Small Cap Value Report (5 Dec) - HHR, VNET, QPP

Thursday, Dec 05 2013 by

Good morning. I was taken aback by the news this morning from Helphire (LON:HHR) of a large Placing to raise £60m, as the business was already well--financed, having cleared all its bank debt in a refinancing earlier this year. However, they seem to be taking advantage of the amazing willingness of investors to finance IPOs and Placings right now - wave after wave of deals is happening on a daily basis - which has to be good news for the economy, as growth is now being properly financed by the equity market.

I don't think there is any sign of indiscriminate funding for IPOs, but certainly the quality, and valuation, of some deals looks a bit on the iffy side. So a potential warning sign of a market that is getting a bit too frothy in places. A lot of people are buying into IPOs on the basis that many are immediately going to a premium when the shares start trading. However, history shows that a lot of IPOs in buoyant markets go on to be pretty awful investments, as the founders are usually cashing in at a high valuation (why else would they want to sell?!) which probably won't stand the test of time. So it's certainly an area where one should only proceed with caution in my view. Or, for the more risk tolerant, a case can be made for making hay while the sun shines! Whatever floats your boat.

In the case of HelpHire, there's big dilution, with the new shares representing 42.3% of the enlarged share capital. So by my calculations that means that the number of shares in issue (1,677m) is being increased by almost 69%, which is a massive amount to do in one go. So the key issue is what price the new issue is at, and in that regard this deal looks remarkably good - the price is 5.2p, which is no discount at all to the market price before the deal. Therefore existing holders are not being disadvantaged, providing the funds are put to good use.

Cenkos raised the money for HelpHire, and they certainly seem to be one of the key players at the moment in raising money. Funnily enough, I was at their offices yesterday, to have a half hour Q&A session with…

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Redde plc is a holding company. The Company is engaged in providing non-fault accident management assistance and related services, fleet management and legal services. The Company offers a range of motor claims accident management services, including vehicle replacement and repair management together with full claims-handling assistance, as well as legal and other personalized services. The Company manages its own fleet of approximately 7,000 vehicles and has access to over 50,000 vehicles through selected rental partnerships. It also provides specialized large fleet accident and incident management services through the FMG group of companies with over 300,000 fleet vehicles under management. It provides accident management services from operational call center sites in Peterlee, County Durham, Huddersfield and Croydon, as well as solicitors' services through Principia Law Limited from Northwich and NewLaw Legal Limited from Bristol, Cardiff and an associated office in Glasgow. more »

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Vianet Group plc is a provider of real time monitoring systems, data management services, and actionable insights for the leisure and vending sectors. The Company's segments include Leisure Services, which includes design, product development, sale and rental of fluid monitoring equipment, data management and related services; Vending, which includes design product development, sale and rental of machine monitoring equipment, data management and related services; Technology, which includes the provision of data management and technology related services, and Fuel Solutions, which includes wet stock analysis and related services. Its Leisure division consists of the core beer monitoring business (including the United States), and gaming machine monitoring. Its subsidiaries include Brulines Trustee Company Limited, Vianet Americas Inc and Vianet Limited. more »

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Watchstone Group plc offers technology solutions to the insurance, automotive and healthcare industries. Its segments include Hubio, Healthcare (pt Health and InnoCare), and ingenie. Hubio provides integrated solutions to help organizations in the insurance and automotive sectors to build customer engagement and enable usage-based personalization. Healthcare includes ptHealth, a national healthcare company that owns and operates physical rehabilitation clinics across Canada, and InnoCare, a clinic management software platform and call center and customer service operation based in Canada. Its ingenie is an insurance broker. Using telematics technology, ingenie gives its community feedback, advice and discounts to help young drivers improve their driving skills. more »

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20 Comments on this Article show/hide all

hayashi22 5th Dec '13 1 of 20

Be interested if you have time to look at Ensor. Tks

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d40eq6 5th Dec '13 2 of 20

In reply to post #79652

Paul- many thanks indeed for your work with VNET yesterday. Fantastic service for those of invested in small caps such as VNET where news flow is sometimes erratic.

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carla77 5th Dec '13 3 of 20


Love the reports, please keep up the good work.

Can't understand why you are so negative about QPP, my understanding is that they have won an enormous amount of business recently and should have a good base to generate increasing earnings, also it is good that the owner has a lot of his own cash in the business. I believe QPP have stolen a march on the competition this past year, my main concern is that they don't go chasing too many more clients before they start delivering for the existing ones.


Peter Barrett

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Paul Scott 5th Dec '13 4 of 20

In reply to post #79655

Hi Peter,

I'm negative on Quindell (LON:QPP) mainly because I don't think their business model is viable in the long run, for the reasons given in the main article above.
Also, it doesn't generate any cash, and has had various other issues which put me off.

On the other hand, it's difficult to argue with the huge volume of contract wins that QPP has secured, and also the £200m Placing at market price was very impressive & shows major support from the City for QPP, which was lacking before.

Therefore, whilst I still have reservations about QPP, I'm not as negative on it as I was, for the reasons given above.

Regards, Paul.

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intuitive6191 5th Dec '13 5 of 20

Insurers could stop bogus claims almost immediately if they made whiplash an exclusion to the standard policy. Bogus claimants would then presumably have to prove their case directly against the other driver in court - which would probably put them off.

Admittedly the small (very small) number of genuine whiplash claimants would be disadvantaged - and obviously this wouldn’t be very good for Quindell.

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rick 5th Dec '13 6 of 20


Shorting ASOS LON:ASC into the Xmas and New Year trading season looks like a kamikaze bet to me. Trading up +3.5% today and potentially heading into new 52-week high territory. Was the logic behind the trade just based on value, or is there another component?

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carla77 5th Dec '13 7 of 20

In reply to post #79656


Many thanks for your prompt reply.

Regards Peter

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kevanp 5th Dec '13 8 of 20


Good grief! Sweett (LON:CSG) now down to 52p (bid)! Aren't you tempted back into them yet?


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ericb 5th Dec '13 9 of 20

didnt stay there for long .. thanks to weak holders ive picked up another load.

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kevanp 5th Dec '13 10 of 20


On Helphire (LON:HHR), they look rather interesting, but are you really saying that their future profits are going to be boosted by their involvement in promoting fraudulent insurance claims? I didn't think I had too many qualms in the businesses in which I invested (tobacco, gambling, oil — you name it) but I have to admit even I have some reservations about insurance fraud.

Or am I misinterpreting your remarks?


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kevanp 5th Dec '13 11 of 20

In reply to post #79662

Eric, you talking about £CSG?

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cig 5th Dec '13 12 of 20

In reply to post #79658

I don't think that would work. Look at Paul's story: it's not the whiplashee's insurance who pays up, but Paul's, under third party liability rules. And it's the law not the insurer which decides what is a valid third party claim -- so if Paul's insurance had excluded third party whiplash claims, Paul would have had to pay up out of pocket, which is not solving the problem. Insurers would have long done it otherwise...

So it needs government intervention, which I can imagine is tricky as politicians first need to wake up to the problem, and then may fear the PR "whiplash" from genuine cases getting caught in the crossfire.

At least it makes the cost of motoring higher for everybody, which is good for the environment. :-)

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Paul Scott 5th Dec '13 13 of 20

In reply to post #79659

Hi Rick,

I'm short of ASOS purely on valuation grounds. Great business, but it's currently priced way, way too richly. Liberum have followed me (!!!) recently, and put out a sell note, saying that ASOS is only worth 3000p. I think it's worth about 2600p, and even that's a heroic valuation on a PER basis.

What happens in the meantime doesn't concern me. I've allowed for the possibility that the share price could just keep going up, so I'm prepared to sit tight on my short for as long as it takes, and have sized the position so that it would only start to hurt at about 7500p per share.

At some point people will look at the percentage growth rates at ASOS, realise that they are now slowing as the business gets larger, and therefore a forward PER of 80 (per Stockopedia) is far too high a rating, in my opinion.

Cheers, Paul.

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cig 5th Dec '13 14 of 20

In reply to post #79665

I've had another look at Helphire's website and it seems to be even worse than I thought. If I'm following another component of the business model is to give poor Porsche owners who had a "non fault" accident a replacement Porsche (otherwise they may be reduced to drive a Polo to get from A to B for a few weeks, the horror!) at an inflated price (hence the in-house rental service rather than outsource that to regular car hire companies at fair prices, a point that had puzzled me for ages) and then charge the whole inflated thing, plus no doubt inflated legal costs, to the driver "at fault" or their insurer. That anyone can think that such people have any intention of returning cash to shareholders is fascinating...

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rick 5th Dec '13 15 of 20

In reply to post #79668

Thanks Paul,

I tend to agree with you regarding the valuation, it seems very rich, although experience has taught me not to fade a trend (and ASOS is in a strong one), but wait until it falters.

The problem with shorting stocks like ASOS, Rightmove et al. is that the bulls think that like Amazon they will be the ones that "own" the internet in their specific retail space in several years time, and that they will only become "good value" at the point at which they have finished their massive growth phases.

I am not sure if ASOS will run to £80 or even beyond £100. But I'm not going to bet against it, even though I cannot find it within myself to be long at these levels.

good luck, Rick.

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intuitive6191 5th Dec '13 16 of 20

Hi cig

Some thoughts in response

"t's the law not the insurer which decides what is a valid third party claim"

In most cases the insurer just decides to pay up rather than contesting. In fact I believe Quindells whole business model is built on this - by settling claims on behalf of the insurer and then invoicing the insurer. Obvioulsy the free loaders are aware of this and take advantage of the fact that their claim is probably going to be rubber stamped.

"Paul would have had to pay up out of pocket"

Only if the the other party proved their case. I doubt that a criminal crash gang would take their innocent victim to court .Far too risky.

Of course, insurance companies could still offer whiplash cover as an excess. Some policy holders may deicde to pay this - but I suspect it would be quite expensive.

The underlying premise is that the vast majority of whiplash claims are pure fraud. If people had to continue this fraud into court  I would imagine that many would think twice. As it stands its far too easy .

Going forward the days are numbered for insurance as a shared risk business. My original post iwas a bit provocative - but dont be surprised if the underlying thinking behind it is the way the industry develops. Rich people will still be able to fully insure themselves against most perils. The rest of us will have to pick and chose which insurance we can afford/not afford to have.



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Funnymoney 5th Dec '13 17 of 20

In reply to post #79668

ASOS - I wouldn't buy it now, but the data shows that the November traffic showed a greater increase than it did in 2012 vs 2013. December data is not large enough to really infer much, though it is off the scale increase-wise but I guess that is entirely related to how the week fell last year.
If you want to short stocks all the analysis shows that the market leaders are the worst ones to short and the laggards are the best. I didn't believe until I started keeping records twenty years ago.

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cig 5th Dec '13 18 of 20

In reply to post #79672

It's not the criminal gang who would have sued Paul, it's the ambulance chasers like Quindell/Helphire who represent the "no fault" driver and are themselves (technically) legal businesses with cunning lawyers, which the opposing insurer know will give them a hard time. If it goes to court they just need to get the driver to turn up and say "me neck hurts" and the court is ill equipped to do anything other than accept it as it can't be tested and there's that small chance their neck really hurts. Surely the insurers on the receiving end would go to court if they thought they could win.

The actual criminal may not even get much of the loot, it would be interesting to see how much Paul's got out of the £9k...

And in any case, even for normal real accidental accidents, where the driver is really not at fault, the business model of inflating claims and maximising recoverable expenses, against other drivers whose fault is usually a legality (few people actually cause accidents just for fun) is pretty scummy. In civilised society shit happens and you don't try to turn any bad thing into a worse thing for petty benefit.

I also doubt you can opt out of third party liability insurance, it's usually a condition to be allowed to drive a car (to protect the public from insolvent drivers causing damage they couldn't pay for), so I'd be surprised if insurers were allowed at all to offer exemptions to specific liabilities.

Agreed it's long term not good for the public, or the insurance industry. The rich can self-insure for most things (risk sharing is only economic for outlier risk compared to your net worth), so the insurers may just end up with an ever shrinking market.

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Funnymoney 5th Dec '13 19 of 20

I can't edit my previous post but I realise it should have said "2011" instead of "2013" - i.e. this year's increase is greater and therefore momentum is not necessarily slowing at this particular moment.

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intuitive6191 6th Dec '13 20 of 20

In reply to post #79677

Hi Cig - your comment below highlights the problem in a nutshell.

Surely the insurers on the receiving end would go to court if they thought they could win.

Apparently not. Thats why its a £2 billion a year problem. Sums like Pauls 9k were probably just paid out without much discussion. Its too small a sum for an insurer to contest.

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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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