Small Cap Value Report (9 Feb 2015) - QRT, FLOW, HSS, PLA, ACL, HDD

9th Feb '15 by Paul Scott

54 comments 32750 reads

Good morning! Here we go again, another week of reports. It's quiet for news today, so a leisurely start to the week.

New audiocast - for anyone interested, who hasn't already come across it, I published a new audiocast yesterday, interviewing renowned investor Richard Crow (@RebelHQ on Twitter). Richard (rightly) has a large following in the private investor community, and he gave us some fascinating insights into his investing approach - based on common sense, turnaround situations, some contrarian thinking, and charts signaling to him when sentiment is improving. Lots of thought-provoking comments, so well worth a listen - click here.

Mello Bloomberg - another event from David Stredder! He's teamed up with Bloomberg, who are kindly hosting a one-off event at their London HQ, which I am told is a pretty funky & exciting place to visit. The hospitality is excellent too, I am reliably informed. Speakers for the tech-themed evening include Mark Slater, and Ben Rogoff of Polar Capital. Networking over drinks and a buffet, will follow.

This unique event will be held on Thu 12 Mar 2015, from 5pm-approx. 9:30pm. No doubt we will spill out into a nearby pub at the end. To book your ticket, please use this link. NB! We have a special Stockopedia discount code, so if you enter DISCSTOCK you will get £14 knocked off the ticket price (reduced from £49 to £35). Hope to see some of you there!

Quarto Inc (LON:QRT)

Share price: 156p
No. shares: 19.7m
Market Cap: £30.7m

Refinancing - this book publisher has entered into a new four-year syndicated bank facility with four banks. It's a mixture of overdraft and term loan, but no financial details are given.

I wonder how much the banks stung them for, in arrangement fees? I bet it was a hefty amount.

My opinion - it's good to see the banks being supportive, but what if they hadn't been? The company could have sunk under the weight of its excessive debt.

As covered in my report of 2 Feb 2015, the debt situation here is clearly excessive (which the company tacitly admits, with frequent comments in its announcements about the need to reduce debt). It is strange that the company continues paying generous dividends, whilst having a weak balance sheet with far too much debt. That seems reckless to me.

The EBITDA figure is meaningless,…

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Funderstruck

9th Feb '15

"It's very difficult to dislodge tried & tested conventional technology with something new -"

Agreed ;it took plumbers 10 years to do away with a great big open water tank in the loft & replace it with a sealed 'Megaflow' type system on mains water pressure.

"If Greece manages to exit the Euro and write off ..........."

Greenspan spoke up yesterday and considered Greece would exit the Euro in time followed by the collapse of the Euro. That WILL create a lot of instability. I am being extremely cautious.

johnrosier

Flowgroup; Much of today's discussion has been on its technology, efficiency etc.

I think this is worth reading Renewable energy hub

If you do not believe the company's claims for the boiler as outlined in the piece above and achieved in its pilot program then fair enough.

I do and am therefore giving it the benefit of the doubt. To me the main risk is whether they can execute the roll-out strategy to plan rather than the economics of the boiler and their offering.

In answer to cig's point, it only generates electricity when it is on i.e. at peak times; first thing in the morning, in the evening, on cold days etc which is why it makes sense as it relieves the GRID at peak times.

There is another benefit; as Flow provides the customer with dual fuel, when it is purchasing its forward contracts it won't have to pay up for peak electricity as the generators in its customers CHP units will be kicking in. Other suppliers have to be able to supply at peak and will therefore have to pay up for it. The CHP boiler reduces the peaks that Flow energy has to supply.

Wrong choice of words. A discussion not a fight! Appolgies. I do think it is worth reading the attached which does at least explain clearly the economics of its CHP boiler.

https://www.renewableenergyhub.co.uk/the-flow-microchp-boiler.html

Beginner

Bang on Cig. (But sales will be made on 'green credentials', supported by a best case/worst case comparison, not on a true efficiency comparison).

I think that's right. To start with it has to be a four/five bedroom houses with higher than average energy consumption. However as Jabil ramps up volumes the price of the boilers is expected to fall so that it becomes economical in smaller dwellings.

emmo1210

Cool no worries, good luck with the investment, I hope I'm wrong as it will mean cheaper energy for me in the long run.

pka

"I'm only questioning how it could be more efficient to generate power at each house rather than at a power station, I mean if that were the case there would be no network. Maintenance also must be accounted for. Aren't domestic boilers 80-90% efficient already? There might be a few % to scim off into electric as there will obviously still be some loss."

The problem with generating electricity at a conventional thermal power station running on coal or oil is that, for thermodynamic reasons, about two thirds of the thermal energy from burning the fuel is lost at the power station as the waste heat in the water vapour going out of the cooling towers or to the cooling water in the nearby river or sea, and only about one third of that thermal energy from burning the fuel is converted to electrical energy that is fed into the high-voltage electricity transmission network. Then a further few percent is lost in the high-voltage transmission network before it reaches the lower-voltage distribution network, and another few percent is lost in the distribution network before it reaches the consumer. A Combined Cycle Gas Turbine (CCGT) power station running on natural gas is more efficient than a conventional power station in converting the thermal energy in its fuel to electricity, because some of the waste heat from the fuel used to heat the gas turbines in the CCGT is used to heat up water to convert it to steam, which is then used to run a steam turbine, and both the gas turbines and the steam turbine are used to generate electricity. However, even a CCGT loses about a third to a half of its thermal energy in its fuel as waste heat, for thermodynamic reasons.

A combined heat and power (CHP) scheme is much more efficient overall than a conventional power station in making use of the thermal energy in its fuel, because some of the residual heat energy that would otherwise be wasted as water vapour up the cooling towers is used to provide heat to a nearby industry (such as an oil refinery) or for heating nearby homes. The efficiency of converting thermal energy to electricity is still just in the range one third to two thirds, it is just that there is good use made of some of the residual heat rather than wasting it.

If it is technically feasible to have a mini CHP scheme in your own home, then I could well believe that the overall efficiency of converting the thermal energy in the gas to useful purposes, i.e. to heating the home plus generating some electricity, would be better than generating electricity at power stations. If some of the electricity generated by the mini CHP scheme is exported from your home to the grid, it presumably would be used by a nearby house or industry, so I would expect the energy losses in the distribution network over that short journey to be small.

Rusty2

Flowgroup: Naked Trader has been in and out believe last time he sold out at 40p which was a lose for him, maybe he has bought back when they fell to 32? I did enquire about getting one, they said my consumption was far too low. Im not keen on some of their advertising, spam?

I understand yes, I still think that the few % which may be able to be gained over conventional boilers will not be economical versus capital and maintenance costs but will be happy to be wrong on that front if it is proven otherwise. I would just be weary of marketing lit such as above which is comparing flows boiler vs central generation instead of flows boiler vs normal boiler at 'fuel conversion efficiency'. People who these will be sold to should be comparing flows technology to what they already have, which isn't as stark

Flowgroup quote: "2000 kWh of electricity if your premises consumes 35,000 kWh of gas each year - See more at: https://www.renewableenergyhub.co.uk/the-flow-microchp-boiler."

Does not sound very efficient to me. But they do claim that the boiler is 92% efficient which is similar to modern condensing boilers. 35,000 kws is a lot of gas, think I use about 8,000. So I will generate about 460kw of electric.

Sully8786

Re Flowgroup (LON:FLOW) - From what I've followed from the above and from what I know of the company (I've followed and been in and out a few times) is that the CEO did rather well at another 'Challenger' Energy company.

I am a customer for Gas and Electric. My main observation currently is the fact that they are saying that I use enough Gas to make the boiler viable but the PR people say that I need to use almost double of what I do currently.

I'm on the 'list' going forward so will post back if I get a survey done. I suppose that the bottom line would be - if it saves me money and makes me a bit greener - I'm in! If not I'm off.

Regards,

Sully.

I think that the sticking point for most Flowgroup (LON:FLOW) customers will be the near £2K installation charge :|

Regards,

Sully.

jonesj

Your CHP loss figure of 10% might be right for when people need the heat, which is in the winter.
In the summer, there is no use for the heat, so the effective losses will be much higher.
Probably worse losses than with existing technology.

Larry335

The Flow boiler is a condensing boiler so is around 90% efficient just like other condensing boilers.
Plant electricity generation and grid losses are the reasons why we all pay more than 3 times more for electricity per kWh than we pay for gas. Check your energy bills. So when you generate electricity at home by burning gas at 90% efficiency you are paying gas rate per kWh for electricity (about 3.5p) instead of grid rate (about 14p). Hence the savings on energy usage with the boiler. Additionally there is a government subsidy, the Feed in Tariff, to encourage take up of mCHP appliances, which pays over 13.24p for each kWh generated (whether you use it or not!). If you are gas high gas user it is actually possible to get a repayment (including subsidy) greater than your existing electricity bill.

lightningtiger

Based on the Flowgroup quote above, if we divide by 2 we get 1000KWh for electric & 17,500KWh for gas, which means in that example, the gas usage is 17.5 more than the electric per KWh used. Gas is much cheaper than electric per KWh by about a third to a quarter of the cost to produce each KWh.
Let us assume we have exactly the same efficiency with an ordinary boiler to the new Flowgroup boiler, the gas bill would be identical but with the Flowgroup boiler there is around £300 definite saving because of the built in electric generator.
Taking the ratio of 17.5 times more gas usage the gas bill would be 17.5 x £300 divided by say 4 = £1312.5 (cheap gas, a 22.8% saving) or 17.5 x £300 divided by say 3 = £1750 (not so cheap gas or more gas used) Even if the gas used was costing £3000 the total bill would be reduced by 10% (£300 saving on the electric)
Bringing the ratio down of gas & electric to say a total bill of £1000 then the £300 saving is a very significant 30% saving on the bill. However in order to save the £300 on the electric how long would the boiler have to be running for? Clearly if less gas is used the boiler would not have to run for so long & thus less electric/ savings would be produced. Somewhere along the line the optimum savings could be tested to give the best savings.
The orders seem to be potentially explosive.

The Flow condensing boiler has a modulating burner ranging from 7.2kW to 18.5kW heat output. So it depends on the heat demand of the home and flow temperature as to teh relative proportions of elec generation and gas use. With a condensing boiler you get best efficiency when the return temperature is as low as possible and still have enough heat for comfort. This will also be the best condition for generating more electricity i.e. better to run the boiler at low heat for longer instead of run at high heat and have the boiler cycling as the room thermostat kicks in. (cycling is more inefficient). Whatever the heat output as the burner modulates , if the boiler is on for 2000hrs a year that will be an energy saving of about 2000kWhx 10p (difference elec and gas rate) + government subsidy of 2000kWh x 13.24p (FIT subsidy) = £464.80 per year.

ridavies

10th Feb '15

Acal not getting very much interest in the face of Flowgroup!
I think the key point about Acal Paul is that they are aiming to get away form the low margin business you talk of. All their acquisitions have been aimed at moving into design and build solutions which are much higher margin opportunities. I was very impressed with their presentation at Mello Derby at the end of last year, and think we will see more acquisitions to come and a reduced dependency on their low margin distribution business.

And I'm off!

Had a good look at the offering - I can save over £120 with another company from the current Thames tariff. Plus, I could get a new boiler fitted for less that what it costs to fit a Flow Boiler and not be tied in for 10 years :|

Good luck to those holding Flowgroup (LON:FLOW).

Regards,

Sully.

I saw £ACAL present too and thought they looked interesting as, I presume did several others as they've been rising nicely since Mello.

It will be interesting to see how this one works out.

Regards,

Sully.

Small Cap Value Report (9 Feb 2015) - QRT, FLOW, HSS, PLA, ACL, HDD

Quarto Inc (LON:QRT)

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Paul Scott

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