Small Cap Value Report (Fri 22 Oct 2021) - SMRT, NEXS, SHI, ZYT

22nd Oct '21 by Paul Scott

70 comments 8690 reads

Good morning, it's just Paul here today, because Jack is busy with other things today.

Today's report is now finished. I'm about to check out of the Melia Mare Hotel (in Madeira) and relocate to a little Airbnb apartment further to the west of the island, for another week. Pictures to follow on Monday! Have a lovely weekend.

Agenda -

Paul's Section:

Smartspace Software (LON:SMRT) - profit warning, with guidance for FY 01/2022 lowered considerably. Not a very convincing growth story now, with growth having slowed. Difficult conditions re return to office delays are blamed.

Nexus Infrastructure (LON:NEXS) - FY 9/2021 trading update says its in line with expectations, but no figures on profitability are provided. Lack of broker notes available, leaves me in semi-darkness. Large order book, of over 2 years revenues. I don't have enough information to form a proper view on this, but based on broker consensus numbers, it doesn't look cheap.

Sig (LON:SHI) - this building products distribution group sounds positive, beating expectations, but that means it's barely above breakeven. Looks a poor quality business, with erratic performance, and little to nothing to attract me to the shares. Harsh, but true.

Zytronic (LON:ZYT) - an encouraging improvement in H2, back to profitability. Cash pile is almost half market cap.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Paul’s Section

Smartspace Software (LON:SMRT)

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CamRaid

22nd Oct '21

CANACCORD GENUITY GROUP INC have increased their holdings in Eenergy (LON:EAAS) to 11%

This is a share I think will do very well. They have a team that is well placed to acquire quality businesses. They are in the right place at the right time in terms of energy conservation.

This is a good opportunity to get in early.

sharw

There was a trading update by Driver (LON:DRV) yesterday. Today Equity Development have published a video giving a good deal of background information:

planetx

Holders technology (I hold) looking interesting .

Now sat on circa 3 million cash after disposing of its German business , but importantly main business is ticking a lot of boxes on energy saving lighting improvements with Casambi technology .

Cash and asset backer in a good sector .

However tiny micro cap and very illiquid so hard to build a stake and hard to sell .

abtan

Hi BnB

Thanks for sharing that on SNAP.

I've seen the Apple iOS privacy changes hit so many companies this year, including my own holding in Best Of The Best (LON:BOTB) , and there's more to come when Safari email tracking is removed too (I can't remember if this has already been actioned.)

I was hoping that the worst might be over now, but all the downside is clearly not baked into some share prices if SNAP alone falls >20% in one after-hours session.

I've read a few reports that the online/email advertising markets will normalise in the future as a cookie-less world becomes more mainstream.

For my own part I came across 2 companies attempting to gain from the latest Apple privacy changes:

Integral Ad Science
DoubleVerify

I share these only for interest, because I'm not smart enough to know if their products are any good, or if there are better competitors out there, although I should add that growth is very strong for both the last time that I looked.

My biggest short term fear from my own holdings is with Best Of The Best (LON:BOTB) , which is why I am wary to top up, even at these depressed levels.

I'm happy to hold for now as the dividend is nice (I was fortunate to buy in at a lower price) and I have hope that the ad market does indeed stabilise in the near future.

And if it doesn't, the company simply needs to use some of its cash and start paying up for future growth.

BnB

Thanks. It sure is a crowded space.

mojomogoz

David, your response is really a nonsense. Here's why

- you are playing the man not the ball in points you make -> "glass completely empty" / 'every successful company evolves as you well know' (give me a break with the eggs grandma...plus most small growth companies fail as 'everyone should know' at least from an average investor share price perspective.) Clearly you can't separate your stock selection from your sense of self. This is a really common PI ailment. You demonstrate this by saying my detailed comments are driven purely by emotion (and a hangover...that was yesterday morning in fact) and then the irrelevant and nonsense 'winning statement' that you are up 150%. Tell me what you've lost on and still believe in and I'll pay more attention...but I make a point of ignoring and ridiculing the self-reporting of performance. We all do it a bit to make ourselves feel better/gloat etc...but you've got a comical tendency to it.

(Note: I don't track you and your holdings or views in anyway but I notice you have done it with me when you are right and I am wrong (short run anyway). Immotion (LON:IMMO) recent example I recall...but you'll know better than me as you are clearing in competition and may have an even better example of your superiority. What about that utter piece of shit called Venture Life (LON:VLG) ? -> didn't you tell me my price target of 50p was ridiculous. I'm sure you were a keen supporter above 100p....you going to tell everyone now you made only 100% as you sold at 70p etc...but should have got out at 115p....or maybe you top ticked it (but also stood against my glass empty approach))

- I have provided detailed negative points. Some are highly subjective. But my key flag is that they cooked the 2020 reporting (inc RNS) around corporate activity. DYOR etc as I've been through that here and on Twitter with people and not revisiting. It will take attention to detail on RNS and the accounts (and note that Bango made the sleight of hand hard to follow in real time with the way they released interim and prelim results....cunning as less people go back and check -> or just me being overly cynical)

- never said (I don't think) that they are talking down DCB...I have implied it by pointing out they major on other things rather than it...again wind back 2 years and the story was DCB to the moon and not that it would cap out at a low level. £3-5bn EUS capped out is not worth anything like 300p. Its likely worth maybe 50p if they show they can do it with high margin and high return of capital to shareholders...and 50p is generous in this regard. So given that DCB is capped out at maybe 50% revenue from current level based on your statement and that cash flow is modest and recycled into new product then you are implicitly saying that near all Bango's share price today is about future new things (which is very different from being about the future discounted growth of the current dominant DCB product)...at least an intellectual honesty check is required here that acknowledges that people thought they were buying cash generative DCB growth when it was merely a stepping stone to better opps?

I'm comfortable being an asshole and negative about stuff. Better that than RaRa and encouraging people to lose money. My advice is fade all promoters and the idiotic reporting of 'I hold' on stocks...its an effing investment not an identity.

I don't know what will happen with Bango (LON:BGO) but I find the RaRa for it from people that haven't done any work on it (virtually no-one knows the 2020 accounting shell game the played as people don't look...just like Venture Life had their own little reporting disguise going down and no one looked). If in the event that Bango proves dodgy and my negativity saves people a few £££s as they didn't buy or took some profit at higher prices then I'm happy with that. Stocks owe us nothing and we should all know the risks we own rather than look to others to make use feel safe. If its a great winner but I put you off...well you should have courage of your own convictions more.

And to finish off with new negativity....the board and management below Chair, CEO and CMO are too weak. The NEDs are not strong enough for a sizeable (in market cap) listed company IMO. Senior NED Peacock has a lot of experience but I guess/feel he's an ageing passenger clipping his NED coupons and should have been moved on a while back. Others don't have enough listed experience (Cruickshank is recent add and she does...but she wasn't there thro the 2020 opacity). Most critically, Bango has had a series of weak CFOs. That includes the current one who's come from Asian obscurity. He replaced a lady who should never have been given the role (she was really a local accountant with a few clubbish interests before she became Bango CFO...wonder whether she just agreed to the 2020 opacity in reporting?). CFO prior to that also weak.

Chair and CMO own a significant stake and have been at the company for a long time. Its their last gig. They want paid out. Maybe they get a high check out based on current multiples...but I'd suspect they'd be happy getting half the current to tide them over into retirement (where a house, pension and a bit of NED work sees them comfortable). Cynical? Me?

But hey, you can be relieved that I'm done with my Bango negativity for now. I do enjoy sticking the boot in tho as it gets ridiculous RaRa from some who are rather clueless about it...and love a nice dodgy Simon Thompson tip on it to puff it up a bit...no doubt one of those in the post following the 'exciting capital markets day'

Ciao for now

IGPJ you have greater experience than me. I'm not on the tech/software side (I come from electronic engineering experience with significant coding and speciality in neural networks and cryptography....but that's just some puffery on me as its 27 years ago and since then I've been on the finance/business bs side of stuff and don't claim any tech expertise)

Where I'd take issue with your point is that 'seeks to refine and improve it's products and services in a self contained monetisable ecosystem' is not a basis for a publicly listed growth company. Product growth and fit is what suits small public company that wants capital to grow. If they are doing what you say then better to be private be a cash engine for owners. The new products away from DCB are a leap from their trad core competence. Bango is not some sort of incubator/accelerator platform.

Snazzytime

hi Paul,

Just to add to the negatives on Signature Aviation (LON:SIG) there is also a £25m pension deficit. As you say, why would anyone want to own this share?

Schoolboy error - meant Sig (LON:SHI) not £SIG

Zipmanpeter

CamRaid - Re £EEAS - I also like the broad offer to market - support in decarbonising/cost saving with no CAPEX outlay through LED/Smart meters etc plus various Energy mgt, energy buying and other services.

CEO has experience doing deals (and being trendy) whilst broader team seem solid. Building a bigger business in this area does seem to me to make sense for cross-selling and complete value chain integration. Lots of small operators in space but these will not get the Local Authority roll out mandates in Education (key focus area) or national chains. However, each site requires customisation which may cap growth and mgt cost from complexity.)

(My only bugbear is the use of so many abbreviations and trendy '-as-a-service' references makes slides indigestible. The business does have a 'smaell' of hype - but may be that is what is needed to get in up in scale).

However, i thought it had passed me by when it spiked up to mid 20's on some good or at least exciting(!) acquisitions. Any views on why it has come back by 1/3 (24p to 16p). I would have expected the current energy cost crisis to be driving it higher.

MiserableJacktPotato

Oh right. I didn't know that exploiting and monetising a useful dataset isn't something that listed companies should be doing. I guess the likes of Google, Netflix, Facebook and Amazon are doing it wrong. That's me educated, thanks.

COYS61

Hello Paul,

Interested in your comments regarding your recent visit to London which felt appeared much busier with commuters etc. Can you remember what day it was ? A former colleague of mine sent me a photo of the carriage on the 7.44am train (Wed) we used to catch pre-pandemic. There was one other person in the carriage and apparently not too many people got off when it arrived at Liverpool St. From memory this used to be a 12 carriage formation which more often than not was pared down to 8 which usually resulted in a mad scramble to get a seat. From what I've been told by people I know that have returned to the office (all doing the hybrid thing) Tuesday / Thursday are quite busy Monday & Wednesday are quiet and Friday nobody knew as they haven't been in on that day !

I also spoke to a retailer recently (as part of the day job) and trading in their London stores is still well down on pre pandemic levels.

Would be interesting to hear peoples thoughts on this and the strength of the recovery in London.

Thanks

kendal

Maybe there will be some growth as the technology keeps on developing. Also, a return to dividend payments may be a positive move before too long.

Rusty2

Which stock are you referring to?

davidjhill

You see - here's the problem with you Mojo - you just make stuff up and then claim it never happened.

I followed you up on Immotion (LON:IMMO) as you told me you were trying to go short at 4p etc etc and then when I pulled you up on it at 6p after some positive updates claimed you'd never said you were trying to go short.

I've never been particularly positive on Venture Life (LON:VLG) either and I've never held it. In fact I believe I made the comment at the time that whilst kicking myself for not getting in early I was generally wary of large Chinese contracts as they had a nasty habit of not coming to fruition and didn't see the value as it had risen on the back of it and I was sceptical. I take no satisfaction on that ending up as it was. I may have thought at the time your target of 50p was a bit aggressive - but then we have had Covid since then which somewhat changed a few things.

But despite saying you don't follow me at all you appear to profess to remembering plenty I might have said from a couple of years ago. What to make of it all......hmmm !!

I really don't care if you like or don't like a stock, but given as you say, you are comfortable being an asshole and negative about stuff then if I think differently I will say so. I'm old enough and ugly enough to make my own investment decisions.

And sure I make mistakes. Sometimes I cut them well, others less so. If an example would make you happy B90 Holdings (LON:B90) was a horrible mistake. I completely missed the receivables and what's worse, I averaged down....doh! I still hold them as a keepsake but they are now worth about £500!

Novacyt Sa (LON:NCYT) not looking too clever at circa 350p either, nor Boohoo (LON:BOO) at 280p at the moment but I still believe my investment thesis is correct for both in the medium term.

A perma-bear is like a stopped clock. They will be right twice a day but will be wrong most of the time and usually out of luck rather than judgement. I've seen a few in my career and quite often pious with it. Mentioning an investment gain in the context of Bango (LON:BGO) has got nothing to do with not being able to separate sense of self from stock selection..... it's to do with demonstrating that over what has been an elongated period of time the perma-bear has not been correct but continues to level the negatives at gradually increasing prices without ever recognising the starting point for that negativity.

GTrader

Recent market drift and then placing at 15p. My slight concern is Derek Myers announced a "step back" from innovation officer and if he wants out that is a lot of overhang....13% of issue.

Paul Scott

23rd Oct '21

Hi COYS61,

My Brother would like your user name (he's a Spurs fan!).

I seem to recall that the free (highly recommended) Langton Capital daily email (hospitality sector specialists, and a terrific daily read for general interest, as well as sector info) recently contained some figures showing that central London footfall & sales are not fully back to normal, but are on an improving trend.

The double whammy of very little international tourism, and people working from home, must have been devastating for many central London businesses. Although in August & September, when I was in central London from time to time, I was amazed at how busy it seemed. Probably a lot of staycationers deciding to have a break in London. All the restaurants around Covent Garden were packed, and you had to book in advance, for example.

Fulham Shore (LON:FUL) has a lot of London sites, and they're trading well I believe.

Also, I've seen property market data that the exodus of people from London has now reversed, with people keen to once again enjoy the buzz of city life, after 18 months boredom working from home. There are always people leaving London in their 30s & 40s, to have children, and settle down in places like St Albans, so I think the pandemic maybe just accelerated that a little. Then there are always younger people moving into London for new jobs & the buzz. I reckon it will probably all have returned to normal in a couple more years.

Regards, Paul.

26th Oct '21

Okay...datasets are everywhere and people believe all datasets are gold. Product is different from dataset as is management ability. Once again you say nothing of value but just make some trite meaningless statement that alludes to but does not give (b)analysis. Jog on.

Haha. Nice bitching response David...but be sure I don't follow you or anyone else and don't tend to dig out their history...like you've done to me...as I'm not interested in the ego of who's better, personal performance etc. I get many things wrong. What counts is what I think today and looking forward. That's all I ever do.

Don't have time to dig up stuff. You've defo stuck it to me on Venture Life (LON:VLG) saying that my 50p was too negative dissing my excessive negativity...so I wallow in that little piece of glory.

'Perma bear' -> nice diss to play to the peanut gallery. I'm very far from a perma bear (for example, not going to dig it up but wrote a couple of 'macro' posts around the depth of covid despair saying "take risk"). People just can't handle negatives...particularly when they wrap their identity up in their stocks.

But by and large I played the ball on Bango (LON:BGO) in my comment above to you. You did not answer any of my criticisms and once again played the man to 'win'. Carry on hyping Dave and letting everyone know how %age gain smart you are.

4th Nov '21

For any Tremor International (LON:TRMR) holders out there, you may be interested in this release from DoubleVerify today.

I have no position in either, but keep an eye on the latter:

https://ir.doubleverify.com/ne...

Small Cap Value Report (Fri 22 Oct 2021) - SMRT, NEXS, SHI, ZYT

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Smartspace Software (LON:SMRT)

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Paul Scott

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