Small Cap Value Report (8 May 2017) - ECK, Alfa, PFD, NUM

Monday, May 08 2017 by

Good morning and welcome back!

Eckoh (LON:ECK)

Share price:44p (+8%)
No. shares: 244.3m
Market cap: £107m

Trading Update

There is some great coverage by Paul in the archives, if you want to read back through the recent history of this company, which provides call centre solutions and secure payment technologies for businesses.

In summary: it was highly rated, but had a problem in a non-core division, which set back expected growth for the year ending March 2017.

Since then (last September), it has been on a gradual recovery track, and today's update has further soothed investor worries:

The Board of the Company confirms that trading for the year ended 31 March 2017 was comfortably in line with market expectations, with revenue and margin growing by over 20% for the fourth year in succession. The Company continues to make good progress in the UK, and the Group's operations in the United States have produced a record year in terms of revenues and order book; as a consequence US-derived revenues will again represent a growing proportion of total Group revenues.

"Comfortably in line" presumably means at the upper end of the range of expectations (otherwise wouldn't it just be "in line"?)

Net cash is ahead of expectations.

In a further piece of news, the non-Exec Chairman is stepping down, in what appears to be an orderly transition.

My opinion

The Stockopedia Risk Rating is "Adventurous", which sounds about right.

On the one hand, you have a good history of profitability, you have a balance sheet moving back into net cash, and a company which owns its IP and seems to have plenty of expertise in its sector.

But there are some companies which are better suited for minority, external investors than others and this looks like one of those where perhaps the position of employees is a bit stronger than the position of external shareholders. I say that since it appears that a good deal of Eckoh's services rely to a greater or lesser extent on the skills of its own expert consultants.

So as always it's a balancing act. The stock does pay a dividend and business is growing. So do your own research and make up your own mind, it might be worth a look:


Alfa Financial Software (New flotation)

Intention to float

This company is seeking…

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All my own views. I am not regulated by the FSA. No advice.

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Eckoh plc is a provider of multi-channel, integration and Payment Card Industry Data Security Standard (PCI DSS) payment solutions for contact centers. The Company's segments include Eckoh UK and Eckoh US. It offers secure payment solutions CallGuard and EckohPAY. CallGuard ensures contact centers remain secure and PCI DSS compliant by avoiding sensitive card data from being heard or seen by agents and from being stored on call recorders in network systems. EckohPAY allows consumers to make automated secure self-service payments through mobile devices, interactive voice response or Web. The Company also offers agent-assisted and self-service automation across voice, mobile and Web channels, giving users to choose how and when they make purchases or get in touch with their providers. more »

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Premier Foods plc is a food company. The Company is engaged in the manufacture and distribution of branded and own label food and beverage products. The Company's segments include Grocery, Sweet Treats and International. The Grocery segment primarily sells savory ambient food products. The Sweet Treats segment sells sweet ambient food products. The International segment has been aggregated within the Grocery segment for reporting purposes. The Company offers a range of brands, such as Ambrosia, Bisto, OXO, Paxo, Sharwood's, Loyd Grossman, Homepride, Batchelors, Smash, Bird's, Paul Hollywood, Marvel and Angel Delight. Its Grocery strategic business unit (SBU) includes cooking sauces and accompaniments, flavors and seasonings, Quick meals and soups, and ambient desserts. Its Sweet Treats SBU includes the Company's cake brands, such as Mr. Kipling, Cadbury and Lyons. Its International SBU is focused on new markets across the world. more »

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Numis Corporation PLC is a United Kingdom-based independent institutional stockbrokers and corporate advisors. The Company offers a range of research, execution, corporate broking and advisory services to companies quoted in the United Kingdom and its investors. The Company's services include research, sales and trading, investment companies, corporate finance, corporate broking, principle capital fund managers limited (PCFM), Numis indices and asset management. The investment company's research-driven approach focuses on specialist or differentiated mandates, including quoted equity, private equity, infrastructure, property, debt and other alternative assets. The corporate finance services include advice and transaction execution in relation to mergers and acquisitions, secondary equity issuance, convertible securities and bonds. The Company serves corporate clients and institutional clients. It is managed as an integrated corporate advisory and stockbroking business. more »

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

29 Comments on this Article show/hide all

Paul Scott 8th May '17 10 of 29

Very interesting report, thanks Graham!

It's results from Gear4Music tomorrow comma so I'll be attending the analyst presentation in London and reporting back here probably late morning full stop

So my report tomorrow will be mainly written in the afternoon, just to flag that up to you and everyone else.

I really enjoyed Ed's webinar last week comma and the new stock classifications are very thought-provoking exclamation mark

Sorry this message is a bit haywire, I'm using a new Android phone comma as my iPhone died after going through a spin cycle in the washing machine full stop don't ask exclamation mark

Regards, Paul

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cic 8th May '17 11 of 29

I bought into PFD a few years ago but no longer a holder. I was attracted by the perceived premium brands, the strategy of downsizing and disposing of non-core business and the change of management, who I thought would shake the company up and trigger a re-rating. It has not happened. I frequently see expensive advertising on TV for, for example, Mr Kipling cakes, but when I do my shopping they are often on special offer at similar price as supermarket own brands. Margins are paper thin. There is no realistic prospect of a dividend any time soon. I think the most likely way a return will come from PFD is if there is a bid, but I can't see what any bidder is going to want. And then there is the pension contributions which whatever has been agreed will take priority on cash generation. If the company can persuade the public that its brands really do deserve a premium price, and they can get their margins up, there may be hope, but I would want to see clear evidence of this before investing again.

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ricky65 8th May '17 12 of 29

Graham, thanks for the heads up about Alfa. Looks like a potentially good growth stock worthy of further research.

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Ramridge 8th May '17 13 of 29

In reply to post #182902

reminds me of my dad dictating a letter to his secretary full stop paragraph Ram

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ln1sof 8th May '17 14 of 29

On the Alfa intention to float subject, Numis who have pointed out a lack of IPO's in today's results are acting as Joint Global Co-ordinators, Joint Sponsors and Joint Bookrunners along with Barclays Bank so some work for them there.

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Trident 8th May '17 15 of 29


I note your comments in the context of the Alpha IPO re: markets and wariness of a rush of stocks. But this contrasts with the Numis which talks about the paucity of stuff coming to the market impacting their figures.

Maybe there was a distinction I was missing?

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Trident 8th May '17 16 of 29

In 2005 for AIM 520 new companies were launched, it's peak year
in 2016 for AIM by comparison, 64 new companies were launched

AIM peaked in 2007 with total 1694 companies trading on it
AIM in 2016 had 982 companies trading.

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Graham Neary 8th May '17 17 of 29

In reply to post #182920

Hi Trident, the distinction is between the US/global markets and the UK. Global markets saw a rush of IPO action in the first part of this year but it didn't happen in the UK.

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Paul Scott 8th May '17 18 of 29

In reply to post #182881

Hi Hedley05,

You asked;

"I hadnt counted on the trades going through at the published bid-offer, whereas the purchase price of the actual shares in a share dealing account is often well within the spread."

The way to solve this problem is to phone up your spread betting company, and ask them to "work an order" for you - i.e. to see if they can deal inside the spread.

I find that Spreadex are excellent on small caps (I put most of our family business through them), and are happy to work orders for you, to get improved prices.

An alternative method is to use an intermediary broker, which is what I do. So my broker is paid a share of the commissions & funding by Spreadex, but he buys (or sells) the physical stock in the market, at an improved price, then he passes the stock over to Spreadex or IG.

So I get the benefit of improved pricing, within a tax-free spread bet account. The funding cost is about 4% p.a., but if you make a say 50-100% profit on a share, then the funding cost becomes largely irrelevant, and the tax saving is considerably larger than the funding cost.

Another big benefit of having an intermediary broker, is that it stops me doing anything stupid or reckless in my spread bet accounts. So I actually got my broker to disable my online dealing through Spreadex. That way I can't put daft Index trades, or any other foolish impulse trades through, which has been a big leak in my past performance.

So I thoroughly recommend having online dealing disabled for you, if (like me) you sometimes get a rush of blood to the head, and have a wild punt on something where you have no expertise or edge.

It's worth ringing up Spreadex and asking to discuss this with someone. If your account is a reasonable size, then they might well allocate you an account manager, who will act like your broker, and get to know the things you like, and can help you get keener prices.

Regards, Paul.

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hedley05 8th May '17 19 of 29

In reply to post #182941

Thanks Paul,
Appreciate the reply. I am dealing with Spreadex already so good to hear that advice.

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darekn 8th May '17 This post has been moderated
FREng 9th May '17 21 of 29

Good bid for Waterman (LON:WTM) this morning. Decent results from £G4M and Treatt (LON:TET).

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herbie47 9th May '17 22 of 29

In reply to post #183025

Yes but Treatt (LON:TET) shares are down 2.5% even though they are ahead of forecasts. £G4M I'm a bit concerned about them spending £5m on a building in York.

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Lion Tamer 9th May '17 23 of 29

In reply to post #183049

I was a little worried about the £G4M £5M costs for office space too, however this partially offsets my worries:

The acquisition will be 100% debt funded with new debt facilities, providing significant cost savings when compared with leasing an equivalent building (should one have been available), and allowing for further expansion as required. To ease the transitional impact as we grow into the property, we have agreed a short-term lease-back arrangement with the vendor CPPGroup Plc for half of the building and the Board expects this will cover our interest costs for the first 12 months following completion on 30 June 2017.
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FREng 9th May '17 24 of 29

In reply to post #183049

I keep selling winners much too soon. I must learn to live with worries like the ones you mention.

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herbie47 9th May '17 25 of 29

In reply to post #183055

Yes me to. I was going to top up G4M but saw the new building that rather put me off, I will be interested in Paul's opinion on that use of money. My concern is high cost in York at what could be near the peak of property prices.

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simoan 9th May '17 26 of 29

In reply to post #183049

Yes but Treatt (LON:TET) shares are down 2.5% even though they are ahead of forecasts.

Sorry that might at least  partly be down to me. Good results (as expected) but I found them a little underwhelming given the current rating and didn't like the amount of capex lined up going forward in both the UK and US. The UK site move also adds risk IMHO - do these things ever go smoothly? I've sold out for now but will keep it on my watchlist should the valuation start to look more attractive. All the best to others though!

All the best, Si

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FREng 9th May '17 27 of 29

In reply to post #183061

Si, I take it that you are not a John Lee style investor then?


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simoan 9th May '17 28 of 29

In reply to post #183067

Si, I take it that you are not a John Lee style investor then?

I don't mean to sound dumb but I don't know much about John Lee other than he is a successful long-term investor. Good for him. I don't follow other people and live and die by my own decisions and I am happy with my results over a number of years.Could they be better... undoubtedly yes!, but I've found over the years that following other people's style is not much use to me. I am not a trader by nature, but when I believe something to be overpriced I now sell rather than hold on. 

On any valuation metric I use Treatt (LON:TET) is looking expensive, nice company though it is. I didn't think the forward looking comments were especially positive, the 7% increase in dividend was pretty mean, the poor H1 cashflow and increase in debt is a little disconcerting but should hopefully unwind in H2, and the expense and uncertainty of the site move was just too much for me. One day I will get the hang of being a momentum jockey... :)

All the best, Si

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Ramridge 28th May '17 29 of 29

Hi Graham Re. Alfa Financial Software Holdings (LON:ALFA)
In case it escaped your notice, Alfa Financials IPO'ed on Friday 26th May. The shares closed 30% above the placing price. They seem to have been chased hard on the first dealing day.
I looked over the admission document earlier today and the company seemed to be way overvalued.
Would be very interested in your views.

Thanks, Ram
declaration: no long or short position.

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 Are LON:ECK's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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