Small Cap Value Report (5 Oct 2015) - CBUY, TNI, HSP, WTM

Monday, Oct 05 2015 by

Good morning!

I recorded a cracking (long!) audiocast last night with corporate financier, and accomplished investor, Edward Roskill. He's a man worth listening to, as his favourite three share ideas in our Oct 2014 audiocast have since risen 70% (FIF), 150% (QTX), and 180% (TRAK)! We recap on these stocks, and others, and Edward introduces some of his current micro cap share ideas (NB these are highly illiquid, so come with larger than usual wealth warnings).

I've started typing up a transcript for deaf followers and anyone else who prefers this format, but please bear with me, as it's a lot of typing, so have only done about a quarter of it so far. It should be complete within a few days, so if interested just bookmark that link & revisit later this week perhaps.

Cloudbuy (LON:CBUY)

Share price: 13.9p (down 26% today)
No. shares: 128.4m
Market cap: £17.8m

NOMAD appointed & shares restored - this is an interesting one. Cloudbuy shares were abruptly suspended on 11 Sep 2015, which I reported on here. The reason was that the NOMAD, Westhouse Securities, resigned with immediate effect, giving no reason. The company only had one month to find a replacement NOMAD, otherwise the shares would have de-listed.

So here we are, just six days before Cloudbuy shares would have seen the AIM listing cancelled, the company has managed to find another NOMAD to take them on - Arden Partners.

EFH Director dealing - Ronald Duncan, Cloudbuy's Chairman, was one of several listed company Directors who unwisely got involved in a scandal last year, where Directors purported to take out loans with Equities First Holding LLC (EFH), using shares in their companies as collateral.

Tom Winnifrith exposed these arrangements as actually being sale & optional re-purchase agreements. As the loans were non-recourse, and there was no obligation to re-purchase the stock signed away to EFH, then the commercial reality of these transactions was that they were disposals of shares by Directors. EFH sold the stock into the market once they received it as collateral. Whether Directors were aware this was their intention or not, is unclear. However, on looking at the terms of the loans offered by EFH, any idiot could have worked out that EFH would have to sell the shares immediately, in order to be able to offer…

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cloudBuy plc is a provider of an integrated software platform for e-procurement and e-commerce for the trading of goods and services between purchasers, such as public sector bodies and their suppliers, along with the analysis and coding of spend and product data. The Company's operating segments include Company Formation Services, Web and ecommerce services and Coding International Limited. It also provides services to new businesses, including incorporation, company secretary services and filing annual returns, using its software platform. Its solutions include e-commerce Marketplaces, e-commerce Websites, Purchasing Portals, SpendInsight and Company formations. SpendInsight service provides regular analysis of any company's historical spend data. It offers a range of Website packages from templated solutions to Intranets and global business-to-business (B2B) e-commerce sites. The cloudBuy platform enables rapid extension of its solutions and development of new applications. more »

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Reach plc, formerly Trinity Mirror plc, is a national and regional news publisher. The Company is engaged in producing and distributing content through newspapers and associated digital platforms. It operates through four segments: Publishing, which includes all of its newspapers and associated digital publishing; Printing, which provides printing services to the publishing segment and to third parties; Specialist Digital, which includes its digital recruitment classified business and its digital marketing services businesses, and Central, which includes revenue and costs not allocated to the operational divisions. The Publishing segment publishes paid-for national newspapers and paid-for and free regional newspapers, and operates a portfolio of related digital products. The Printing segment operates five print sites with approximately 20 full color presses. Trinity Mirror Digital Recruitment operates three specialist job boards: GAAPweb, TotallyLegal and SecsintheCity. more »

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Hargreaves Services plc is engaged in sourcing, producing, processing, handling and transporting carbon-based and other bulk materials throughout the United Kingdom and Europe. The Company's principal activities are the provision of haulage services, waste transportation, mineral import, mining and processing, together with specialist earthworks and related activities. Its segments include Coal Distribution, Industrial Services, Logistics and Specialist Earthworks. The Coal Distribution segment provides coal, coke, minerals, smokeless fuel and biomass products to a range of industrial, wholesale and public sector energy consumers. The Industrial Services segment provides contract management services to clients in materials handling and a range of other industrial sectors. The Logistics segment provides bulk logistics to customers across the United Kingdom. The Specialist Earthworks segment provides earth moving, civil engineering and infrastructure services across the United Kingdom. more »

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

38 Comments on this Article show/hide all

Paul Scott 5th Oct '15 19 of 38

Thanks everyone for the feedback on the audiocast. I want to do many more of these, and might try out doing it as a subscription service, for a very modest fee - to cover the costs of transcription, recorded line, and my time.
I know people don't like paying for content, but if it's genuinely original stuff that you can't get anywhere else, then a modest charge seems fair to me.


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Paul Scott 5th Oct '15 20 of 38

In reply to post #107527

Hi Sutherland,

I didn't get round to visiting any DP Poland (LON:DPP) sites in Warsaw, as we were too busy doing other things, meeting extended family, sightseeing, etc.

Although talking to locals, they all said Dominos is too expensive, and the market is already saturated with cheaper options - there are hundreds of pizza restauarants in Warsaw already, and they're cheap (£3-4 per pizza, to eat in).

So I don't think DPP has much chance of becoming a commercial success, which is very much what its heavy losses are also telling us. Even though store performance has improved, it's nowhere near enough to cover the heavy central overheads, so I think the shares are a waste of time. Actually, I'll put them on my Bargepole List whilst I remember.

Regards, Paul.

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Paul Scott 5th Oct '15 21 of 38

In reply to post #107486

Hi Brackendale,

I can't recommend any books on interpreting accounts unfortunately - it's probably the question that I get asked most. I learned about accounts by training as an accountant, although as I failed my finals exams, clearly my studying wasn't as good as it should have been! Enough of it sank in to be useful though.

As regards interpreting accounts for investing, I think you just learn as you go along, and by reading & discussing with other investors on sites like this. I think the best advice, is to surround yourself with people who are better, and cleverer than you. That's very much what I try to do. Often buying lunch or a few drinks for a successful investor is a really good investment! I try to have regular & frequent lunches with smart investors, and it's amazing the perspectives you pick up. Mello events are great for this too, networking with really smart, and very nice, people - who are nearly all very generous with their time, and are happy to answer questions from less experienced investors.

Regards, Paul.

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Paul Scott 5th Oct '15 22 of 38

In reply to post #107513

Yes, unfortunately when a successful investor mentions that he likes an illiquid micro cap, then the price can spike up. Annoying, but there's nothing we can do about that. It usually pays to bide one's time, and wait for the spike to dissipate. People soon get bored, or change their minds!

Regards, Paul.

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Paul Scott 5th Oct '15 23 of 38

In reply to post #107484

Hi CMWilliamson,

Sorry, I didn't get round to looking at Bioventix (LON:BVXP) . I think the results were in line with expectations.
Others such as Leon Boros, know the company much better than I do, so don't think I can really add any value by reporting on it.

My view remains that it's a terrific little company, massive margins, quite a big moat, but it's very small & hence highly dependent on one or two key individuals. The stock has re-rated from a PER of 12, to about 20. That's justified by the figures, but if something goes wrong, if an unforeseen risk emerges, then there's no way out, from such an illiquid stock.

So for me, it's too high risk. If everything goes smoothly, and there are no problems, then the stock could keep going up, who knows?

I understand why the bulls like it, and respect their opinion, but it's not for me at this price.

Regards, Paul.

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cig 5th Oct '15 24 of 38

In reply to post #107486

You could do worse than following valuation guru Aswath Damodaran, available in blog, book, video and online course formats.

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Paul Scott 6th Oct '15 25 of 38

Update - I've had a look at and found a typist who sounds ideal to do my transcripts!

So I will try her out for one transcript, and if it works, then I can get more transcripts produced, and spend more time sleeping on the sofa lol!! err, I mean producing more quality content!!

Thanks for all the suggestions, very helpful!

Regards, Paul.

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shanklin100 6th Oct '15 26 of 38

Hi Paul

Thank you for the update re WTM.

FYI, the loss in the UK Civil & Transportation Consulting business, which recorded a loss of £1.2m was a £1.7m improvement from prior year, which does rather emphasise your comments re the core businesses going backwards. However, WTM do claim to have invested considerably in recruiting additional personnel to enable growth and that this has held back profits in the short-term. This seem a plausible explanation to me?

In the other place, Glasshalfull has posted that Singers have increased broker estimates to 7.8p and 10p for 15/16 and 16/17 and state that "The positive outlook prompts material upgrades and we introduce FY18 forecasts for the first time, anticipating a doubling of PBT over the three years from FY15. Waterman is in excellent shape with a compelling valuation (7.2x FY17 P/E, 5.6% yield)."

Best Regards, Martin

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Damian Cannon 6th Oct '15 27 of 38

In reply to post #107486

On the book front I wrote a review a while back of a very good accounting book for investors and I heartily recommend getting a copy - I read it from cover to cover and it's opened my eyes. Anyway the review is here:

Blog: Ambling Randomly
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Ramridge 6th Oct '15 28 of 38

In reply to post #107531

Hi Paul -
I for one would be willing to pay a small subscription for this content.

BTW after googling a bit, I have found out that Audioboom cannot tell a content provider how many people listened to a particular broadcast. Apparently this type of analytics is on their 'to do ' list as they get more commercialised. Shame. This sort of information would have been very useful to you now, in deciding a suitable subscription level.

Regards, Ram

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Paul Scott 6th Oct '15 29 of 38

In reply to post #107565

Hi Ram,

That's odd, as my Audioboom account has always told me how many listens there have been for every audiocast I've published. That may differ from the number of listeners (since some people may listen in chunks & then revisit another day), but it's good enough for my purposes.

Typically my audiocasts get 1000-3000 listens, which suggests there's an appetite for them.

Regards, Paul.

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CMWilliamson 6th Oct '15 30 of 38

In reply to post #107539

Thanks for your comments Paul, especially at that time of night. Much appreciated.

I will seek out comments from Leon Boros and see what he has to say. I know Keith Ashworth-Lord (whom I respect from his days with the Analyst newsletter) did a good piece as to why it's his favourite share. But, as you say, however good the shape of the business, the lack of liquidity could pose a risk if things go wrong. No sign of that at the moment (he said, trying to type and touch wood at the same time)


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Ramridge 6th Oct '15 31 of 38

In reply to post #107568

Hi Paul - clearly I am wrong and my information is out of date!
I guessed that you would have a sizeable number of listeners as the share prices of both THAL and STM shot up some 15% within a few hours after your broadcast.
Regards, Ram

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Brackendale 6th Oct '15 32 of 38

In reply to post #107536

Thank you Paul for responding. I am surrounded by people better and cleverer than me by default, so improvement must be round the corner!

Best Regards

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Brackendale 6th Oct '15 33 of 38

In reply to post #107557

Thank you very much for this, looks like just what I need.

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Brackendale 6th Oct '15 34 of 38

In reply to post #107541

Thanks for this recommendation, much appreciated

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purpleski 6th Oct '15 35 of 38

In reply to post #107486


Two books I have bought but are still on my reading list on this subject are:

Accounting for Growth by Terry Smith


Investors Guide to Understanding Accounts by Robert Leach

Not sure where I heard about them but I think they are pretty good.

Hope that helps.

Paul on subject of transcription how about

You might get a discount as they are local to you and as everybody says your time is definitley worth more than a £60 an hour!

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Brackendale 6th Oct '15 36 of 38

In reply to post #107636

Thanks for those. I did buy the Terry Smith one some time ago but it is quite advanced for me and apparently quite a bit of what it talks about has now been banned from happening so will be outdated. I will certainly get the other one as well. Thanks for taking the time to recommend.

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xcity 6th Oct '15 37 of 38

I agree with your comments on Hargreaves Services. But the most salient is about shrewd manage. As far as I can see, having gone through all recent announcements, they know their industry and prospects, they are open and honest about events as they evolve and get what can be got out of the slalom to the end of the line. There is a strong balance sheet and cash generation with money being returned to shareholders via dividends and buybacks. I very much agree with Roskill's comments about management and am happy to stay invested here all through the multitudinous adverse events that will occur. Luckily I bought at prices which mean that I am currently slightly in profit, but I do think it will prove to be very profitable in the end as management will take advantage of the opportunities that will occur in a fast changing situation. It's not just a matter of trying to work out the value of the assets and residual earnings.

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PhilH 11th Dec '15 38 of 38

BBC reports that CPS will take No Further Action against the Mirror Group ...

Professional Services: Sunflower Counselling
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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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