Small Cap Value Report (Fri 9 Mar 2018) - TUNE, RM2, TTG, VLE, IDP

9th Mar '18 by Graham Neary

44 comments 14773 reads

Good morning! Taking into account reader suggestions so far, my list is as follows:

Focusrite (LON:TUNE)
£RM2 (LON: RM2)
TT electronics (LON:TTG)
Volvere (LON:VLE)
Innovaderma (LON:IDP)

Only the first two were announced today, but there was quite a lot of news during the week, so plenty to discuss.

Also worth mentioning that I think Paul did a fine job discussing the late profit warning from Conviviality (LON:CVR) in yesterday's report, so I'll leave that one alone for now.

Cheers,

Graham

PS: There is an investor event coming up on March 28th in London, featuring the CEOs of Cloudcall (LON:CALL), Xpediator (LON:XPD) and Realm Therapeutics (LON:RLM). You can get your free tickets at this link.

Focusrite (LON:TUNE)

Share price: 380p (+7%)
No. of shares: 58 million
Market cap: £221 million

Trading Update

This company makes hardware and software products for the music industry, under its own brands. Headquartered in the UK, it distributes its products worldwide.

Rather than making or distributing musical instruments, the company makes the tools used by producers - microphone preamplifiers, audio interfaces, synthesisers and apps.

This is a nice update, which has been warmly received. First-half revenue, profits and cash are up year-on-year.

As a result, revenue for the half year ending 28 February 2018, is expected to be over £38 million, up from £32.0 million in the same period last year. This represents an increase of over 25% on a constant currency basis.

Conversion to cash has also remained positive and, as at 28 February 2018, net cash was £19.7 million, up from £14.2 million on 31 August 2017 and £9.4 million on 28 February 2017.

For a company which sells internationally, such as this one, constant-currency measures are what I focus on. Needless to say, 25% is a fantastic gain.

The CEO comments that the recent Christmas holiday period gave the company a big boost, stating that the outlook remains "confident" for the future:

We keep a close and cautious eye on some of the headwinds…

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brileen

9th Mar '18

Just like to record my appreciation of the continued high quality analysis from Paul and Graham every day.
Easily worth the subscription to Stocko by itself. It has changed my investment approach and I have profited hugely.
Yes , I know we have been through a Bull market, but we have had them before and I have not profited to anything like the same extent.
Thanks, gentlemen.

BB

Graham Neary

Hi Ian, you're welcome re: Focusrite (LON:TUNE). I am also interested to learn more about the company's positioning vs. competitors. G

Tortoise investor

Sentiment about United Carpets (LON:UCG) is likely to be affected by the last Carpetright (LON:CPR) update which didn't look very promising. It's also very illiquid which means it will likely never be on a normal PER. I hold but I would probably sell once it reached a p/e of say 7.5-8.

vodathan

Ex Studio engineer here, FWIW

Focusrite (LON:TUNE) was a very well respected brand for premium studio equipment when I was sweating over hot mixing desks. They have successfully used that premium brand to offer more 'prosumer' kit, but still with the audiophile quality at the forefront, no doubt helped by the ubiquitous USB interface. There is a fair amount of competition from other names in that field (Lexicon, Behringer) but with a mid price point (they are not the cheapest) they appear to be defending their position well.

Their Novation brand of synths and controllers was never my bag of chips (call me a snob) but a quick look at their current range could make me change my mind as they seem to have come a long way. Probably helped by Chris Huggett, a man who invented 2 classic British synths (OSCar and WASP) and co-developed the ground breaking Akai S1000 sampler.

My 16-bits worth!

(I hold)

FREng

Graham - just a heads up for later this month.

A year ago you wrote positively about Robinson (LON:RBN), saying that its market cap of £20m looked reasonably attractive in view of its freehold assets. It hasn't sold its surplus land yet, but put out an inline trading update in December and nothing since then. It reports around 23 March. The market cap is now £15m

I don't hold, but there could be value here, despite the spread. The dividend is 6% and they have never reduced it - perhaps because it's family held.

Rusty2

I see Renold (LON:RNO) has put out a profit warning today due to increased costs and with US$ falling affecting their US business. It does not that bad but shares are down 21%.

Brewers often have high debt, presume much is tied up in their pubs, Marston's (LON:MARS) looks even more stretched both pay out about 7% dividend.

iwright7

voda, Thanks for your 16 Bits.

So are we saying about Focusrite (LON:TUNE) : Strong Brand , Quality Products, Innovative Design? Are you aware of any Patents, or Cost advantage?

Thanks FREng, acknowledged re: Robinson (LON:RBN).

Excellent, thank you for that re: £TUNE!

yamaha865

Looks like the Volvere (LON:VLE) share issue above doesn't take account of the share buy back, should be about 10% lower

trader45

Can anybody identify why there has been a sell off in the Insurance sector Preference Shares over the past 2 days. In particular Aviva and RSA????

Yes see this this post: https://www.stockopedia.com/content/aviva-and-the-current-price-collapse-of-irredeemable-preference-shares-336348/

hawkipa

Hi, Aviva suggested yesterday that they may be able to repay their prefs at par. All were trading well in excess of par. Market sold off significantly this morning, but had bounced by about 10 points by lunchtime.

Thanks, re: Volvere (LON:VLE). Fixed it.

AnonymousUser192020

Re Focusrite (LON:TUNE) there's a nice interview with 'socialist capitalist' Phil Dudderidge here https://www.psneurope.com/business/focusrite-chairman-phil-dudderidge-interview He doesn't sound the sort of guy to over-ramp projections, but presumably there's a risk that he will further reduce his holding towards retirement. There are several genuine-sounding testimonials/ case studies on their news page https://uk.focusrite.com/news I've no industry knowledge but it looks as though a typical studio will buy quite a lot of gear if they decide to adopt Focusrite. A chap on advfn also reckons that in time Thunderbolt may replace USB connectivity for high-end studio equipment, giving a further sales boost. None of this is at all quantitative, I'm afraid!

My pleasure, Ian and yes that sums it up.

Focusrite (LON:TUNE) I've done a very basic patent search and can only find 4, none of which appear to cover the mic pre-amp/audio interfaces that constitutes a big part of their range. Pricewise they are definitely at the higher end of the spectrum, although they do sell units for £100 (equivalent Behrniger is c£50). Can't imagine they are selling many of the £2500 RedNet interfaces, so it's all about the hobbyist buying into the X-factor dream.

Anecdotal evidence alert: I was in a coffee bar last week and overheard an aspiring singer comparing notes with a random passer-by and they had both bought Focusrite Scarlet.

OsullivanB

10th Mar '18

I am a voice artist. I think that Scarlett is close to being the industry standard for home studios.

Millen - Thanks for the Focusrite (LON:TUNE) trade mag link. The most interesting part for me is :

Its move to become a public company in 2014 has allowed Dudderidge to offer his staff a direct stake in the firm. As he puts it, people join Focusrite “not just because they are looking for a job but because they are looking for a career”, such is the high percentage of staff that remain with the company on a long-term basis.

I checked Glassdoor and Focusrite score a very creditable 4.5/5. Comments below are typical...

Amazing people who love what they do. There is always a desire for improvement. Free canteen for breakfast and lunch.

https://www.glassdoor.co.uk/Re...

So another aspect of their Moat is their committed staff and a free canteen to keep the troops fed. Not rocket science and helps to explain how they have got where they are.

Another example of investing benefiting from being a team sport. Thanks again. Ian

iainc

12th Mar '18

great report on volvere, Graham. Many thanks

Small Cap Value Report (Fri 9 Mar 2018) - TUNE, RM2, TTG, VLE, IDP

Focusrite (LON:TUNE)

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Graham Neary

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