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

5th Aug '16 by Paul Scott

29 comments 17883 reads

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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andrea34

5th Aug '16

MTEC price is down about 3% just now... wonder if the poor LFL in the IT division is to blame?

cholertonandrew

Paul, interested to know your reaction to no open offer on Cloudcall. I think it's really bad form on the company's part to provide no open offer on such a heavy dilution. I know you sometimes talk to them, have they provided any reason? I note management are taking part. It just seems that it's hardly ever worth private investors getting involved in venture capital situations if they can't protect their stake.

I think for the company to have given so many assurances, subsequently proved wrong, about their cash resources and being funded to breakeven and then to do a large placing excluding private investors just smacks of disrespect.

Commercially though, they're still growing at a decent rate which is nice to see.

Regards
Andrew

FREng

Matchtech (LON:MTEC) are certainly in an area of strong demand, as there'a a huge gap between the demand from UK industry for engineers and the current and forecast supply - a shortage of tens of thousands through to the end of the decade.

I wonder where MTEC will get them from, post Brexit.

I'm negative about the name change, which feels like the action of a CEO and Board who have lost focus on the business of making profits and decided to invest in a vanity project. Their explanation "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. " Makes no sense to me. I don't see any confusion for all the other companies that use their plc name as their operating brand. If anyone is speaking to the company, please will they ask what prompted the belief that they needed to spend shareholders' money on extensive research about their name?

I don't currently hold, though I would if I knew their exposure to Brexit immigration controls (and the real reason for the name change).

1James1n1

Paul,

I see that Beximco Pharmaceuticals (LON:BXP) share price has jumped this morning on news of first shipments into the US. I hold this share but reporting is almost non existent on it generally - I know it's overseas operations, but UK listing will put off some. It has been a very solid performer and still trades at a low PE given its prospects. Any comment would be appreciated.

grout123

I hold this share too and I like it. Its a long term hold for me because it ticks the boxes i like ticked. I wonder of Paul has a Bangladeshi barge pole list too ;-)

"Disrespect" is not the term that would have occurred to me. "Arrogant self-interest" seems more appropriate. I forecast that this will not be the last time that the directors of Cloudcall (LON:CALL) treat their PIs with "disrespect".

Further to my previous post, I have emailed the investor relations department at Cloudcall. Let's see if I get a response. This is what I sent.

I submitted the below to Paul Scott's investor blog on Stockopedia and wanted to also put this direct to the company in the hope of giving you a chance to respond.

I'd be grateful if you could explain why private investors have been frozen out from the proposed cash raise. A lot of private investors will have stuck with the company through a very rough ride and I do believe this decision is disrespectful to private investors. I would be grateful for an explanation of the rationale behind this decision. I understand you may feel that from the share price there may be very little support from private investors but many may well have been willing to invest in an open offer, particularly on the back of further decent results and may well have been waiting to partake in a (what looked predictable or at least certainly possible) cash call rather than buying in the secondary market given the uncertainty that always exists over the cash call price and the low liquidity in the secondary market.

Comment to Paul Scott:
"Paul, interested to know your reaction to no open offer on Cloudcall. I think it's really bad form on the company's part to provide no open offer on such a heavy dilution. I know you sometimes talk to them, have they provided any reason? I note management are taking part. It just seems that it's hardly ever worth private investors getting involved in venture capital situations if they can't protect their stake.

I think for the company to have given so many assurances, subsequently proved wrong, about their cash resources and being funded to breakeven and then to do a large placing excluding private investors just smacks of disrespect.

Commercially though, they're still growing at a decent rate which is nice to see."

Regards
Andrew

tabhair

Audioboom (LON:BOOM) - the first company I can recall where there share price went the same way as the ticker.

Flackwell

LOL - reminds me of the Scottish American Investment Company epic which distinctly puts you off as you hover over the buy button, namely

SCAM

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

Matchtech (LON:MTEC)

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Paul Scott

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