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

Friday, Nov 24 2017 by

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.



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

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IndigoVision Group plc is a United Kingdom-based company engaged in the design, development, manufacture and sale of networked video security systems. The Company's segments include Europe, the Middle East and Africa; North America; Latin America, and Asia Pacific. Its cameras, encoders, network video recorders and software are designed both internally and with technology partners and manufactured in Asia and Europe. The Company's end to end Internet protocol (IP) video security systems allow full motion video to be transmitted around the world, in real time, with digital quality and security, over local or other area networks, wireless links or the Internet, using market compression technology to minimize the usage of network bandwidth. Its subsidiaries include IndigoVision Limited and IndigoVision Pte Ltd, which are engaged in marketing of its products, and IndigoVision Solucoes De Seguranca Eletronica Ltda., which is engaged in product repair and warehousing, among others. more »

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Caffyns plc is a motor retail and aftersales company in the southeast of England. The Company is engaged in the sale and maintenance of motor vehicles, including the sale of tires, oil, parts and accessories. The Company is engaged in new car sales and offers used cars for sale, corporate sales car servicing, car repairs, wholesale parts, Motability and accident repair. The Company is operated and managed on a dealership-by-dealership basis. The Company operates from its own freehold properties, which offers long-term returns. It focuses on approximately three key areas, including used car sales, used car finance and aftersales. The Company represents a portfolio of six franchises, comprising Audi, Seat, Skoda, Vauxhall, Volkswagen and Volvo. The Company operates through approximately seven franchises. The Company offers deals on various cars in over 10 locations across the southeast of England. The Company provides fleets to companies across Sussex, Kent and Hampshire. more »

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Miton Group plc, formerly MAM Funds plc, is an investment management company. The Company provides fund management services. Its funds are invested in a range of asset classes under various investment mandates, including multi-asset, equity and portfolios of collective investment schemes. Its product range includes equities, such as CF Miton UK Multi Cap Income Fund and FP Miton Income Fund; multi-assets, such as CF Miton Cautious Multi Asset Fund and PFS Miton Cautious Monthly Income Fund; fund of investment trusts, such as CF Miton Worldwide Opportunities Fund, and closed-end funds, such as The Diverse Income Trust plc and Miton Global Opportunities plc. Its subsidiaries include Miton Group Service Company Limited, which is a holding company and central services provider; PSigma Asset Management Holdings Limited, which is an intermediate holding company; Miton (Hong Kong) Limited, which is a marketing company, and Miton ESOP Trustee Limited, which is a trustee company. more »

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

59 Comments on this Article show/hide all

Whitbourne 24th Nov '17 40 of 59

In reply to post #244973

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.

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Ramridge 24th Nov '17 41 of 59

In reply to post #245013

Good work, matylda

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Samsgrandad 24th Nov '17 42 of 59

In reply to post #244683

Do you work in IT?

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andrea34l 24th Nov '17 43 of 59

In reply to post #244823

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.


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tomps3 24th Nov '17 44 of 59

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

(If you want the 7 mins highlights version, here as posted yesterday:

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Trident 24th Nov '17 45 of 59

In reply to post #245028

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.

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Ramridge 24th Nov '17 46 of 59

In reply to post #245043

... 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,"

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sootysnipes 24th Nov '17 47 of 59

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

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Wimbledonsprinter 24th Nov '17 48 of 59

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

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Paul Scott 24th Nov '17 49 of 59

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.

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Paul Scott 24th Nov '17 50 of 59

In reply to post #245068

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.


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jonesj 24th Nov '17 51 of 59

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.

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Whitbourne 24th Nov '17 52 of 59

In reply to post #245058

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...

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Graham Neary 24th Nov '17 53 of 59

In reply to post #244903

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 :)


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Paulmullley 24th Nov '17 54 of 59

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

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xxx 25th Nov '17 55 of 59

In reply to post #244993

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.

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Lion Tamer 25th Nov '17 56 of 59

In reply to post #245068

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.

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runthejoules 26th Nov '17 57 of 59

In reply to post #245138

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)!

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jonesj 26th Nov '17 58 of 59

In reply to post #245138

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.

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matylda 27th Nov '17 59 of 59

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!

Blog: Briefed Up
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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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