Small Cap Value Report (8 Mar 2017) - LOOP, WAND, CMCX, BREE, XPP

8th Mar '17 by Graham Neary

23 comments 15093 reads

Good morning!

Today's SCVR is a joint effort.

First we have LoopUp (LON:LOOP) and WANdisco (LON:WAND) by Paul, followed by my sections.

Edit: I forget to mention that Paul added several sections to yesterday's report (click here), which now includes all of the following:

Begbies Traynor (LON:BEG)
Redstoneconnect (LON:REDS)
Cambria Automobiles (LON:CAMB)
XLMedia (LON:XLM)
Lakehouse (LON:LAKE)

Cheers

Graham

(This section by Paul Scott.)

LoopUp (LON:LOOP)

Share price: 161.5p (unch.)
No. shares: 41.0m
Market cap: £66.2m

Preliminary results – for year ended 31 Dec 2016.

This is a very interesting growth company, which I’ve written about here before. It’s a single product company – providing an improved conference call (with screen-sharing) facility. There’s no doubt that the product is excellent – I’ve tried it out, and it works very well indeed. There’s plenty of competition though, which I’ll come onto later.

Results today are as expected, with the figures tying in with those given in the trading update on 18 Jan 2017. Although, as with a lot of trading updates from many companies, management tend to cherry-pick the best numbers. So in that January update, LoopUp presented the £2.1m EBITDA number, but conveniently forgot to mention that translates into only £0.4m operating profit! This is one of the reasons I often hold back on buying shares until I’ve seen the full results, and not just cherry-picked highlights in a previous trading update.

Anyway, here are the key figures today;

LoopUp revenue up 39% to £12.8m.

There is a small amount of sundry additional turnover, for a now defunct deal with BT, so that can be ignored.

Note that top line growth has been consistently growing at c.40% p.a. for several years now, so a very good, stable growth trend is in place.

Gross margin is very high, at 75.9%.

Strong organic growth + high gross margins is a lovely combination, which leads to explosive profit growth, if overheads are fixed.

Overheads are not fixed though – a lot of the additional gross profit is being reinvested in increased sales & marketing expenditure, plus other overheads such as development.

EBITDA of £2.1m is up 102%.

Maiden operating profit achieved of…

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FREng

8th Mar '17

The excellent TechMarketView says that WANdisco (LON:WAND) is "getting back on track".

"It still has a journey ahead of it but WANdisco is benefitting from the combination of having found its way again, partnerships which provide its offerings with context and a place in the tech stack, and a market more willing to invest in big data infrastructure."

I have no position.

Paul

You commented favourably on Microgen (LON:MCGN) on March 3 2016 and I put it on my watch list. I wish I had bought - it has doubled since then. Audited prelims are out today and it still looks good, IMHO.

spglet

WAND results... I almost sold my shares at market open after reading the preliminary results. The figure that caught my eye was the 4% revenue growth (poor) however the end of year cash position has improved - which appears to indicate they are generating cash now, which is comforting. Debt free too. I wonder whether, going from direct to indirect channel distribution has caused the reduced headline revenue growth figure - so even though licence sales are up - everything is now being sold at a much lower price. I imagine, HPE, Amazon, Oracle get a 40% "distributor level" discount. To me the real story here is the Fusion product and the market it plays into - i.e. Cloud Computing. This product allows an organisation to re-deploy its high availability critical enterprise applications on to "The Cloud" without fear of their IT systems collapsing in a heap after the first denial of service attack. I'd Imagine most of the new customers signed up this year are early adopters, but if Fusion proves to do what it says, it will become the enabling technology that allows business to move everything on to an Amazon or Microsoft Cloud platform and save a lot of money in the process. So, the technology is worth a lot and it's really surprising Amazon haven't managed to develop something like it. Surely WANdisco will just get taken out by one of its big channel partners? I'll hold my shares for that day because it might not be that far away.

Raldridge

Hi Paul, have you any thoughts on Anpario (LON:ANP) results from today? It's a big John Lee stock

doug2500

I'm a happy holder of XP Power (LON:XPP) and Microgen (LON:MCGN) but worry that they're fully valued in spite of good results from both.

Microgen (LON:MCGN) has proved itself to be an exceptionally shareholder friendly company, returning surplus cash frequently rather than empire building and it deserves a decent rating for this alone (and a bit of praise)

NathanHA

I'd also appreciate some analysis on XPP. Many Thanks.

spaceinvader2

Any thoughts from graham or paul on dignity results-after a recent healthy climb shares down 13% today

medlar

Agree, but unlike you top-sliced this a.m. because the shares feel like they have run up with nothing really new announced since the January trading update and CEO's talk at the Investor Show in february.

This is an early stage tech co - so probably a case of buy on rumour (or in this case conviction) and sell on any evidence of the market opportunity reducing (in this case The Cloud) or on any evidence of interest waining in the technology/product. I suspect WAND themselves might not have that good a view of each of their partner's new business funnels. From my time in this kind of business, the partners are notoriously guarded about what they are working on. They won't want to promise anything to their WAND account manager until it's in the bag and also don't want anyone else finding out about it until they have their order signed. That'll come though in the WAND updates - seems like not much happening, then suddenly an RNS detailing a significant new win. Anyway I think shares often rise as investors start to gain confidence in them, and also upon realisation what the potential is. WAND have been though a pretty turbulent period, but it looks like it has stabilised. I wouldn't be surprised if WAND starts a slow but steady run up to 600p once the volatility is out the way. Strong bounce this morning. We'll see. Ultimately It's hard to call entry/exit points on this kind of share.... My view is to just hold

jdnthomas

The reason cash is up by $5m is that WAND raised $13.5 m of new capital during the year. So it actually consumed $8.5m.
Fusion looks a good product but with total revenues of $3.2m I don't feel it justifies a market cap of £180m at this stage (I do agree with Paul that is difficult to put a figure on what is an appropriate value but at this price buyers are surely just paying for the story - which may play out, but from experience probably won't)

crazycoops

doug, regarding Microgen (LON:MCGN) it is the growing portion of recurring revenues (just under 50%) that are of particular interest to me. Software companies with recurring revenues attract a higher rating than those relying primarily on license revenues, especially over the other side of the pond. Personally, I'm happy to continue holding but I only have a relatively small position.

Markds28

re: ATQT comment

Looks interesting, brings with it pre-exceptional £3m EBITDA (not sure how much becomes a after tax profit). With the UK company losing almost £1.8m we may still only get to a breakeven position by FY17 vs a market cap of c. £47m

Would like to see another set of interims to see how the two business bed-in together and if they can look towards a profit for FY18 before buying at the current market cap.

ricky65

Paul, I have to commend you for your Jan 16th write up on WAND.

I was sceptical of the bull case as it's a jam tomorrow company that has disappointed in the past, but you warmed me to it and I picked up a few. As I write it's up 120% since so many thanks.

The market has reacted negatively to today's results (down 9% as I write). Hopefully it's a blip and not a negative momentum shift. Personally, as I hate to give back big gains, I've sold half and will let the rest run.

JohnEustace

In theory an AIM listing should attract a price premium that reflects the inheritance tax advantages. That has previously been more than countered by the stigma from the various scandals and frauds and the general Wild West image.
Given Breedon's comments and the point earlier in the week from Paul about the volume of money flowing in to IHT planning portfolios it seems the balance of opinion is shifting, which is interesting. High quality AIM stocks could continue to be a rewarding niche.

Graham Neary

Hi Jonno, I have taken an initial look at it for you.

Regards

Graham

jonno

Hi Graham

Your time and commentary are very much appreciated. You will probably have guessed that I hold XPP and added a few more today. I initially bought XPP a couple of years ago and have added over time. The management appear to be competent with a considered approach to expansion. The valuation metrics are in my view reasonable and outlook statement is generally positive, added to which there is a nice dividend and the company is debt free.

Best wishes

Jonno

Paul Scott

A1 commentary from Graham, many thanks!

I've been doing ground-level research in Reading on Revolution Bars (LON:RBG) sites - and on my way home giving instructional monologues to drivers of the 38 and 73 buses in North London, after dropping off at St Pancras for some oysters & wine, and a lovely chat with the staff there. Who all love me. Anyway, going back to the 38, their poor/jerky braking techniques! I said to one tonight, you seem to think you're driving a Fiat Punto! Slamming on the brakes when an errant grey squirrel shot across the road! That gave him something to think about. Mind you, it was a lovely smooth ride home, so maybe consumer power does do something?

Cheese, Paul.

Puh! Probably an imagined squirrel!

P.S. If I may describe commentary as good, I will describe it in 1970s car terms - so it's crushed velour, with a retractable armrest. But never a Vanden Plas! Perish the thought!

9th Mar '17

Bugger! Microgen (LON:MCGN) was one I always liked, and held for a bit, but somehow got overlooked whilst it re-rated. Ah well. It's just impossiblle to keep on top of 500-600 stocks at once. Moving targets.

PP>

I'll have a closer look at ATTRAQT (LON:ATQT) when time permits.

I met the people behind that some time ago, and thought they were really good mgt that could & should do something bigger.

So leave it with me!

PP.

alterego

10th Mar '17

BREE, agree with John Eustace, post no. 17. Bought BREE 7 years ago for IHT exemption. Asset rich and big barriers to competition - only so many quarries close to customer demand. No dividend but capital appreciation has more than made up for that. Very experienced management too. Cyclical but sleep well.

Small Cap Value Report (8 Mar 2017) - LOOP, WAND, CMCX, BREE, XPP

LoopUp (LON:LOOP)

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Graham Neary

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