Small Cap Value Report (9 Oct 2015) - HOME, XPP, ADGO, AN.

Friday, Oct 09 2015 by

Good morning!

We seem to be in the midst of a very strong rebound in the main indices, driven by a recovery in the resources sector, but with plenty of other things rising nicely too. Long may it last!

I've not heard this John Templeton quote before, but spotted it on Twitter this morning, and thought it worth repeating here;

"You never get a bargain except where most investors are trying to sell"

(I've not been able to verify this quote, so bear in mind it came from Twitter, hence may not be 100% accurate!)

Home Retail (LON:HOME)

Share price: 147.5p
No. shares: 813.4m
Market cap: £1,199.8m

Not a small cap, but interesting nonetheless - I've bought some shares in Home Retail (LON:HOME) this week, after an absence of several years - it's a company I know quite well, and met management at their AGM a few years ago.

This share looks potentially cheap, given its tremendously strong balance sheet - not only with net cash, but also it owns the customer credit operation outright too, and has no gearing. Although there is a pension deficit.

What has really got me excited, is their plans to offer same day delivery for £3.95. Four delivery slots are available, and if you order by 6pm, you should get it by 10pm, the same day. I think this could be transformational - since Argos might morph into a hybrid between a retailer, and a distribution company for other businesses. This is one step ahead of Amazon, amazingly - demonstrating that, far from being a stale old economy business, Argos is actually leading the charge on modernising its operations. That could lead to a re-rating of the shares, maybe?

I have tested out the same day delivery service, and so far it has miserably failed! Both orders were not delivered, and no emails or other explanation given. They haven't taken any money though, so clearly they are having teething problems, on what is a very ambitious project. Although they wouldn't be attempting it, unless it was feasible, so I can live with teething trouble.

XP Power (LON:XPP)

Share price: 1575p (down 4.5% today)
No. shares: 19.0m
Market cap: £299.3m

Trading update - this company has been on my watch list for a while, as I liked the…

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XP Power Limited is a United Kingdom-based developer and manufacturer of critical power control components for the electronics industry. The Company provides power solutions, including alternating current (AC)-direct current (DC) power supplies and DC-DC converters. The Company's segment include Europe, North America and Asia geographical. It designs-in power control solutions into the end products of blue chip original equipment manufacturers, with a focus on the industrial, healthcare and technology sectors. Its product categories include high efficiency/convection-cooled, chassis mount/open frame, configurable, external, encapsulated and printed circuit board (PCB) mount, DIN rail, baseplate-cooled, through hole mount, surface mount, light-emitting diode (LED) drivers and distributed power/hotswap. more »

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Albert Technologies Ltd, formerly Adgorithms Ltd, is an Israel-based software company. It offers an autonomous artificial intelligence marketing platform, namely Albert. Its software features include: Autonomous Media Buying, where an artificial intelligence marketing platform performs digital media buying for the user; Autonomous Audience Identification and Targeting that enables marketers to find and target existing and new customers; Cross-Channel Execution; Testing and Optimization, where Albert automatically tests and launches a number of micro campaigns, each of them structured to test a strategy, as well as Analytics and Insights, which includes historic data and competitor, keyword analysis, budget allocation across channels and display inventory levels, among others. It serves Brands such as: Harley Davidson, EVISU, Cosabella, Dole Asia, and, among others. more »

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

14 Comments on this Article show/hide all

Ramridge 9th Oct '15 1 of 14

Re. Adgorithms (LON:ADGO). Yes one of the fastest from IPO to profit warning, in less than 4 months!

As Paul pointed out, it would be wise to review others in this sector for read-across. I know of two other Israeli companies, both heavily into programmatic advertising.
Matomy Media MTMY
Taptica TAP (changed named to Taptica from Marimedia in Sept )

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rmillaree 9th Oct '15 2 of 14

With Regard to XPP

I hold some - they seem to be moving more towards their own specially designed and customised stuff for Multinational type firms - this being the case this is exactly the kind of Moat i like to see as they should as time goes by be less drawn into sales where there are lower barriers to entry (anything bog standard basically)

They also seem to be doing a proper job with regard to the manufacturing that they have brought in house and they seem to have set up the new Vietnam Plant without any Banana skins - strangely it seems that most listed companies seem to fail miserably when they come up with cunning plans like this be it in sourcing or out sourcing.

The one slight negative is that its all slow and steady progress with ups and downs on the way - so it's not the kind of share i would expect to double in value but who knows maybe they will come up with something "best of class" that sells by the Billions. Hopefully as debt goes though they will have funds to invest in new products or acquisitions or pay a proper chunky DIvi.

Main thing is this company is no Volex - Yay!

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kalkanite 9th Oct '15 3 of 14

Hi Paul

Thanks for the heads up re HOME. I've taken an entry level holding this morning, just a couple of points. I like the same day delivery and think that Argos could indeed morph into something like Amazon, has a cracking balance sheet. Op margin ROCE & ROE all very low, whilst this is not good it only takes a small increase in Op Margin to increase profits significantly.
Free Cash Flow poor over last 2 years mainly due to Capex, need to look closer at this as it could be investment in improving infrastructure etc. which could be very good going forward, despite this net cash still excellent.
Number of shares in issue reduced from 872m in 2010 to 800m this year ( I like a company that buys back shares at low multiples).

I make the Enterprise Value PE around 8.5. Will look to add further once I've had a better chance to look further at their last few years results.


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FREng 9th Oct '15 4 of 14

In reply to post #107883

Home Retail (LON:HOME) seems to have had steady downgrades from the brokers, which Paul has previously regarded as worth treating with some concern.

Also, teething troubles don't explain the absence of an email apologising for the failure to deliver. That could damage customer good will.

It's an interesting development but I'm going to watch from the sidelines to see how it settles down.

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FREng 9th Oct '15 5 of 14

Adblock seems to have been sold recently to an undisclused buyer, which has worried the geek mailing lists.

I use Adblock Plus, a free, open source blocker.

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imranawan 9th Oct '15 6 of 14

In reply to post #107886

I would agree with your points. In theory same day delivery as a concept sounds great, but there is little point in advertising the service and not being to deliver on this (excuse the pun!). Whilst I acknowledge they could achieve a First Mover advantage, I'd be surprised if Amazon didn't replicate if this was successful for Home Retail (LON:HOME).

From memory I think Amazon, are trialing same delivery in a couple of locations (London and Birmingham). Am also happy to wait on the sidelines for the time being.


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Novice Investor 9th Oct '15 7 of 14

Amazon offer ONE hour delivery.


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laurie89 9th Oct '15 8 of 14

Dont agree on Home. Its a fiercely competitive market and Xmas is coming up soon. This relies on a 'new electronic gimmick' for the kids but I dont see one this year.

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bobo 9th Oct '15 9 of 14

XXP, i used to buy some of their "bricks" which is how the users describe the ac/dc units, The selectors just want flat DC and want a cheap product, it is only the final end users who really want efficiency, so I struggle to see how you make a "margin win" except by making in house using good design, that is what they now offer. Once they have a competitor who joins up the "design" with the "make" there is no margin premium.

So short term interest only for me

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imranawan 9th Oct '15 10 of 14

In reply to post #107865

XLMedia (LON:XLM) Media also down by 17% at the time of writing. As a general principle, I'd agree with Paul of steering clear of companies whose primarily business model is online/digital marketing, and that are foreign listed.

Best wishes,

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rmillaree 9th Oct '15 11 of 14

In reply to post #107904

Hello bobo

I have to admit i have no practical knowledge of how good the product is and how likely it is that someone else will muscle in on their "Niche", so if you are saying there is no competitor at present perhaps that is some indication that it's not worth the effort trying to set up something to Rival that - presumably the stuff will constantly need tweeking and improving and if XPP have the lead on this. I would also guess that its also the better the Devil you know - if their Units generally work reliably for their larger customers then would you want to swap away from that to something else if you were happy quality wise?

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bobo 9th Oct '15 12 of 14

loads of competitors, technology is 15 years old, probably a commodity but since management is good they do stuff to drive costs down, never going to be amazing but nice niche market. Just check the divi/per share growth which is pretty consistent.

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Redrichmond 11th Oct '15 13 of 14

Hi Paul, how about real looking a telit, you covered in April

An interesting article in bloomberg?

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bobo 27th Oct '15 14 of 14

Home, today £1.10 announcement last Wednesday.

Next target announcement 14 Jan 16, one to watch

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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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