Small Cap Value Report (Fri 2 Feb 2018) - Share tips, NTBR, MAI, FCRM, MOS, PURP, KWS

Thursday, Feb 01 2018 by

Good morning!

Thanks for your suggestions - they are a key element in my decision-making.

Today on the radar we have:


Share tips - I thought I'd add a few comments on my thought process when shares in my portfolio are tipped in the mainstream press, as happened this morning.

Two of my shares, Record (LON:REC) and PCF (LON:PCF), were tipped for the first time by the Investors Chronicle, as "Bargain Shares" for 2018.

For the avoidance of any doubt, this was bad news as far as I was concerned. I didn't want their share prices to go up, because I had absolutely no plans to sell them and in fact I had been hoping to buy more shares in PCF (LON:PCF) very soon.

One attitude to take is that it doesn't matter, because anyone who buys shares on a magazine tip probably doesn't know very much about the company, and will be a seller in due course. Some investors even sell into these tips, because they are so confident that the share price will retreat over the coming weeks and months, enabling them to buy back in at a profit.

For me, though, having researched a company, I don't want to take the risk that the share price doesn't come back down, with the result that I never get to buy as many shares as I originally planned.

So I went ahead and bought my last slice of PCF (LON:PCF), getting the full quantity of shares that I was originally going for.

I had to pay a bit more than I intended, but it would be much worse if the price continued rising, and I never got them.

My particular concern with PCF is…

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All my own views. I am not regulated by the FSA. No advice.

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Northern Bear Plc is engaged in providing specialist building services. The Company operates in the support services sector. The Company's segments include Roofing activities, which provides a range of roofing services, including slating, tiling, leadwork, felting, refurbishment and maintenance for domestic, commercial and public sector properties; Materials handling activities, which includes supply, service and maintenance of fork lift trucks and warehouse equipment both on hire and for sale; Building services activities, which provides services, including fire protection and asbestos removal, and Corporate and other activities, which provides head office activity and consolidation items. The Company also provides services ranging from general building work, asbestos surveying, fork lift truck sales/hire, and health and safety consultancy. The Company's subsidiaries include Isoler Limited, Springs Roofing Limited, Wensley Roofing Limited and Jennings Properties Limited. more »

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Maintel Holdings Plc is engaged in the provision of contracted managed services, the sale and installation of telecommunications systems and the provision of fixed line, mobile and data telecommunications services, to the enterprise business sector. The Company operates through three segments: telecommunications managed service and technology sales, telecommunications network services and mobile services. Its managed services and technology division provides the management, maintenance, service and support of office-based voice and data equipment across the United Kingdom and internationally, on a contracted basis. It also supplies and installs voice and data equipment together with providing professional and consultancy services. Its network services division sells a portfolio of services, which includes telephone line rental, inbound and outbound telephone calls, data connectivity, Internet access and hosted Internet protocol (IP) telephony solutions. more »

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Fulcrum Utility Services Limited is an independent energy and multi-utility infrastructure and services provider. The Company's principal activity includes the provision of unregulated utility connections and independent gas transportation services in the United Kingdom. Its segments include infrastructure services and pipelines. The infrastructure services segment is engaged in providing utility infrastructure and connections services. The pipelines segment comprises both the ownership of gas infrastructure assets and the conveyance of gas through its gas transportation networks. It provides technical engineering, design, project management, consultancy and audit services across gas and multi-utility connections. The Company designs and project manages utility connections for customers seeking either new connections or the alteration or refurbishment of existing connections. These connections range from single-site alterations to multi-utility and multi-site new connections. more »

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

33 Comments on this Article show/hide all

andyi 2nd Feb '18 14 of 33

Hi Graham
Another vote for Mobile Streams (LON:MOS)
Thanks Andy

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andrea34l 2nd Feb '18 15 of 33

Just thought I would paste a portion of the trading update from Mobile Streams (LON:MOS) (which, some of you I think are still, alas, holding) - it looks dire reading, as usual:

During the first half of the financial year, the Indian mobile industry saw a number of changes which impacted the Company. Reliance Jio's continued growth throughout the year, based largely on their free voice, low cost data packages, has proven to be very challenging to other telecom operators negatively impacting their own revenues. This has led to consolidation in the market (Airtel takeover of Telenor and Tata and the Vodafone-Idea merger), and increased regulation for value added services. Conversely, consuming mobile content has never been easier for customers with enhanced networks, cheap smartphones and data making the opportunity in India, particularly for games content, a huge one.

As a consequences of these challenges, the Company has sought to refocus and reduce its marketing spend to approximately 20% of the levels in June 2017 with a view to protecting EBITDA and cash. This has resulted in reduced revenues with the result that the Directors expect unaudited revenues for the six months ended 31 December 2017 to be approximately £1.85m (31 December 2016: £3.6m) with cash and cash equivalents at 31 December 2017 being £1.4m (£2.8m as at 31 December 2016). Trading conditions in the Company's core markets of India and Argentina are unlikely to change materially in the second half of the current financial year meaning that the Company expects that second half revenues will be slightly below those recorded in the first half of the year. The EBITDA loss for the 6 months ended 31 December 2017 is expected to be in the region of £700,000. The Company expects that the EBITDA loss for the second half of the year will be lower than that experienced in the first half of the financial year.

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Soundbuy 2nd Feb '18 16 of 33

Re: Fulcrum Utility Services (LON:FCRM) I too took a small position

'The Acquisition is expected to be significantly accretive to underlying earnings per share in the first full year following Completion'

Expected a greater mark up at open so well happy..........

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ls2g08 2nd Feb '18 17 of 33

Northern Bear (LON:NTBR) I'm currently a holder - I think some of the sell off was due to general macro unease and the possibility that Carrilion could have been an issue.

Obviously both those things have been addressed and now hopefully we should see some upward growth in the SP.

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stuartb58 2nd Feb '18 18 of 33

Have held FCRM for several years. Target has one customer responsible for nearly half of revenues and one co-founder leaving but staying in the same line of trade with non compete clause. Hmmm.

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Graham Neary 2nd Feb '18 19 of 33

Thanks for the suggestions, I'll try to get around to covering all of them.

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Luthrin 2nd Feb '18 20 of 33

Re Northern Bear (LON:NTBR)

Northern Bear's share price opened at 84.5p on 30/11/17 when the interim results were released, and despite a seemingly positive RNS, it closed at 79p that day (and has been falling ever since). What seemed to initially spook investors was that higher turnover had come at the expense of a decline in gross margin from 22.2% to 18.4%. Since then we've had the Carillion fallout, and there were concerns regarding Northern Bear's possible exposure. On the bulletin boards you'll find shareholders expressing frustration over the past couple of weeks that the company hadn't issued a statement despite requests for clarification over possible Carillion contracts/debts. This overhang of doubt understandably resulted in a further decline in the share price. Today's RNS has finally allayed those fears.

At its core, Northern Bear (LON:NTBR) is a specialist roofing contractor with some additional subsidiaries in the group which provide more general building and ancillary services. All of the subsidiaries have the same accounting year end, so you can go to Companies House, download the relevant accounts, and construct a spreadsheet which will give far more granular detail on the split of turnover, profits and staffing levels than can be found in the Annual Report. Certainly in my case this gave me far more insight into the business.

The three roofing subsidiaries (Jennnings, Wensley and Springs) have in aggregate shown a steady rise in turnover and profit for the past 7 years (the farthest I went back), save for 2016 when the severe winter impacted operations. This division provides roughly 70% of operating profit and has very stable margins. Meanwhile the building services division has recently shown much higher turnover, and while the gross profit margin in this division has certainly fallen, the operating margin is fairly stable (perhaps management should emphasise this more).

The company is highly cash generative - it has produced £11.4m in free cashflow over the last 6 reported years, not far short of its market cap at the close last night (although I'm expecting FCF to be lower this year due to the H Peel acquisition and a reversal of some favourable working capital movements in 2017).

It's a highly illiquid stock with a wide spread, there are no broker forecasts, the company doesn't pay an interim divi due to the possible impact of winter weather, and whilst management are commendably down-to-earth with their business approach, investor communications could arguably be improved. This lack of news flow means that the share price is susceptible to declines for no apparent reason. In short therefore, it's really one for the patient long-term value investor.

I currently hold.

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hayashi22 2nd Feb '18 21 of 33

Fantastic post Luthrin....very value added if I may say so.

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simoan 2nd Feb '18 22 of 33

In reply to post #308673

Please ignore! Si

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Graham Neary 2nd Feb '18 23 of 33

In reply to post #308503

Hi matylda, thanks for the suggestion re: Maintel Holdings (LON:MAI)

I don't know enough about it yet, as I haven't covered it before, so apologies if my treatment of it today is sub-par. Need to familiarise myself with it more! Have a good weekend you too.

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matylda 2nd Feb '18 24 of 33

In reply to post #308763

Hi Graham,

Much appreciated, me too, on my ever expanded "look into more at some stage" list, perhaps some fellow members have more insight.


Blog: Briefed Up
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dahokolomoki 2nd Feb '18 25 of 33

The wider macro view seems to be volatile at the moment - US bond yields rising, the FTSE100 down for a few sessions in a row, and Bitcoin tumbling.

Graham - do you have a view or opinion on the wider macro environment? And anything you're doing different over the last week in terms of your portfolio, compared to previously?

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Graham Neary 2nd Feb '18 26 of 33

In reply to post #308523

re: Fulcrum Utility Services (LON:FCRM)

Hi ramridge, I've taken a look at that now and written it up. Interesting deal and company, especially since utilities are usually so boring!

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Ramridge 2nd Feb '18 27 of 33

In reply to post #308813

Hi Graham - Re. Fulcrum Utility Services (LON:FCRM) I completely agree with your assessment. I hate using the overused word but this acquisition could be transformational.

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Graham Neary 2nd Feb '18 28 of 33

In reply to post #308798

Hi, I do have some macro views - published them on my personal newsletter this morning.

I'm currently about 25% in cash and would love a huge correction to come as quickly as possible, to enable me to buy more shares.


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Graham Neary 2nd Feb '18 29 of 33

In reply to post #308618

re: Mobile Streams (LON:MOS).

Hi Andy, done. Cheers for the request. Probably the smallest market cap we've seen here since the last time we covered it!

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Beermonster 2nd Feb '18 30 of 33

Thank you for the updates Graham.

Purplebricks (LON:PURP) seem to be yet another business with an aggressive revenue recognition policy; the problem with having an aggressive revenue recognition policy is that the share price quickly goes into reverse when the truth comes out - Just ask £CLLN

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cholertonandrew 2nd Feb '18 31 of 33

Thanks Graham, that’s a really interesting report. Particularly liked the intro about how to respond to mainstream press tips and Purplebricks and Mobile Streams. I don’t have any holdings in them but there’s definitely things to think about there as a read-across.


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Graham Neary 3rd Feb '18 32 of 33

In reply to post #308933

Thanks Andrew! Glad you enjoyed it. G

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Nothingventured 5th Feb '18 33 of 33

In reply to post #308923

I've personally used PB for three transactions over the previous four years - but not in the last 24 months. My feeling was that the service was OK, but not maybe as hands on as a typical estate agent. But then, some traditional estate agents are useless.

I was delighted at the reduced fees for the all important access to Rightmove, and was happy to handle negotiations myself.

My wife undertook a transaction and got great support from the PB agent.

My concern about the company was the pressure put on their staff, and I felt that they were overworked - but I'd guess that PB may not have a monopoly on that.

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 Are LON:NTBR's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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