per share, though this is not finalised yet. It won't change the company fortunes, but will prolong the inevitable.

Like you, I like the company. The management are delusional. Absolutely no mention profit. Similar to Snoozebox Holdings (LON:ZZZ) in my opinion, investors buying into the concept, rather than the business. This is what has kept the business afloat. However, over time, people are gradually realising that the concept is flawed.

Blog: Trader Tim
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MrContrarian 5th Aug '16 16 of 29

In reply to post #145743

0.0003p? That would be a ludicrous business model.
It's a much better 0.03p per podcast!

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Paul Scott 5th Aug '16 17 of 29

In reply to post #145764

Hi Tim,

Many thanks for flagging the other updates from Audioboom (LON:BOOM) - I didn't see those, because I screen for results/trading updates only.

I'll update the article accordingly now.

Regards, Paul.

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simoan 5th Aug '16 18 of 29

In reply to post #145710

Hi FREng, 

I agree there's a shortage of engineers in the UK and plenty of need but that's the UK education system for you. Many of the vacancies will need to be filled by immigrants and we're yet to see how difficult or otherwise it will be to attract them given Brexit. However, the early signs for UK employment overall are not especially good:

I used to hold Matchtech (LON:MTEC) but got fed up with it, it can be pretty illiquid with a large spread and so I sold out despite the well covered dividend that Paul mentions. Three things I particularly don't like about it:

1. Too UK focussed.

2. Potential seller overhang from Networkers acquisition

3. Last but not least, there is a "Value Creation Plan" that conveniently got re-based after the acquisition. No guessing who the "value" is being created for :-)

All the best, Si

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FREng 5th Aug '16 19 of 29

In reply to post #145773

Thanks, Si. Value Creation Plans are an automatic bargepole for me.

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Trident 5th Aug '16 20 of 29

I think I would take the involvement in Audioboom of one of the Candy brothers as indicative of another cash and burn 'pie in the sky' example of a tech stock. You may recall a previous involvement in tech company that had devised a music based app that went down in flames fairly recently. Young, rich and hopeful it seems his investment strategy seems reminiscent of the 'invest in anything tech' mentality of the era. No doubt looking for the proverbial unicorn

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jonesj 5th Aug '16 21 of 29

In reply to post #145710

This "shortage of engineers" is complete nonsense put out by engineering employers who want a surplus of engineers so they can recruit them cheaply. As it is, any company prepared to offer a half decent salary can recruit people. Those who pay peanuts struggle to recruit. Probably down to some FD expecting to pay engineers less than accountants.

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jonesj 5th Aug '16 22 of 29

In reply to post #145710

I also forgot to mention that normal rules of supply & demand apply to the engineering industry. If companies pay engineers more, then more people will study engineering. Supply is sensitive to price. Engineering employers should not whinge about short supply. They should adjust salaries.

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VegPatch 6th Aug '16 23 of 29

Hi Paul
As ever: say it as you see it. Thanks.

One question from me. You are generally very reasoned in your analysis, which I think is to be applauded. Occasionally however, your actions differ from what I might expect given your rational commentary. As an investor we all have our foibles, and believe me I am no different. Sometimes I realise I am investing outside of my circle of confidence, and it generally ends badly for me...

So have you ever analysed your return on investment from concept / loss making companies (eg cloudcall) compared to profitable ones? Eg boohoo

Many thanks


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james1n 6th Aug '16 24 of 29

In reply to post #145716

I agree - it's shaping up to be a long term hold for me also. I gradually built up my stake as I gained confidence in the company - would just like to see more reporting on it!

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FREng 6th Aug '16 25 of 29

In reply to post #145803

The university engineering departments are full, but it costs a lot to educate engineers so the departments are cross-subsidised from cheaper courses such as English, and universities have no financial incentive to invest in more engineering courses. Universities are businesses these days and driven primarily by financial goals, not by considerations of the national interest.

The salaries for engineering graduates are excellent: in the top five of all subjects, including the medical and vetinary courses. Increasing them further won't solve the shortage, any more that it does for doctors and other skills where the UK is dependent on immigration.

Engineering companies are investing in apprenticeships and in other actions to increase the supply but this all takes time. Meanwhile, the shortages will remain, and UK engineering firms have moved many jobs out of the UK because they cannot staff them here. It will be important that the Government continues to offer visas for skilled staff in shortage areas such as engineering. If they do, then Matchtech (LON:MTEC) will have a source of recruits and should continue to benefit.

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Paul Scott 6th Aug '16 26 of 29

In reply to post #145806

Hi VegPatch,

I'm a bit puzzled by your question...

So have you ever analysed your return on investment from concept / loss making companies (eg cloudcall) compared to profitable ones? Eg boohoo

... since I've made it abundantly clear, in numerous articles, that my concept/loss-making share investments are usually a disaster!!

It's the biggest leak from my portfolio, hence why I rarely touch that kind of stuff any more.

Regards, Paul.

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smatthews1 7th Aug '16 27 of 29

Matchtech name change, I have question marks over this one, most companies spend thousands of time and money building their brand and name so I'm puzzled why they would do this as the company already seems fairly stable. My only suggestions are they are trying to hide or dispose of any negatives associated with matchtech name or it gives the company a tax break down the line somewhere?

Cloud call, I'm happy to avoid this one, struggling on its cash balance but more importantly very reliant upon few large key customers, that's a red flag for me. Will be watching how this one unfolds though. 

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gus 1065 7th Aug '16 28 of 29

In reply to post #145875

Re. The Matchtech (LON:MTEC) name change, the company commented as follows in the August 4th update:-

"The proposed change follows extensive research conducted by the Group of its employees, candidates and current and potential clients as to their view of the constituent brands that make up the enlarged Group. This research showed that the Group brand (Matchtech Group plc) and the operating engineering brand (Matchtech) sharing the same name could be a source of confusion."

So it seems they did indeed spend a fair bit of money deciding to dump the Mathctech moniker but doesn't really provide a ringing endorsement for why Gattaca is such a great alternative. Doesn't really allude to what the company does - unlike the old name - and sounds like a mash up of the 1990's ScFi franchise Battlestar Gallactica and Picasso's Spanish Civil war depiction Guernica! Guess that's why I'm not in PR!


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Fegger 7th Aug '16 29 of 29

In reply to post #145884

Ive worked in a couple of PLCs where rebranding and renaming exercises were happening. There was usually not a lot of logic or sense going on. Instead there seemed a lot more job creation for PR , Corporate Affairs and the retained advertising agency and most of all a huge amount of expense especially when all stationery, company signs, buildings and possibly vehicles had to be rebranded.

And it often happens again three to five years later when there is another regime change reorg or takeover

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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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