Small Cap Value Report (7 Nov 2014) - PURI, PRP, RGS, STAF, RSTR

Good morning! Not much news today, as usual for a Friday. I'm going to write a brief report today, as I have to prepare to give a talk on the morning's announcements here at the Derby Conference Centre, at Mello 2014. It's going really well so far - lots of interesting companies and speakers.

PuriCore (LON:PURI)

See the archive for my previous comments on this company, which has a Patented hydrochlorous acid technology, for safely disinfecting food & cut flowers.

The company announces this morning that it is moving down from the main market to AIM. That makes a lot of sense, given that the market cap is only £16m at 31p per share. An AIM listing is cheaper, and less onerous in terms of regulation, and also means that corporate actions are cheaper & easier to do (e.g. Placings, takeover bids, etc).

However, some Instis are not able to hold shares in AIM companies, so this might create forced sellers in the short term. The company mentions that moving to AIM will make the shares more attractive to retail investors (who might buy for IHT planning purposes), but first they need to offer a decent investing case! At the moment the only reason to hold the shares is that the cash pile is roughly equal to the market cap. However, the ongoing business is loss-making, and there's not really any sign of progress.

I would like to see the company bid for, as long-suffering shareholders surely now just want a clean exit at a reasonable price?

Prime People (LON:PRP)

This is a small recruitment company, and its interim results this morning look quite good.

The company today reports a £640k profit on £8.0m turnover for the six months to 30 Sep 2014, which is a good improvement on H1 last year, where they only made £287k.

Note the generous dividends here - 4.09p divis have been paid in the last 3 years, and a 14p special dividend was paid earlier this year.

I see that these shares are up in early trading, so the market also likes their results.

The market cap was £10.6m at 85p per share last night, so there will be the usual micro cap problem of lack of liquidity and a horrible bid/offer spread, so it's really only worth buying on a red day, when someone is dumping stock and you can buy it close to the bid price.

Regenersis (LON:RGS)

The market savaged these shares recently, on a mildly disappointing update, and the fall looks a bit overdone to me.

The company today announces that it intends to reduce its share premium account, in order to create more distributable reserves (which are currently only £3.5m).

This is a good sign, as it indicates that the company intends to pay more than £3.5m to shareholders by divis and possibly share buybacks.

Staffline (LON:STAF)

An intriguing announcement from this staffing company today - they have won a Govt contract to arrange offender rehabilitation for criminals who have served a 1 year or less prison sentence. What a good idea - more effort in this area would undoubtedly reduce reoffending rates. It strikes me as crazy that we take people whose lives are in turmoil, put them in prison, and then throw them out onto the streets with little to no support, so of course they're going to reoffend, armed with a new set of skills & contacts in the criminal underworld!

Staffline has been successful in other areas, so I would imagine they could make this work well too.

Although I do wonder what potential nasties the EU and the Govt might throw at them - sooner or later there is going to be pressure to get more people into better paid jobs. Also there is the risk of backdated holiday pay being loaded onto employers - although that could affect many companies, not just Staffline.

Looking at valuation, these shares look priced about right to me.

Rightster (LON:RSTR)

This is a fairly recent IPO, and seems to be a distributor of video content on YouTube, etc.

A trading update today says that the company is cautiously optimistic, but flags variable advertising revenues, and indicates 150% net revenue growth.

I've looked at historic & forecast figures, and to be honest it looks pretty scary. In the most recent interims, the company made a £7.2m loss on £1.9m turnover. It reported £16m in cash after the latest fundraising, so it looks to have about another year's cash burn in the tank. It will then presumably need to raise more cash.

The £80m market cap looks very ambitious to me, given that the company is burning cash at a prodigious rate.

I believe the CEO is presenting here in Derby, so I will be interested to hear more about the company, but the figures scare me witless, and I wouldn't go near it at the moment without much clearer evidence of a viable business model coming through in reported figures.

Brokers forecast the company moving into profit in 2015, based on a tripling of turnover.

Good, that's me done. Sorry for lack of links & graphics today, am in a rush to prepare for my talk.

Regards, Paul.

(of the companies mentioned today, Paul has a long position in PURI, and no short positions.

A fund management company with which Paul is associated may hold positions in companies mentioned)