Small Cap Value Report (Fri 24 Nov 2017) - IND, CFYN, MGR, SND, FUTR

24th Nov '17 by Graham Neary

59 comments 19821 reads

Good morning and Happy Friday!

Thanks for the suggestions, I won't be able to cover all of them but will see how far I get. It's a surprisingly busy end to the week.

Best,

Graham

Indigovision (LON:IND)

Share price: 116p (-29%)
No. of shares: 7.6 million
Market cap: £9 million

Trading Update and Board Changes

This falls below our cut-off minimum market cap as sadly it is another profit warning for this Scottish manufacturer of security systems (CCTV).

The stock has seen many false dawns over the years and confirms today that it will make an operating loss for 2017 with the following expectations:

Revenues in the region of $41-$43 million (GN note: this compares to $46 million in 2016, $47 million in 2015). The Middle East "has experienced more difficult trading conditions, with unforeseen delays in securing a number of large contracts".
Gross margins "likely to be a little ahead of those achieved last year", but total overheads "around 5% higher, due principally to the investment in the US".
Current cash balances of $2.5 million and undrawn bank facilities of $4 million.

The CEO leaves after 14 years with the company, six of them as CEO.

My opinion - I haven't got much to say about this, that hasn't been said before. It's operating in a difficult B2B, contract-driven industry, the type that habitually runs into difficulty getting important customers and prospects to sign in a timely fashion.

Checking the archives, I see that only in May, the company announced a share buyback. Granted that it wasn't very large (5% of shares), and wasn't fully executed, but the announcement declared that the company saw a "persistent gap between the market valuation of the company and the Board's assessment of intrinsic value". The share price was more than double its current level, at the time.

The discount to intrinsic value must be even greater now, yet with declining USD-denominated sales (measured in GBP it's not so bad), and an operating loss, and a very patchy track record over a considerable period of time, the only hope is that the new CEO can breathe new life into it.

Unless you're very close to the company, I don't see how future contract wins can be predicted. Perhaps it would be better off fixing itself away from the glare of the public markets?

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Whitbourne

24th Nov '17

I think a distinction the FCA make is that if say a broker operating on behalf of a fund does it on 'inside' information, then that's business. If an individual makes private gain/or loss (technically it doesn't matter) on the basis of inside information, that's a crime.

What is or is not insider dealing is a matter of law, not the FCA's view. Brokers don't get a free pass. The definition is in Part V of the the Criminal Justice Act 1993 see 52 (1) and 52 (3):

An individual who has information as an insider is guilty of insider dealing if, in the circumstances mentioned in subsection (3), he deals in securities that are price-affected securities in relation to the information.

The circumstances referred to above are that the acquisition or disposal in question occurs on a regulated market, or that the person dealing relies on a professional intermediary or is himself acting as a professional intermediary.

In other words, brokers are specifically included. The exclusion is for shares that are not on a regulated market or traded by an authorised person such as a broker. If you have shares in a family company that are bought and sold between family members then the law doesn't try and regulate that (wisely, I think).

Section 53 sets out some allowed defences. Paraphrasing:

the person didn't expect to make a profit as a result of the information
they were under the reasonable impression that the information was public
they would have done the deal in any case, regardless of the information

The FCA does prosecute insider dealers and aims to focus on the largest and most egregious cases, such as this one. I am sure they would agree that there is a level of insider dealing that they are simply not resourced to pick up. It's especially difficult when individuals can reasonably say "I felt the market was too pessimistic and so I bought ahead of results". Even more so if they can point to an article or even a bulletin board post. You can't expect people to prove a negative (i.e. that they had no inside information), there has to be positive evidence that they did.

Ramridge

Good work, matylda

Samsgrandad

Do you work in IT?

andrea34

FREng / grb

Being risk averse, I almost always buy on good news and sell on the first hint of obvious bad news. I pondered the value of WYG some time ago at around 98p, and I just didn't feel positive enough about it despite the seemingly good value. Sure enough, a month or two later bad news came out and they dropped to 65p-ish... and now they are at 45 after another bad warning. As per FREng's comment, and as many including myself have said on here before, bad news very often comes out in a steady stream and not one isolated announcement - I can see some bottom-fishing, but to me I consider the bad news is not at an end. Even their International Development business is only "performing broadly in line with previously revised expectations", so the entire company is performing poorly.

Andrea

TamzinPiworld

Just posted the full Creightons (LON:CRL) H1 analyst & investor presentation, for those following. (55mins)

http://www.piworld.co.uk/2017/11/24/creightons-crl-h1-results-presentation-november-2017/

(If you want the 7 mins highlights version, here as posted yesterday: http://www.piworld.co.uk/2017/11/23/creightons-crl-interim-results-interview-november-2017/)

Trident

Interesting analysis, but the case of the individuals cited, were dealing for themselves. I was trying to say, but probably didn't elucidate it clearly was that trading on behalf of a fund or at a stretch, a private investor ( who may not have any insider information), rather than directly benefitting themselves may be in reality a grey area for the FCA.

It could be argued that there are many instances where fund managers receive private insights from Company days, which may or may not result in related trades at some stage.

I wasn't trying to suggest that brokers as a class are exempt from personal or collusive insider dealing for personal benefit of the kind made clear in the prosecution you cite.

Re. WYG (LON:WYG)
... or as Warren Buffett said more graphically:
"In the world of business, bad news often surfaces serially: you see a cockroach in your kitchen; as the days go by, you meet his relatives,"

sootysnipes

Ouch! Isn't this one of Paul's long term holds? Just shows you even the best get the odd wrong wrong. Good luck matey

Wimbledonsprinter

I see Indigovision (LON:IND) has "reactivated" its buyback and bought 35,000 at £1.20. (It must be Black Friday.)

Paul Scott

Re Indigovision (LON:IND) - profit warning - yet another disappointment. Having held the shares continuously (not in the same quantity though) for 13 years, it was originally a spectacular success (30-bagging). Unfortunately they let the grass grow under their feet, and competition caught up, then rapidly overtook, leaving IND as an also-ran.

With the market cap now down to only £8.8m, and with adequate cash in the bank, I'd say the market has factored in the bad news. So I don't see any point in selling my shares now.

I'm pleased to see the change in CEO. Marcus Kneen tried his best, but wasn't really up to the job. Above all, the company lacked sales & marketing expertise at the top. So it's pleasing to see the new CEO has a sales background. Let's hope he can get the company growing strongly again. If he does, who knows, there could be the opportunity for it to multi-bag again?! (said more in hope than realism!)

Regards, Paul.

sootysnipes (and others),

PLEASE would people get into the habit of putting the company name, or £ + ticker into every comment here, so that other people can actually understand what you're talking about!!

It's pointless posting a comment, if you don't make it clear what company you are referring to.

And yes, of course I get plenty of investments wrong - everyone does. That's hardly a revelation, it's stating the obvious. The trick is to make more money on the winners, than we lose on the losers.

Paul.

jonesj

Thank you for your comments on Indigovision, Graham & Paul.
I briefly held in the past, but sold out at a very modest loss. That was when I figured it was a mistake and I could not possibly assess their competitive advantage, with respect to current or future competitors.

Despite operating in what is obviously a growing market, the share price has lost about 88% of its value since 2007.

Last time I looked, there appeared to be a number of competitors. The stock performance suggests there are strong competitors, but to analyse it properly looks too difficult. It's also technology, so there must be the constant threat of competitors coming up with newer better products.

Also, there are no end of students doing research & other studies into video recognition & related matters.

Someone will make money out of this kind of technology, but the challenge is figuring out who it will be.

Thanks Trident, that does make sense and I misunderstood the point you were making.

There is a fine line isn't there between a fund manager gaining an insight from a factory visit or a meeting with management and what we would all think of as insider information, such as results that beat market expectations, or a large new order.

As I understand it, the company's managers ought to be very careful not to give inside information at a company visit. Good practice is for any presentations to go on the website at the same time as they are given. An inexperienced AIM company might get it wrong and then it is the job of the broker or NOMAD to advise them: actually you ought to publish an RNS first thing tomorrow saying what was discussed, then everyone is in the clear.

From my recollection, price moves tend not to be on the day of the visit but a couple of days later when the analysts write up their reports and update their forecasts. I am sometimes surprised at how much prices move when broker forecasts change and how little they move on the actual results...

Graham Neary

Hi runthejoules. Excuses time: my car fell to bits last month... I finally got it back from the mechanic today. Engine replaced and all. Unfortunately, this meant I had to leave the house for a while to go and retrieve it.

In other words, the dog ate my homework :)

Graham

Paulmullley

In relation to Indigovision its worth noting that the loss is caused by the company's expansìon plans togeyher with delays in orders. If the plans pay off then the shares are cheap. Low risk in my opinion as they have cash in the bank

xxx

25th Nov '17

IMV. It is well worth mentioning this sort of thing and the persons name. In an environment of 1000's of companies to choose from, I keep a list of people to avoid. This would either be insider dealing or being so distracted that they are unlikely to be focussing at work and thus equally, though in a different way, unacceptable to me.

Lion Tamer

Everything I learnt in the early days of my investing career and much of what I learn today is/was learned from "the odd wrong", particularly in 2000 when I was almost wiped out. Thank God for those mistakes, otherwise I'd be a lot poorer today. Fortunately nowadays I also learn a lot from Paul, Graham and the commenters here, which is a lot more efficient from a portfolio balance point of view.
Thanks Paul, Graham & everyone, long may you all prosper.

runthejoules

26th Nov '17

Sorry to hear about your car Graham! Best avoid ones with engines. I'm sure you'll be able to get a $TSLA cheap soon when they go bust, or by shorting ICE manufacturers, or something (no position)!

If he's put a recon engine in it (& most are), I would be selling it within 12 months. Plenty of other good used cars around with FSH & no shoddy major repairs.

matylda

27th Nov '17

HUGE SCSW effect in play on FUTR this morning - Guessing most subscribers are so smart they decide to buy before the results and before the article is published - They're certainly a clued up bunch - Kudos!

Small Cap Value Report (Fri 24 Nov 2017) - IND, CFYN, MGR, SND, FUTR

Indigovision (LON:IND)

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Graham Neary

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