Small Cap Value Report (9 Mar 2016) - LAKE, SRT, PNA, TRB, PMP, FOUR, ATQT, TND

Wednesday, Mar 09 2016 by

Good morning!

Lakehouse (LON:LAKE)

Share price: 43.88p
No. shares: 157.5m
Market cap: £69.1m

(at the time of writing, I hold a long position in this share)

I reported yesterday on Board changes at this support services group, with the CEO stepping down, and the Chairman, Stuart Black, becoming the new CEO.

EGM Requisition - another announcement today states that the founder (and still 15.5% shareholder, Stuart Rawlings), supported by respected fund manager Slater Investments (holding 6.0% of the company) has served a notice to the company requisitioning a general meeting. Under the Companies Act 2006, and shareholder or group of shareholders holding at least 5% of the shares in issue, can requisition a meeting of shareholders.

The purpose of the meeting is as follows;

The Requisition proposes resolutions that the three current Non-executive Directors of the Company be removed from the Board of Directors of the Company, to be replaced by Steve Rawlings, Ric Piper and Robert Legget. In addition, a further resolution is proposed to remove from office any person appointed by the Directors of the Company as an additional director pursuant to the Company's Articles of Association between the date of the Requisition and the conclusion of the requisitioned general meeting. As a consequence, if such resolutions are passed, all of the Company's Non-executive Directors will have been proposed by the Requisitionists.

This is quite a strange situation. Since Non-Execs don't have any real power, they're normally just asked to resign, and they comply. I can't recall seeing EGM requisitions before to oust Non-Execs. It's normally the case that someone wants to take control of the Board by ousting the Execs, but that's not the case here.

My opinion - this suggests to me some sort of disagreement between major shareholders, and the new CEO (former Chairman), so shareholders are flexing their muscles here by the looks of it. Clearly the two major shareholders concerned, who together own 21.5% of the company, don't rate the current Non-Execs, and want them out.

I put a call in to the CEO this morning, but got no answer, so instead spoke to an adviser. I was advised that the company will put out an announcement commenting on the EGM requisition, so we should keep our eyes peeled for that, which should hopefully explain the situation.

Personally I think that the founder, and 15.5% shareholder, wanting to come back as a…

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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SRT Marine Systems plc, formerly Software Radio Technology plc, is engaged in the marine technology business. The Company's principal activity includes development and supply of automatic identification system (AIS)-based maritime domain awareness technologies, and derivative product and system solutions for use in a range of maritime applications from safety and security to fishery management and environment protection. AIS is a mesh network radio communications system technology specifically designed for the marine domain, and it uses a combination of global positioning system (GPS) and high frequency radio to enable real time, simultaneous data communication between multiple, independent entities providing information, such as identity, GPS position, speed and other customized data. It offers a range of AIS products and maritime domain monitoring system solutions, which also fuse other maritime sensor technologies, such as radar, closed-circuit television and communications. more »

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21 Comments on this Article show/hide all

Paul Scott 9th Mar '16 2 of 21

In reply to post #123449

DOTD - yes indeed, I was very displeased to see the large Director sales at this company. I believe in following the money - they know the company better than any of us, so if they're ditching their shares, then I will follow suit. So I sold mine yesterday & this morning.

They included that ridiculous line about "satisfying Institutional demand", which is just laughable. Do they take us for fools?! They sold because they would rather have the cash, than hold the shares. The fact that there happened to be a willing Institutional buyer(s) is not in any way supportive. I'd say the Institution(s) are mugs for buying shares from people who know the company best.

Regards, Paul.

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Webpax 9th Mar '16 3 of 21

Hi Paul I would be interested in your thoughts on the ATTRAQT (LON:ATQT) results if you get the chance. I know you have said in the past you have met management and you were impressed with them.

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jimbobjames2002 9th Mar '16 4 of 21

Hi Paul, thought I'd get in early - if you get the chance I'd be really interested in your opinion on Penna Consulting (LON:PNA), they've been a takeover target for a while (part of the reason I own shares in them) and now Adecco want to buy Penna for 365p a share. Would be really interested in everyone's view on this - is it a good deal for shareholders or could there even be higher counter offers - though apparently any other offer would have to be 15% higher to be considered. Finncap have a current target of 390p.

Thanks, James

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ericb 9th Mar '16 5 of 21

The RNS from SRT seems to be a very optimistic view of the quite challenging process to get the winnings from this supply agreement - first of all theyve got to get the large asian country to sign off on each double stage. Mr Tucker is a very likeable chap but he has given us very good reason to be sceptical of the company's hoped for achievements in real time.

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shanklin100 9th Mar '16 6 of 21

Hi Paul

I would be very interested on your thoughts re no competing bid being considered unless it is at least 15% higher than today's agreed £3.65 bid.

If say a bid of £4 was received then PNA directors would then seem to me to be acting against the interests of shareholders in not considering it.

Thoughts welcome,

Thank you, Martin

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Paul Scott 9th Mar '16 7 of 21

In reply to post #123467

Hi Martin & Jimbojames,

I don't really have anything further to add on Penna Consulting (LON:PNA) as it's not a situation I know very well.

I suggest poring over the detail in today's announcement, if you have a financial interest in it. I don't, so have better use for my time, to be blunt!! ;-)

Well,I say that, only if you consider walking 2 unruly yorkshire terriers to a grooming shop to be a good use of time! (I've been roped into helping out a friend whose arthritis is playing up today!). What a glamorous life!!!

Regards, Paul.

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Whitbourne 9th Mar '16 8 of 21

Hi Paul, interested in your thoughts on results out this morning from Interquest (LON:ITQ) - they received a muted reception, although in line with expectations and with a good rise in the dividend. EPS (diluted) up 12%, net debt down 28% (to £6m so still quite high for a £30m market cap), dividends up 20% (2.5p to 3p for the year)

The results aren't on Stockopedia yet for some reason, you have to go to Investegate to find them. The business looks quite well-positioned to me, especially in the specialist recruitment areas in which they operate. This bit caught my eye:

"It is increasingly hard to identify a specialist resource, be they contract or permanent, who is either immediately available or actively seeking a new role.
It is more likely that the ideal candidate is currently engaged on an assignment or focused on the permanent role that they already have. At InterQuest we invest in building long standing relationships with prospective candidates, building trust and a clear picture of what their ideal next move would be in order for us to accurately match them to their next role.
This form of soft headhunting is an effective and proven recruitment technique at InterQuest and we are only able to do this through our focus on specialist skills."

I forget whether you hold - I think you felt the Balance Sheet was unduly poor? It's true that once you knock off goodwill and intangibles, net assets are negligible - £3.5m or so.

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herbie47 9th Mar '16 9 of 21

In reply to post #123455

Paul I did mention some time ago about large director sales in dotDigital (LON:DOTD), I did sell out around 45p which was a bit early but now does not look too bad. Its hard to judge sometimes on sales, some shares tank soon after like Solid State (LON:SOLI) but others keep on going up. Generally I find director sales a bit premature which is not surprising, they know well before the market usually does. Yes I think Solid State (LON:SOLI) used that excuse as well.

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simoan 9th Mar '16 10 of 21


We were discussing CAMB and car dealerships the other day. I notice Vertu have got away a £35m placing this morning to fund acquisitions at roughly a 7-10% discount. As per usual, small shareholders were excluded and diluted by ~15%. Clearly the Vertu directors are still extremely bullish on the UK car market and not least bit worried by the prospect of Brexit.

Also, good full year results from Portmeirion. It looks like a fair bit of earnings growth has come from positive currency effects with a third of sales in the US. Only 3% of sales are to EU.On the downside, sales to South Korea dropped 18%. A nice 13% increase in the dividend and some heart warming words too:

The Board is committed to a progressive dividend policy; we believe that this is what our shareholders expect of us, why they bought Portmeirion shares and why they continue to hold them. We aim to maintain a sustainable and fair level of dividend cover and to increase our dividends whenever our results, cash balances and prudent views of future trading and business investment needs allow us so to do. Our consistent policy is to increase the interim dividend each year by the same percentage as the final dividend of the preceding year, subject of course to prevailing conditions.

Good luck with those dogs! Si

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herbie47 9th Mar '16 11 of 21

Paul, re Lakehouse (LON:LAKE) David Stredder was at the AGM, I don't know if you heard his interview about it? Also think they will be at Mello soon.

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nickstone 9th Mar '16 12 of 21

Hi Paul, any views on the interims yesterday from St. Ives (Lon: SIV) ? Many thanks.

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shanklin100 9th Mar '16 13 of 21

In reply to post #123470

Hi Paul

Albeit I asked a question which related to the situation at PNA, I was trying, primarily, to raise another more general point.

Paraphrasing the text in the RNS, it states

"...the various irrevocable undertakings from Penna Directors and others will only cease to be binding if a third party makes a competing offer at a value which exceeds the value of the cash consideration per Penna Share under the Offer by 15 per cent. or more per Penna Share."

Given the bureaucracy around a bid, I would have no issue with setting (say) a 5% threshold for a higher bid but 15% is IMHO difficult to justify. 

In agreeing this condition, I do wonder if there is a general issue here as to whether, in agreeing this condition, the PNA BoD are acting in the best interest of shareholders, and indeed the extent to which the BoD are actually obliged to do so.

Thoughts welcome.

Regards, Martin

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nehpets 9th Mar '16 14 of 21

Yeah, good results from Portmeirion (LON:PMP) today (as expected) although shame about the decline in South Korea. This is just the kind of company I like - paying dividends out of excess cash (not borrowings); very solid balance sheet; very strong brands etc. Not something that will double in a matter of months but (hopefully) I nice get rich slowly share.

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Webpax 10th Mar '16 15 of 21

Many thanks Paul for covering ATTRAQT (LON:ATQT) as requested on what looks like a very busy day for you.

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xcity 10th Mar '16 16 of 21

I took a look at Attraqt after reading your first few paragraphs, and decided to take a small position in it today. I don't disagree with any of your comments, but on a 3-5 year view I think there is a reasonable chance of a very decent profit and a relatively small chance of a wipe out. I liked the idea of being able to buy in at a huge discount to the institutional placing too, especially when there hasn't been any bad news to justify it. I can't imagine what they were expecting. OTOH, you might get a chance to buy at half yesterday's price since the losses will be higher in 2016 as they spend their new cashpile on growth. Thanks. 

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Fegger 10th Mar '16 17 of 21

I do hold Portmeirion long term and am pleased with results. I also bought product from them recently. I was very pleased with customer service including the handling of a return where I had the choice of my own courier or their courier at a reasonable price. It felt high quality all the way through and made me even more pleased to hold their shares long term

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cig 10th Mar '16 18 of 21

In reply to post #123500

If the buyer insisted on that condition (fair enough frankly, how frustrating to go through all the due diligence to be gazumped by someone offering 5% more...), do you think they should have refused point blank to talk to them?

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andrew robinson 11th Mar '16 19 of 21

Paul good afternoon.
Ref TND ......not your favourite company.
I think referring to the company as a distribution business does the company a disservice. Just like PM at DART the company always talks the business down ( I am told by them because the big accounts come at them for discount s etc if all in going well).
Pension issue not discussed at all.
I think in 4 weeks you will get the numbers for last year and the picture will be fully explained. You say 1.4 million was made last year but the 580 k had been taken off the top the year before.
With the two new companies (pro-rider) making 300k a year and ESC making 800k before any savings this means the group should make 2.5 million a year which is EPS 55p a share.
Now whilst you may not like it the attraction is it trades on under 4x earnings and after the fall probably about 2.25 x current year.
The bit I agree with you about is why is it listed? That's historic but I feel it could attract a bidder from the private sector who by removing the costs of listing 250k pa and trimming the Directors pay 800k you have a company that would be making 3.5 to 4.00 million a year.
At 200p a share ( double current price) that's 9 million plus debt 6 gives an outlay of 15 million less assets ( property etc) of 8 million giving 3.5/4.00 million profit on a cost of under 8 million.
Far too cheap and I seriously think it will go private in 2 years maximum.

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Carcosa 12th Mar '16 20 of 21

With reference to Lakehouse (LON:LAKE) here is an extract from

When there are problems you either sell or you have to do more. When we engage with management it’s typically because there is a problem. It could be a simple thing like they have suggested a new incentive scheme that we think is crazy, in which case we will say so. We have a reasonable track record of engaging with them and winning.

If the problem is more fundamental than that, and things really go wrong - such as a massive profit warning - then we are normally minded to get out. Sometimes you don’t want to get out because the price is too low and sometimes you think it can be fixed. Those are the situations where you then engage and become potentially much more active. We try and avoid it really, but if you have to do it you have to do it. Sometimes you have a position that you simply can’t sell because there is no market. In that case you just have to get it right as best you can.

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truegent 6th Aug '16 21 of 21

hi Paul no idea if you still get notifications for old SCVP comments but i just went through 4imprint (LON:FOUR) accounts, last four years, and im not impressed at all. the balance sheet is as you say excellent with minimal intangibles, plenty of NTAV, no debt and a nice cash pile.

the problem here is the cash flow. in 2012 they actually made an operating loss. then again in 2014 free cash flow was actually negative. aside from these two years, FCF is no-where near reported net profit, its all over the place each year and in fact FCF barely covers the dividend (2015 FCF £10.6m, dividend £9.6m)

so whilst they report record revenues and profits each year the cash flow tells a different story.

i appreciate you probably wont want to go back over the figures now but maybe when you cover them next you can add your comments regarding this ?

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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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