Small Cap Value Report (Fri 8 Dec 2023) - IGP, CTG
Good morning from Paul!
Explanatory notes -
A quick reminder that we don’t recommend any stocks. We aim to review 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 (usually) between £10m and £1bn. We usually 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.
What does our colour-coding mean? Will it guarantee instant, easy riches? Sadly not! Share prices move up or down for many reasons, and can often detach from the company fundamentals. So we're not making any predictions about what share prices will do.
Green (thumbs up) - means in our opinion, a company is well-financed (so low risk of dilution/insolvency), is trading well, and has a reasonably good outlook, with the shares reasonably priced. OR it's such deep value that we see a good chance of a turnaround, and think that the share price might have overshot on the downside.
Amber - means we don't have a strong view either way, and can see some positives, and some negatives. Often companies like this are good, but expensive.
Red (thumbs down) - means we see significant, or serious problems, so anyone looking at the share needs to be aware of the high risk. Sometimes risky shares can produce high returns, if they survive/recover. So again, we're not saying the share price will necessarily under-perform, we're just flagging the high risk.
Summaries
Intercede (LON:IGP) - 95p (y’day close) £55m - Major new contract - Paul - GREEN
Fabulous contract win news this week, and a stellar upgrade to forecasts from Cavendish. I think the big upward share price move is justified, although some holders might be tempted to bank some gains in the short term possibly? Patience has certainly paid off with this share, well done to holders!
Christie (LON:CTG) - down 13% to 83p (£22m) - Trading Update (profit warning) - Paul - AMBER/RED
4 profit warnings this year now. Yet again it blames transactional delays. The hoped-for recovery in H2 has been lacklustre, only just scraping into a small profit, and the latest downgrade to forecast sees FY 12/2023 at a loss of £(1.5)m. Historically it makes c.£5m profit pa, so there could be recovery potential. Finances don't look stretched. It's not for me though, as performance/forecasting is too erratic, and de-listing risk seems high.
Paul’s Section:
Intercede (LON:IGP)
95p (y’day close) £55m - Major new contract - Paul - GREEN
We flagged that this online identities software company had turned the corner here on 21 Nov 2023, with good interims and an ahead of expectations update, turning me GREEN (with envy! At what the share price has done!) It’s been a blink and you miss it type of re-rating. There was also a positive-sounding update here on 7 Nov 2023, but as it didn’t move market expectations, it didn’t look significant on the day, so I didn’t mention it here. What a pity I didn’t see the writing on the wall and buy back in. Never mind. Well done to any subscribers here who were more patient than me (I grew tired of the time the turnaround was taking to accelerate sales, and sold out a while ago).
As you can see below, most of he last 2 years’ bear market slippage has been recouped in the last 2 months, triggered by excellent newsflow -
This week’s news has been -
5 Dec 2023 - Major new contract with US Federal agency.
Up-front licences of $6.6m (highly material to IGP’s numbers, it’s largest ever order, and all falling into FY 3/2024), plus $1.4m pa support & maintenance.
This absolutely transforms performance for this current year, although IGP is at pains to point out it’s a one-off order. There could be follow-on additional orders though, which sounds promising.
7 Dec 2023 - Update on major new contract win - the good news gets better, with an additional $0.8m order to help deploy IGP software at the major US Federal client.
Broker update - many thanks to Cavendish, which has put through the mother of all upgrades!! Adj PBT for FY 3/2024 goes up from £1.5m to £5.0m. Wowee! The following year goes up from £1.8m to £3.0m forecast (FY 3/2025).
In EPS terms, that’s 6.9p and 3.7p.
Clearly it would be rash to value the shares on the one-off bumper year, so I’d play it safe and use a PER of maybe 20-30 times on 3.7p (FY 3/2025) forecast, getting to a price target of 74-111p. The actual share price is no 95p, more-or-less in the middle of my range.
Paul’s opinion - having followed Intercede for many years, I’m delighted to see the company deliver this superb flurry of positive news. Intercede has always had an extraordinarily impressive client list, but the company’s detractors used to say it was all legacy systems, not new business. They can’t say that any more! Winning major new business through partners seems to augur very well for the future. Each system that is installed using IGP software as part of it, tends to be very sticky, and produces a typically very long stream of recurring revenues for maintenance & support.
I think the big re-rating of IGP shares looks justified. Let’s hope more contract wins continue to flow. I’ll stick with GREEN. Although I would expect some holders to bank profits in the short-term, given the size & speed of the recent move.
Christie (LON:CTG)
-Down 13% to 83p (at 08:21) £22m - Trading Update (profit warning) - Paul - AMBER/RED
Yet another profit warning from this diversified professional services group. As you can see below, forecasts have already been slashed, and this is before factoring in today’s news -
Today’s news says that further delays on deal completions, pushes some commissions into 2024. The financial impact isn’t large though, with Shore Capital (many thanks) taking its FY 12/2023 adj PBT forecast down from a loss of £(1.0)m to a new forecast of £(1.5)m.
I’m still not clear why this year is turning out to be so poor. Delays, OK fair enough, but why would that turn CTG’s usual level of £4-6m pa profit into a loss? Surely that shows something much more serious than just delays to deals completing?
CTG made a £(1.9)m loss before tax in H1, so H2 looks as if it should be a small profit.
Outlook sounds more optimistic, but given the repeated inaccuracy of its forecasts this year, I’m not sure how much credibility the market will give to the following -
…transaction pipelines and activity much improved from twelve months ago and heading into the start of 2024.
Paul’s opinion - a shambles. However, CTG has historically been a decent enough business, making c.£5m profit in normal years. If it can rebuild performance back to that level, then the shares might recover somewhat, possibly? Although will investors now eschew this share, given that it seems to have little visibility or ability to accurately forecast?
I don’t see signs of financial distress, with the last balance sheet looking adequate for a professional services type of business. Although note it seems to have some onerous leases, with liabilities exceeding lease assets.
Shares are very illiquid too, so the short term share price may not reflect the reality if you want to sell in any size, which might involve having to take a haircut, if you can transact at all.
I don’t see any reason to get involved here. We’ve previously given it the benefit of the doubt, with AMBER, due to recovery being likely (it’s a previously sound business), but notching up 4 profit warnings this year is getting a bit ridiculous. For that reason I’m going to shift it down a notch, to AMBER/RED.
I’m also struggling to see any reason for CTG shares being listed at all. The major shareholder list looks like a private company, dominated by a few individuals, and no institutions interested apparently. Hence I think de-listing risk could be elevated here, which combined with lack of liquidity, puts me off.
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55 comments
New FCA rules. Home and Motor Insurance I'd required to be same cost for existing customer as New customer based on identical risk info. So they cannot easily reduce when you phone up !!!
My house insurance went up by 30% - it was still cheaper than other quotes I received.
On the other hand my car insurance barely budged - thank god, heard for some it went by 30-40%.
My car renewal went up about 30%, I got some quotes and ended up saving over £100, about 40%, pays to shop around sometimes. So my new insurance is cheaper than last years.
Time to buy comparison sites then? Moneysupermarket.Com (LON:MONY)
It's setting up beautifully for a breakout too...
Hi Breakout Trader, I would agree that Moneysupermarket.Com (LON:MONY) is looking like it will break out in the next few weeks. Generaly, I find that shares breakout on their fourth attempt of trying to break though the resistance line.
David.
IIRC, my car insurance went up by 80%!
My renewal quote for a policy starting today was more than double last year's price, despite no claims in the past year. Not an EV/JLR either.
The price comparison sites weren't able to find much of an improvement, but I managed to pull it back to only c. +50% with my high street bank, of all places.
Only time I've ever bought anything from them, but it does make you wonder whether Lloyds Banking (LON:LLOY) and Natwest (LON:NWG) might be back in business.....
This industry does move in cycles. Perhaps time to climb aboard.
Some scuttlebutt that those invested (or looking at) insurance companies may find interesting.
My house insurance is due up for renewal and the quote I received (like for like) was 21% up on last years.
On finding a cheaper on-line quote (still 10% up) I asked if they would like to match this - this has always worked in the past.
They simply said "no", so I said I would move companies, and they simply said "OK, thanks good bye".
Obviously insurance companies (or at least this one) have no interest in customer loyalty and keeping business.
Not sure what to read into this, but I guess they feel they are making enough from "idle" people who don't want to shop around and just take the renewal. Maybe its time to take another look at insurers.
Maybe their rates were too low and they have been forced to impose a minimum increase across the board. Most insurers have been finding. This situation which has been happening with most insurers has made them good and reliable counter cyclical investments eg “ Aviva, Beasley et all
Sorry if you hadn’t heard but investors have done well out insurance over the last few years!
Claims experience has shot through the roof. Workshy Britain post pandemic, furlough, lazing from home has all taken it toll. Folk have no qualms about masssivly inflating claims. Additionally, migrant gangs operating theft and criminality on a massive scale all means insurance claims have just ballooned. Plus EV car claims - a slight dink can render the battery useless…they’re not cheap to replace. Rangerovers are being stollen to order by criminal gangs to the extent that many owners cannot get cover at any cost in big cities with no garage parking.
I think theres also a big re-pricing going on around insuring electric cars at the moment as insurers cottening on to batteries will cost a fortune to replace if needed.
Plexus Holdings (LON:POS)
http://newsfile.refinitiv.com/...
Co sold c.2m shares to raise c. £450k
Most confusing, at a discount to last sale, and the shares rise …. Perplexing !
Interesting article for anyone holding Supreme (LON:SUP) - https://webcache.googleusercon... pertinent section:
Nonetheless, the review by PHE answers some other important questions. It found little evidence of toxic substances in the bodies of vapers, with significantly lower levels than in smokers, and often the same or only slightly higher levels than in people who don’t smoke or vape. It also looked at biomarkers associated with cancer, respiratory and cardiovascular conditions and found the same pattern. Nor was there evidence of a risk from second-hand vape.
PHE did flag up the buttery flavourings and cinnamaldehyde (which gives a cinnamon flavour) as potentially concerning, but absolved the solvents. Overall, the review concluded, even though vaping isn’t risk-free, it “poses a small fraction of the risks of smoking” in the short and medium term. This is in keeping with its earlier review, from 2015, in which it concluded that e-cigarettes are around 95 per cent less harmful than smoking.
from that linked article
Vapes also chuck out some unintentional byproducts, including heavy metals released from the heating element. Some elements contain a nickel-chromium alloy: rats exposed to nicotine-free aerosols produced using these elements developed wheezing and laboured breathing, while stainless steel elements didn’t have the same effect. Studies of people exposed to nickel and chromium compounds through their occupation show an association with increased risk of lung cancer, and nickel is one of the few carcinogens to be found in higher amounts in some vapes than in tobacco smoke. There is also evidence that the older an element or disposable vape, the more heavy metal pollution it spews out. The 101st-to-150th puffs on a disposable produce about 60 times as much as the first 50.
Feels to me that there will have to be some stricter regulation at some point.
I thought stainless steel contained something like 40% Chromium.
I dont think it is as high as that for most grades. Most grades also contain nickel. By themselves nickel and chromium are fairly inert, it is the hexavalent chrome that is dangerous - this might be the reason for the danger mentioned (maybe a plating issue). Unless the production of the vapour requires these dangerous versions of chrome, I dont see why they should be used for something that would be inhaled. For info, I dont hold Supreme (LON:SUP).
A bit of looking online gives us the answer - some manufacturers use nichrome (a well known resistance wire) as the heating element. At a very cursory glance this study seems to be biased against a particular supplier. Probably de rigueur for these types of studies.
https://digitalcommons.bucknel...
Further encouraging news for the UK housebuilders & wider building products sector.
Sorry to bother everyone a while back i remember there a google spreadsheet with all the companies that are amber and green on them. How do i find that again?
Hi Azhar Allahdad
Sorry to bother everyone a while back I remember there a google spreadsheet with all the companies that are amber and green on them. How do I find that again?
Try the link below: -
https://docs.google.com/spread...
ThanK you
Is the Santa Rally starting early this year? Some big moves in some shares, and indices
Regarding Intercede (LON:IGP) , don't underestimate the value of the recurring support & maintenance. As seems to be the case it here, it's usually around 20% of the contract value.
In my experience, it's basically money for nothing. Yes, the client will make use of the existing support infrastructure, but unless the implementation is a complete disaster, additional costs for the supplier should be minimal. By paying support & maintenance, the client is usually entitled to future versions of the software 'for free', however the client would usually pay implementation costs all over again, unless they have learnt how to do it themselves. Then the client is usually told within 2 years or so that the version they are on is no longer supported, thus forcing them into a costly upgrade project.
Software companies usually ensure the contract allows for annual increases at least in line with inflation.
Shame I didn't buy into this one.
Ending the week with my most consistent period of performance since July 2021. YTD performance back above FTSE All Share. Not massive but given the performance of markets over the last couple of years it's good to see some reward for time spent tending my portfolio.
5 consecutive weeks of gains, 8 days of at least one share hitting 1 year high Warpaint London (LON:W7L) , Wise (LON:WISE) , Tristel (LON:TSTL) , London Stock Exchange (LON:LSEG) , Renew Holdings (LON:RNWH) . Top sliced IQGeo (LON:IQG) last week, then yesterday's bonus ball with Smart Metering Systems (LON:SMS) offer.
The 13% fall at Games Workshop (LON:GAW) and similar fall at Supreme (LON:SUP) were welcome, as it let me top up/enter at a more reasonable price.
Still need some more gains to make good from getting stopped out in the autumn correction just before the current recovery, but good to see the red element in my portfolio steadily reduce.
Hope the rest of you are also enjoying this change in fortune(s).
Good luck with your stockpicking but this is not a forum for posting updates on our own portfolios. If we all did this, then this board would become too cumbersome to read through ...
Yes I totally agree with you unless this is accompanied by some financial insights to the chosen shares mentioned.
I found Pimlico on Thames' post quite interesting. I am not sure we can have contributors decide what the forum is or isn't meant to be. Sorry lemming1, it is not my intention to be 'spicky' or rude as we all like how good natured these threads are. Good investing everyone.
This forum is unusual in that we get a mix of investors with very different time horizons - "traders" and "investors", to use two horribly generic terms.
I am firmly in the latter camp, but live & let live. I can see why people see value in sharing their highs & lows, even if I prefer financial analysis & anecdotal observations on trading conditions. They have paid their subscription.
If things get out of hand I'm sure Paul & Stocko can intervene. At the moment we are getting about 100 posts a day which I find manageable. 1000 won't be, but that will be a different Stocko anyway, and you would hope increased traffic could be diverted away from the SCVR to another discussion.
We soon get to spot the contributors who provide the posts we value, and if short of time, we can just scroll past the rest?
HOWEVER....I'm fortunate to be able to sit in front of a PC, and for those on a mobile device I can see it may become a problem earlier on.
I enjoyed this post, thank you.
Good post to share overall reflections and recent turnarounds you are getting, thank you. I too am invested in Warpaint London (LON:W7L) and considering how long to run my gains - a while yet.
I would say that the real story at Warpaint London (LON:W7L) is only really beginning. The amount of shelf space they are winning in new and existing retailers and in fact in new territories should give them enough runway for solid growth over the next two years .
Crystal Amber Fund (LON:CRS) (I Hold) up 6% this morning as it announced a share buy back scheme of £5m (£51m market cap) Basically because the fund is under-priced and they want to improve it. Current price being 66p but asset price is around 98p per share. The fund is being wound down so should eventually return the asset price (please dyor). Thanks
Andy, I see Stocko says that the yield (Tim) for Crystal Amber Fund (LON:CRS) is 55%. Can you explain this?
FREng,
The dividend relates to the proceeds of the sale of their investment in Hurricane Energy earlier this year.
Andy, thanks for highlighting this, so I did a little further research.
It seems the CA fund now has only 3 investments: 16.47% of De La Rue (c.£24m) along with 2 unlisted invested in Allied Minds (18% shareholding) & Morphic Medical (81.5% shareholding). The fund also holds cash of around £12m.
Therefore, assuming they could realise the shareholding in DLAR for £24m as well as cash of £12m and with a current market cap. of £51m the question is are the two unlisted investments worth more than £15m - the net asset discount implies they are worth circa £40m. Personally, I haven't a clue but I would be nervous of the valuation on Morphic Medical (and ability to realise this) particularly as CA owns 81.5% of it.
As ever DYOR.
Interesting outlook from Unicorn AIM VCT (LON:UAV) today:
"The Initial Public Offering (IPO) market has been showing early signs of recovery. In recent months, the Investment Manager has developed a promising pipeline of potential new VCT qualifying investments. The manager remains highly selective in the approach to new investments, but this expanding pipeline is an encouraging sign."
Good to see Vertu Motors (LON:VTU) buy back some shares on the fall yesterday.
As would any sensible person :)
I’d be interested in their methodology, normally a company pre announces share buybacks and gives the mandate to their broker to transact over a period of time. This seems to be an ad hoc action following the profit warning, I’m not complaining, hopefully it’s a good use of their capital and they seem the reaction yesterday as overdone. Can anyone enlighten as to Vertu Motors (LON:VTU) policy on buybacks please? Thanks
Vertu Motors (LON:VTU) If you look through its news feed you will see buy-backs going backs some time. There will be in the news feed an announcement about the amount and price window in which it will operate. Any buying since the fall is part of that same programme.
Responding to Andrew from Wednesday re inflation and Bonds.
Firstly I would stress I am not doing anything complicated. I treat a 0.2% month on month no. as broadly par...ie 12 * 0.2 = 2.4% ... Kinda inline with US policy objectives but slightly high. I then look at the month falling out and compare to 0.2% ... and therefore view those months where a high number 0.5% or more falls away being more likely to show lower inflation.
Months where these numbers are negative are quite rare...normally energy related...so oil price weakness for example. Years where the number are negative ...falling prices are very rare ...these are recession years. It's quite a short lived trend in the US.
In November and December small negatives are falling away...which is energy related... 0.1% in November and 0.3% in December. So in January a strong reported December No. would be negative for bonds...and yields would rise. I don't really see any reason why the number would be strong though and my guess is any no. in a range 0.1% - 0.29% will be treated as inline.
the reason I argue this is that this year January and February were quite strong...at 0.8% and 0.5%...followed by 0.3% for March and 0.5% for April. So over those four months if the average monthly no. in 2024 is 0.2%....then you would expect inflation to fall about 1% in that period. So the numbers reported next week for November and then in January will need to be v strong to offset this benefit.
Ofcourse all this is known. This is why the futures market predicts falling interest rates. Falling interest rates are good for bonds...so expect bond yields to fall....? Sadly I don't have the answer for this question. For me...5% two year rate seems very good and you hold to maturity a govt bond and have virtually no risk. Longer Bonds are a different kettle of fish. The recessionistas would buy and think all bond yields will fall. The infaltionistas would not buy and maybe even sell.....the theory being interest rate cuts will prove to be inflationary ... if they prove to be a stimulus...which is another point of debate.
If you forced me to have a view...I would argue I prefer to be in UK equities which are very cheap (so discounting a recession) and not long bonds which are at best fair value today. I don't have a particularly strong view though ... I tend to think we will muddle through. And if there is an accident then have some cash - short term bonds to sell and load up on equities. This year has been pretty weird but it has been possible to make v good returns in equities...despite all the weakness at times.
Two ideas I think a lot about are ...many defensive equities have been very poor this year due to cost inflation incl. debt interest.... maybe next year is the turn for these stocks. And are industrial sectors the new growth engine benefiting from trends like energy transition, rebuild after war, invest in infrastructure and bring home supply chains. (Inflationary trends I might add)... just my thoughts. I haven't really changed positioning much...I bought a starter position in Capita (LON:CPI) and wait the numbers next week. I think the beneficiaries of lower rates portably continue to do well into next year with a few wobbles along the way.
Happy hunting everyone, and happy Friday.
Apol last point...since April this year the US CPI nos have been very well behaved...so it gets trickier from then onwards next year as the actual inflation rate will be very much driven off the current month on month no. Should they be above 0.2% bond yields will rise again and the market wont like it. ( Equities and Bonds).
Thanks RD so reading between the lines assuming no black swans it could be reasonably positive for most assets now until - end of April (traditionally good period of the year for equities) but it could get tricky May onwards as the low hanging fruit will have fell out of the equation and there won't be much room for margin of error moving forward.
SCS (LON:SCS) holding increase:
https://newsfile.refinitiv.com...
There seems to have been a few of these over recent weeks (since the takeover bid) at SCS (LON:SCS) - not sure what it means if anything. Is there a little money to be made in that the current ask price is lower than the offer?
Personally, was going to sell after the divi was paid, but decided to hold on just in case.....
Dave
Cowlid, I guess they feel that c 3.7% return over 2mths is worth having.
I’m unclear as to why you both think there is any residual value on offer in SCS (LON:SCS)
As I understand it the deal was 270p in cash MINUS any dividend paid - ie 10p. So currently the shares trade at 260p having already gone ex-dividend of 10p which equates pretty much exactly to the 270p overall offer.
So unless there is a counter bid then based on the spread you are losing about 1p p/share plus dealing costs by selling in the market rather than waiting for the cash proceeds (so at 5% interest rates that’s about 1% or 2.5p worth of funding cost)..
But there is no 2 month arbitrage with 3.7% on offer - if you buy now at the offer price and the bid goes through you would lose money. Ie you would pay 261p + dealing costs and stamp duty but get back 260p in cash.
So you would only buy at this price if you think they or someone else will improve the offer (eg Kin and Carta (LON:KCT) upping from 110 to 120p yesterday)
The offer for SCS (LON:SCS) was 280p including the dividend (270p + 10p dividend).
deleted.
Ah yes - lol. I’m better off than I thought I was…..hurray
aero79 that is correct, I held so I know but sold out without waiting for the dividend which was built in the the share price that I sold SCS (LON:SCS) at.
Nice CEO appointment at IG group (LON:IGG) IMO.
Artisanal spirits not having a good time