Small Cap Value Report (Fri 17 May 2019) - CRL, FUTR, STAF

Good morning!

Not much to report on from my hotel room this morning, which is just as well since I only have about an hour before I have to leave to speak to the crowd at Mello.

There were excellent presentations yesterday from Impax Asset Management (LON:IPX), Scientific Digital Imaging (LON:SDI) and Judges Scientific (LON:JDG), and probably lots of other companies I missed.

Today I'll look to attend presentations from Water Intelligence (LON:WATR), Sosandar (LON:SOS), Character (LON:CCT) and Avation (LON:AVAP).

In this report I will try to cover:

• Creightons (LON:CRL)
• Future (LON:FUTR)
• Staffline (LON:STAF)

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Creightons (LON:CRL)

• Share price: 28p (pre-market)
• No. of shares: 62.5 million
• Market cap: £17.5 million
  

Final results timetable and trading update

(Please note that I currently have a long position in CRL.)

Not sure how the market might react to this - I don't see any broker forecasts - but it's ok from my perspective.

H2 revenues will be "broadly similar" to H1. For context, the H1 result was £22.3 million (with PBT £1.4 million).

"Broadly" usually means "a little lower", so we might see full-year revenues of c. £44 million, maybe?

Revenues in FY 2018 were £34.8 million, so that would be a 26% increase.

The company has also enjoyed a little bonus:

a one-off benefit from the recovery of R&D expenditure through the government's corporation tax rebate scheme in the region of £350,000 in respect of 2016/17 and 2017/18 and thereafter for the duration of the scheme, the company is likely to receive an annual benefit proportionate to our allowable R&D expenditure.

I presume this means about £180k benefit for each financial year, adding up to £350k in total.

When you have a market cap of less than £20 million, every little helps. I'm happy to continue holding.

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Future (LON:FUTR)

• Share price: 914p (+7%)
• No. of shares: 82.5 million
• Market cap: £754 million

Half-year Results

I haven't looked at this one in a while, so I've just been reacquainting myself with its media brands, several of which I recognise.

Key points from today's update:

• full year results should be ahead of expectations
• revenue +100% to £109 million, helped by acquisitions. Most revenue is now derived from the US.
• various adjusted profit measurements growing rapidly
• statutory operating profit +163% to £10 million

I want to separate organic growth from growth by acquisition. Future says there was organic media revenue growth of 38% at constant currencies. Media revenue is 70% of the total - the rest is in the Magazine segment.

Later, the statement says there was organic revenue growth in the "core" business of 14%.

My view - I have to cut this short due to time constraints. I don't have a strong view on this share yet. The balance sheet is stuffed full of intangibles and historic losses, so the NCAV (current assets minus total liabilities) is a very large negative number. It has a large debt facility to help it keep growing. If profitability is sustained, it should be fine.

My initial impression of this aligns with the StockRank view that it's a Momentum Trap, possibly overvalued, but I haven't had the time to do as much research as I would need to reach any firm conclusions. So take this with a larger grain of salt than you normally would!

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Staffline (LON:STAF)

• Share price: 500p (-40%)
• No. of shares: 28 million
• Market cap: £140 million

Trading update

Adjusted EBIT forecast reduced to £23 - £28 million, versus prior forecast of £43 million.

There are a lot of excuses given, and problems with publication of the accounts. At the end of the day, this doesn't seem to have been such a good business after all. I no longer study the recruitment sector in any detail, having decided that there are easier ponds in which to fish.

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That's it for today, have a great weekend and normal service shall resume next week.

Cheers

Graham