Small Cap Value Report (Fri 25 Jan 2019) - IDEA, SND, NCC, JOUL, EMR, TMMG, HOTC, MIDW, TRB, BON

Thursday, Jan 24 2019 by

Good morning, it's Paul here.

Just to get you started today, I reviewed 8 companies last night, which was clearing some of the backlog from earlier this week.

Then I'll look at Friday's RNSs once I've had a lie-in, and a full english at my favourite local Turkish cafe here in north London!

Ideagen (LON:IDEA)

Share price: 150p
No. shares: 219.2m
Market cap: £328.8m

Interim results

Ideagen PLC (AIM: IDEA), a leading supplier of Integrated Risk Management (IRM) software to highly regulated industries, announces its unaudited interim results for the six months ended 31 October 2018.

These numbers were published on Tuesday this week (22 Jan 2019), and have been well-received by the market, with a good bounce in the share price from a recent low of c.119p, to 150p now.

I met the Exec Chairman both at Mello Chiswick, and also privately for a working lunch, in late Dec 2018. I wrote up my thoughts afterwards, here. I've just re-read those notes, to refresh my memory.

Interim results - key points;

  • Good revenue growth of 22%, to £21m
  • Organic revenue growth is strong, at 8% (the rest has come from acquisitions)
  • Recurring revenues now 67% of the total. This is expected to grow to 74% by 2020, as the group transitions more to a SaaS model
  • Adjusted profit before tax up 17% to to £4.8m - note the strong profit margin of nearly 23% of revenues (if you accept the adjustments)
  • Net debt of £1.3m - a very good position for an acquisitive group. I'll look at the balance sheet more closely below

Positive-sounding operational review (I won't repeat it here). 95% customer retention rate stands out as very pleasing.

Current trading & outlook - sounds fine;

First half performance in line with market expectations and outlook strong for second half...
Current trading is in line with market expectations and the acquisitions made in H1 are performing well.

The IRM market continues to grow and our success in winning new business together with our levels of recurring revenue and repeat business from our 4,000 strong customer base provides the Board with confidence in the outlook for this year and beyond.

What's IRM? It stands for "integrated risk management".

Balance sheet - net assets of £71.7m, is top heavy with intangibles of…

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Ideagen plc is engaged in the development and sale of information management software to businesses in various industries, and the provision of associated professional services and support. The Company is engaged in supplying governance, risk and compliance (GRC) solutions primarily to the healthcare, transport, aerospace and defense, manufacturing and financial services sectors. The Company’s portfolio products include Q-Pulse, Coruson, Pentana Audit, Pentana Performance and PleaseReview. Q-Pulse, which provides quality and safety management. Coruson,which provides cloud-based software solution. Pentana is an auditing software within its internal audit.It has operations in the United Kingdom, European Union, the United States, Middle East and Southeast Asia. more »

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Sanderson Group plc is engaged in software and information technology (IT) services business specializing in digital retail technology and enterprise software for businesses operating in the manufacturing, wholesale distribution and logistics sectors. The Company's segments include Digital Retail and Enterprise Software. Its digital retail solutions include in-store technology; back-office systems for processing sales and fulfilling orders, and mobile and e-commerce solutions to underpin online operations. Its systems allow retailers to keep pace with new devices, technologies and channels, driving consumer engagement and retention. It offers Enterprise Resource Planning (ERP) software for manufacturing in general manufacturing, engineering, and food and drink processing businesses. The Company offers industry-specific software and warehouse management systems, delivering sales growth across wholesale distribution, cash and carry, fulfilment and logistics businesses. more »

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NCC Group plc is a United Kingdom-based holding company. The principal activity of the Company is the provision of independent advice and services to customers by way of the provision of escrow and assurance services. It operates in two divisions: Assurance and Escrow. Its Assurance division includes security and risk consulting service. It offers a range of complementary services, including expert security assurance and penetration testing, cyber defense operations, incident response and forensics, managed security services and security operations centers, as well as risk mitigation and governance. Its escrow and verification services assure the long-term availability of third-party supplied applications and software packages, protecting both end users and software suppliers. more »

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

59 Comments on this Article show/hide all

Emperor 25th Jan 40 of 59

In reply to post #440648

We have an office that love the product from Hotel Chocolat (LON:HOTC) but I agree with those that say it is overpriced as not sufficiently different/premium. But then I share Paul's poor taste!

The branding is fabulous and the story they have created is a hit. Sales both online and in store will be highly seasonal so the the calculations per hour not really valid. See the stores Christmas week, Valentines, Mothering Sunday, Easter, etc and get a real view.

Cadbury used to have the fastest hi-bay warehouse at Lutterworth for either input or output as they built stocks up for key demand periods. Britvic in contrast had the fastest input/output as the volume in soft drinks was more variable (sunshine driven) and production was ramped up to meet demand more closely - in case the sun didn't shine!

Previous comment about where else do you buy gifts is, I think, most pertinent. They also have a broad range of 'exotic' varieties though not tickling my taste buds, certainly not at the price. The little unit at Marylebone station always looks tempting and meets the gifting on the go requirement perfectly.

I'll stick to Lindt, when it's on offer, or an occasional Chocolate Orange.

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FREng 25th Jan 41 of 59

Just to note that Burford Capital (LON:BUR) has finally recovered and exceeded the price of its October £200m placing at 1850p.

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mr_spock 25th Jan 42 of 59

There are better chocs available online (try Kennedy's of Orton), but I think the Hotel Chocolat chocolates (haven't tried the bars) are the best on the high street. Maybe they're a little overpriced, but I guess they fall into the 'affordable treat' category.
Just had a look at the website and the stores are much easier to navigate; simple layout, lots of choice. I always go for the six-pack chocs that line the shelves (3 packs for £10), and not the seriously overpriced gift packs on the display tables. Can recommend the packs of assorted boozy chocs (mojito, gin, rum, champagne, etc.) and the billionaires shortbread (eat some now and get into the billionaire mindset).

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jdnthomas 25th Jan 43 of 59

I used to be a subscriber to Hotel Chocolate's chocolate tasting club and thought the chocolate was good quality - certainly a substantial premium to Cadbury's. or Thorntons. Yes it was a bit expensive and I didn't like all the chocolates (I don't drink/eat coffee) but I only stopped when i gave up chocolate.
Maybe the quality premium doesn't justify the higher price but you could say the same about Fevertree (which to me tastes no difference from Schweppes when added to gin). But that is rather missing the point. The marketing is good and the mass affluent/present market isn't going to worry too much about spending an extra £10 for something which looks, and for some people tastes, better. So I think it is a quality operation with good potential for international roll-out, and I would certainly consider buying the shares at half the current price.

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willhampson 25th Jan 44 of 59

The share price for Hotel Chocolat (LON:HOTC) is a little too racey for me, particularly in this market, so this is just an observation and with no intention to open a position. I try not to use my own personal views on a consumer product (particularly of the edible kind), unless something is very obviously wrong with it. With that in mind, while I don't really rate HOTC's chocolate, the branches near to my office in the City seem to have heavy footfall and do a good trade; especially the One New Change branch. I suspect they may well have a few bumper stores that do particularly well.

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MSR Bruce 25th Jan 45 of 59

Enjoyed the scarf lesson thank you! And,yes,I totally agree that H C's product is seriously poor.

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Trident 25th Jan 46 of 59

Personally I think whilst the situation regarding Patisserie Holdings (LON:CAKE) is grimly fascinating, we would be wary of using it as a read across to other niche high street retailers. Fraud is generally unusual. That's not to say you shouldn't look hard at the figures, with a sceptical eye - you should! However, whilst we don't know at this stage, it would seem most of Patisserie Holdings (LON:CAKE) dodgy activities seem to have taken below the topline, in the areas of cash and perhaps margin manipulation, rather than sales.

Still, it should be an extra item on auditor/board lists to review or reconcile all reporting systems with appropriate measures to check for fraud.

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ken mitchell 25th Jan 47 of 59

In reply to post #440538

What a thought provoking post mammyoko. The Hotel Chocolate shops I’ve visited, including in up market Beverley have been very quiet at the tills, though sometimes several browsing, before walking out.

Chocolate is a personal taste but I actually dislike their chocolate and fail to see why it is so expensive.

For a fraction of Hotel Chocolate price far superior chocolate can be found in Aldi and Lidl.

e.g Moser Roth and Choceur in Aldi and Fin Carre in Lidl. Try their 70% dark chocolate bars and blind taste with nearest match from Hotel Chocolat. Their share price already looked far too racy and after reading mammyoko’s post it looks even less tempting than their chocolate!

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Laughton 25th Jan 48 of 59

In reply to post #440668

In depth analysis of Burford Capital (LON:BUR) from Liberum today - available on Research Tree. Unfortunately I don't subscribe so I don't know what it says.

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mammyoko 25th Jan 49 of 59

In reply to post #440723

Yes, you are absolutely right Trident (and other respondents). There is nothing in the accounts that suggests fraud. I remain unconvinced, however, about the implied takings by site, the persistent working capital requirement, the absence of free cash-flow generation, the lack of transparency over LFLs and the average fit-out spend of £400k per site last year. For these reasons and because I think the product is over-priced, I believe that the current valuation is too high. More by luck than judgement, I was not caught up out by the Patisserie Holdings (LON:CAKE) fraud but I have added a healthy dose of scepticism to my list of tests that I apply to businesses that present steadily increasing sales and profits that are not matched by cashflow generatioon

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Desanj 25th Jan 50 of 59

Hi Paul,

Like you I was very negative towards Hotel Chocolate. However at Xmas I noticed the Canary Wharf stand was always busy throughout the festive period. I then went and bought the 3 chocolates for £10 which is expensive (for their size) but I was pleasantly surprised as to how good they were. Then I asked my work colleagues and they all stated it was ‘posh’ chocolate and they really enjoyed it too, so I am slowly being convinced this is the real thing. A quality Chocolate company. It’s made my watch list as a result.

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tomps3 25th Jan 51 of 59

Petards (LON:PEG) at Mello London 2018, just published! Sorry, it's taken an age to get sign off.

However, it's worth it, really good presentation by Group Business Development Director. I'd always thought Petards hid themselves away, so great that they made it to Mello, and it's a great presentation. Gives a really comprehensive overview of everything they do, and their significant client base.

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gus 1065 25th Jan 52 of 59

In reply to post #440733

Hi Laughton.

Haven’t seen the Liberum piece (don’t subscribe) but can recommend the piece below courtesy of a link posted a few days ago on a different thread by janebolocha on Burford Capital (LON:BUR) .


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Michael C 25th Jan 53 of 59

£HTOC - I watched their Birmingham New Street branch for half an hour while changing trains recently, mid afternoon, weekday, so maybe a quiet patch. It certainly was quiet. Not a single sale. Poorly located unit IMHO - not one I would have taken in my retail estate management days. Did someone say £400k average shopfit cost? Utter madness.
Someone else mentioned that retail chains usually have some outstanding sites and that's absolutely right. During my career I worked for 3 chains. In each case the trading profit of the top handful of shops equalled the net profit of the business. Every retail chain has stars, also-rans, and utter dogs which have often been taken by some senior twerp on a whim (or, in one infamous case, by an acquisitions manager as revenge just before he left the company). I worked for one chain where the top ten shops made more than the whole company. We used to joke that we should pick the ten best people from head office and regional/area management and put them into those shops, then shut head office, fire everyone else, and make a higher net profit. The idea flopped when we realised that none of us were as good as the outstanding branch managers who were a big part of their branches' success, so we all kept our heads down and carried on hoping the shareholders wouldn't notice.

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DJCP 25th Jan 54 of 59

@mammyoko and others

I too read the Patisserie Holdings (LON:CAKE) £200 per hour calculation on another BB share site.

As a Patisserie Holdings (LON:CAKE) holder, my initial thoughts were 'OH ! B****** (bottoms)', but then realised, how far am I to go with DYOR !?!? Cake sales/staff ratio ? Staff ethnicity / colour of chocolates sold ratio ? Store location / Average area income ratio ? Gym location/population within 5 minutes drive* ? So, as you can see, some totally irrelevant (2nd one !) and some reasonable, but hard to quantify.
*As an aside to this, I do recall when Lakeside (Essex) was originally built, they stated, what I believed to be a ridiculous percentage of England (60%?) was within an hour drive ! - With increased traffic and people moving further from London, I wonder what this would be now ! And, Lakeside was only meant to be a short(ish)-term shopping centre due to the foundations IIRC.

I am now trying to incorporate the sales/turnover/profit per unit/shop/person/anything aspect in some form into my DYOR. Franchises - They hardly help with this. Online warehousing - quite useless.

Some retailers (online?), helpfully give average order values, but a lot is guesses and/or estimates after that. My main task now is to try and guestimate H1/YE figures and if wildly different, learn from where I've gone wrong - not only on retailers, but all my investments.

For example, I'm monitoring a few 'dogs' Immotion (LON:IMMO) ,BigDish (LON:DISH) and EVR Holdings (LON:EVRH) amongst others, and although educational (to me), is also advising me not to have a 'punt' at present, or at any time in the future (unless their whole vision/prospect changes).

Re Hotel Chocolat (LON:HOTC) chocolates - I'm not into fancy, but prefer the whole-bar experience. Aldi cheap'n'edible etc. I was also the Dad who, realising my kids didn't like white chocolate (but I love it), looked forward to their baby-years at Easter ! lol

Apologies for the ramble, but it's Friday ... it's 4 o'clock ... it's ... oh no, it's now 8:30pm ! Happy 'Crackerjack' to the oldies on here ! lol (I think Paul may be too young to understand that !)

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Fangorn 25th Jan 55 of 59

"My opinion - I'm not a fan, of their chocolate (which I found bland & ludicrously expensive for what it is)"

Amusingly I feel exactly the same way about Fevertree tonic water.

What's more important is the gin that goes into it!

Don't get all the hype about Fevertree tonic.
Tad partial to Hotel Chocolat - pricey yes but its superior to the shite Lindt and co churn out imo.
Each to their own though.

Prefer Dark High Cocoa chocolate so yet to find anything better on that front - used to be a Bourneville fan until Cadburys screwed with the recipe...

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Fangorn 25th Jan 56 of 59

In reply to post #440573

Never had any problems myself and been a customer for 4-5 years.

What were the artisan type chocs from Waitrose out of interest? I'll have to pop along and see if they have them..(For market research purposes!)

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Fangorn 25th Jan 57 of 59

In reply to post #440688

Bingo - that's how I get my hotel chocolat as well.
Tasting club.
Wonder how many subscribers there are

Fortified and dark choc for me..Delish.

"Maybe the quality premium doesn't justify the higher price but you could say the same about Fevertree (which to me tastes no difference from Schweppes when added to gin)"

We think a like. Same sentiments viz fevertree - don't get it.
Gin far more important.

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thejh 26th Jan 58 of 59

Agree with Paul re Hotel Chocolat (LON:HOTC) bland tasting overpriced chocolate. Nothing like the quality chocolates you can get in Belgium. Interesting to see that Merian Global Investors have recently opened (and increased) a short position on Hotel Chocolat (LON:HOTC). I wonder if we will see others added too in the coming months.

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jonesj 27th Jan 59 of 59

I presume NCC (LON:NCC) is the same NCC that appears in "The Signs Were There" by Tim Steer

Extracting some key points from his book:
2012 to 2016
Sales growth 24% pa
Intangibles growth 35% pa
Capitalised R&D 42% pa

Written down in 2016
New management installed.

Several software companies appear in the book.  I would like to compare them with some of the currently fashionable software companies, but that will have to wait until after my holiday.

Perhaps some readers who do hold such stocks have already done this?

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

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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