Small Cap Value Report (Fri 13 July 2018) - DPEU, ASHM, THAL, TSTL, Amortisation | Graham Neary

13th Jul '18 by Graham Neary

42 comments 12451 reads

Good morning!

Today's assortment looks a bit like this:

DP Eurasia NV (LON:DPEU) - trading update
Ashmore (LON:ASHM) - trading statement
Thalassa Holdings (LON:THAL) - earn out
Tristel (LON:TSTL) - trading update

DP Eurasia NV (LON:DPEU)

share price: 177.5p (unch.)
No. of shares: 145.4 million
Market cap: £258 million

Trading Update

(Please note that I currently own DPEU shares.)

This is the master franchisee of Domino's Pizza in Turkey, Russia, Azerbaijan and Georgia.

It's the smallest position in my portfolio due to the fairly obvious geopolitical risks and also its speculative nature as the Dominos brand is rolled out in Russia. It remains to be seen to what extent it will catch on.

So far, the signs are pretty good. Small, speculative positions like this in my portfolio require me to make another decision at some point: to add more (when I'm more confident that it's going to succeed) or to dispose of it (when I am pretty sure that it will fail).

I haven't made that decision with DP Eurasia yet. I want to gradually learn more about the company and its progress as it produces more and more results. I also want to be careful since it has only been listed for about a year, and I am cautious about recent IPOs. We often get an accident in the first year or two.

It's worth noting that DPEU's Turkey business is already established as the #1 pizza delivery company in that country, so that part of the group is much less speculative than the rest of it.

System sales - these are sales made to customers by DPEU's corporate and franchised stores. In other words, it's the revenue that DPEU would have achieved if all stores were corporate owned and none of them were franchised.

This looks satisfactory to me.

System sales in Russia are up by nearly 70% (measured in Turkish Lira). 1 Lira = 16 pence.

Russian sales are now 30% of the total, up from 23% last year.

Long-term, if the roll-out succeeds, Russia will hopefully be making a…

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andrea34

13th Jul '18

I'd be interested in your view of DP Eurasia NV (LON:DPEU) please, Graham, following the trading update today. Turkey LFL seem to be growing but Russia LFL is down. They seem to be somewhat ahead of the game compared to DP Poland (LON:DPP) and have a wider geographical spread (Russia is HUGE, surely scope for lots of future growth), although the Stockrank is awful at 18 and they are still below the IPO price of 200p last year.

ANDY1861

Discount book Retailer 'The Works' has announced £65.2 IPO seems interesting as many discount retailers appear to be struggling in this retail environment.

TamzinPiworld

Just posted Castleton Technology (LON:CTP) Capital Markets Day - an interesting overview of this company providing software for Housing Associations and Social Housing. Sounds dull, but the SP has outperformed over the last 6 months. It's an interesting little business - high margin, high repeat revenues, providing a cheaper solution than all the labour used in the traditional infrastructure, at a time when HA and SH under government pressure to reduce costs.

http://www.piworld.co.uk/2018/07/13/castleton-technology-ctp-capital-markets-day-2018/

Gostevie

An 'in line' trading update from Tristel (LON:TSTL) doesn't seem to have gone down too well this morning with the shares down about 10%:

https://www.investegate.co.uk/...

They've had a terrific run over the past few years...

http://tools.morningstar.co.uk...

...so maybe the SP has got a bit ahead of itself and people are taking profits.

Disclosure: I used to hold, but no longer do. (Sold out too early as usual!)

Andrew L

Hi Andrea, I saw that too DP Eurasia NV (LON:DPEU). But Russian like-for-like sales are still growing. They had 31% like-for-like sales in Russia in H1 2017 and so they are not really going to maintain that pace. So 18% in H1 2018 is not a bad result against that backdrop in my view. Really in any context an 18% increase in like-for-like sales is good. I wouldn't really describe it as a weakening position in Russia. I think in reality they have maintained their momentum. I would focus on the increase in Turkish like-for-like sales growth. The increase there is very positive in my view.

FREng

Not much news, so maybe you'll forgive this slight diversion.

Last year, United Carpets (LON:UCG) - the taciturn carpet company - released a trading update in April and its final results on 22 July. Thius year there was no trading update ~(unless Stockopedia missed it). There has been no other news since the interims on 14 December. The full year results should be out in two weeks and the SP has trickled down on low volumes.

Has anyone here heard anything?

Graham Neary

Hi andrea, yes. I'm covering DP Eurasia NV (LON:DPEU). G

Hi FREng, I contacted their PR company a few days ago. I was told there will be results later this month. G

Reacher

There was a new admission to AIM yesterday for Immotion (LON:IMMO) who operate in the VR and CGI markets. Current market cap is £23m with the company raising £5m in order to purchase stock, create content, sales and marketing, investment and working capital.

Historically revenue was predominantly generated from content commissioned for third party projects. However, there has been a shift in strategy to focus on the creation of proprietary VR for Immotion's motion platforms. This has resulted in a significant decrease in revenue in FY 2017. The legacy business will contribute less revenue in future years and there is a risk of strategy execution.

Revenue will generated through VR Machine Sales through a sales team currently consisting of 5. Machines sales are unpredictable orders and will result in lumpy revenue, but "sticky" revenue will be generated content licence fee. In addition, the machines will be linked to Immotion's Content Management System to allow Immotion to monitor and take payment for credits in advance. Revenue will also be generated through a retail VR offering whereby machines are situated in high footfall shopping centres. This has been tested in Bristor and management have a high conviction and have developed this into a business plan. Additionally, concession partners can be used such as museums, family entertainment centres, theme parks, zoos etc. There is currently a deal with Merlin Entertainment. Final revenue stream is Turnkey VR solutions.

I haven't taken a detailed look into the business or the change in the strategy. It appears to be an interesting company operating in a growing market with the business at a turning point.

Admission document can be found here: https://immotion.co.uk/investors/reports-documents/

Interested to hear others thoughts.

Wol

Thanks for covering (or at least intending to) Tristel (LON:TSTL) . The high valuation is based on hopes / expectations of sales in the US once the US approval process is complete. Tristel (LON:TSTL) claim that their patented disinfection process is superior to those of their competitors and their success in the UK and increasingly worldwide suggests that this may be correct. Success in the US market would be a 'game changer'. I am not sure that I understand why the share price suffered fell after this broadly in line trading update. Because the Chairman is stepping down? Or because investors were expecting more. Their US product will be produced by Parker Laboratories, a US business. I haven't been able to trace where Parker do their manufacturing but if it is in the US TSTL would not have any trade war issues

Leebod

Funnily enough I just randomly found that on piworld. The chart looks very Minervini like - nice cup / handle and strong upwards trend.Not sure it follows all his criteria but it certainly nails the momentum side of things which together with the chart looks very interesting (before you even look at the company!).

Looking at the current forecasts and I would say that DP Eurasia NV (LON:DPEU) is a company for investors with an outlook of three years or more. The P/E ratio only starts to look good value in 2020 at under 20X. In the meantime, there are plenty of risks in Russia and Turkey. It is not a company that you want to have as a large part of your portfolio. However, in eight years time the number of stores should of doubled from the figure at the end of 2017. Russia should also be a meaningful profit contributor going forward.

The risk of Turkey having an economic downturn in the near-term is very real. Or maybe even a financial crisis and an economic implosion. See below:

https://www.chathamhouse.org/e...

Glaws2

Parker's manufacturing plant is in New Jersey.

JohnEustace

Those DP Eurasia NV (LON:DPEU) numbers won't look so pretty if translated to GBP. From a quick glance at xe.com the Turkish Lira is down 28% over the last year - from 4.6 to the pound to 6.4.

Howard Marx

Which might explain why analysts have been persistently revising down their earnings forecasts:

Still it's not all bad news - a large chunk of the net debt is denominated in Turkisk Lira so the value of this will have fallen too.

Lion Tamer

Ashmore (LON:ASHM)

Hi Graham

I notice you are going to cover Ashmore. It'll be an interesting read across to the other managers covered recently. I read this in the Interactive Investor pre-market opening email this morning:

Asset manager Ashmore Group reported a 3% drop in assets under management for the three months to June to USD73.9 billion.

The firm said its investment performance was negative across all segments save for alternatives, mainly due to foreign exchange weakness and "blended debt themes".

Do you know what "blended debt themes" means? (My own guess is gearing that went bad!)

Thanks

(not a holder)

Hi LT, blended means a combination of local currency and hard currency (typically USD).

I agree on the currency front with regard to Turkish Lira. However, if Russia becomes an important profit driver this will be less of an issue. Russia was 30% of sales in H1 2018 but is less profitable than Turkey at the moment. Russia is the focus of growth and so DP Eurasia NV (LON:DPEU) will become more diversified over time. Russian sales are translated into Turkish Lira for reporting. However, the Russian rouble recently appears to be a more stable currency than the Turkish Lira.

GavinT

Just to share a note on DP Eurasia NV (LON:DPEU), I was at a Private Equity conference a few weeks back, and what struck me was that a Turkish PE firm mentioned that their PAT CAGR of >30% in Turkish Lira halves to the mid teens when translated back to EUR.

So what it means is that we shouldn't assign DP Eurasia NV (LON:DPEU) the same PE ratio as a UK based company growing at the same rate. May be obvious to some but just putting this out.

Thanks Graham

Small Cap Value Report (Fri 13 July 2018) - DPEU, ASHM, THAL, TSTL, Amortisation

DP Eurasia NV (LON:DPEU)

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Graham Neary

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