Small Cap Value Report (Friday 9 July 2021) - COG, PMI, IKA, THS

9th Jul '21 by Paul Scott

53 comments 10093 reads

Good morning, it's Paul & Jack here with the SCVR for Friday.

Timing - TBC

Disclaimer -

A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates & results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).

A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational views, whether bull or bear!

It's helpful if you include the company name or ticker within reader comments, otherwise some readers may not be aware of what company you are commenting on.

Agenda -

Paul's Section:

Cambridge Cognition Holdings (LON:COG) (I hold) - yet another contract win. Looking good.

Ilika (LON:IKA) - you heard it here first! As I suggested a few days ago, this jam tomorrow battery technology company is doing another big placing. Makes complete sense, given the sky-high market cap.

To follow.

Jack's Section:

Premier Miton (LON:PMI) - the trend of strong performance from fund managers continues. Profitable, scalable, modestly valued & with a 6% forecast yield - but exposed to market sentiment should conditions turn.

Tharisa (LON:THS) - platinum group metals producer reports a record Q3 and the shares continue to look cheap; key concerns include the sustainability of current PGM prices and the risk of additional Covid disruption in South Africa

Paul’s Section

Cambridge Cognition Holdings (LON:COG)

(I hold)

165p (y’day’s closing price) - mkt cap £51m

Contract win

Another one! Something significant seems to be going on here. In the past COG seemed a serial disappointer, but the more commercially focused strategy under newish CEO Matthew Stork, is clearly working.

2021 forecast revenues are already in the bag, with signed contracts, so any additional contract wins are icing on this delicious cake. High margins too, so operationally-geared cake.

I hope some readers are enjoying this cake as much as I am, but it’s terribly illiquid, so it can be…

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Snoo

12th Jul '21

Best Of The Best (LON:BOTB)

Thought I would have seen some pushback against my comments.

Looked into what I wrote a bit more on the weekend, so some other points.

Max entries per competition is 75. It was 150. It seems to me that an generous approximation of the odds of winning a competition if you buy maximum tickets is 1 in 5000. Thus the odds of winning 3 competitions comes out to 1.25 trillion.

For the Prash guy in practice it'll be less than that, as it may be safe to assume that he played in multiple weeks and didn't win, and also maybe also made multiple entries. But still on the face of it I think it leaves the odds beyond credibility. Combined with that Brandon guy (whose likely odds of winning so many competitions in that time must be around the same ballpark). I am quite unsatisfied with that considering these two cases are came in about the first 10-15 I looked at (only taking the unusual names).

Still haven't found any online presences of winners showing off their winnings. On the assumption that winners of cars suddenly turn into shrinking violets for fear of getting robbed, I looked at the other stuff. This guy won £12,000 worth of technology in April - he has posted some pictures of trainers he got, but not a hint of anything he supposedly has won. He is a bedroom DJ, with a Mixcloud, Instagram accounts but not Twitter?

I can only presume with the lack of reply the default position is that most people will agree that this doesn't look good, but will look the other way and give the company a pass on this. That is fine, but some of the plausible explanations for it I think are worthy of attention:

First case is whether it is possible to game the system by getting the judges general prediction in advance. If that could happen, naturally the odds increase. I don't view this as likely, although conversely I don't view the judges as high-profile enough. For instance if they paid for a current famous footballer or manager that would be really useful as he could front advertising campaigns as well.

The more likely case is whether there is multi-accounting going on. I have some experience in the industry and most female accounts are suspicious, basically only created on behalf of a male in order to take bets or use bonuses that the male account is banned from. Thus multi-accounting is disliked, because those multi-accounts ultimately take value away from the book. I don't think there is the same motivation to go after multi-accounters in the same way here, because they would actually make more money for the company rather than lose it.

Another point on the winners; using people's real names puts out a lot of information. In the case of Prash and his wife, we can see where they live and their jobs and also their address. There could be something missing - ie a very rich relative in the family, or multiple houses - but on the face of it these aren't rich people to the extent that their prizes would make up a substantial part of their net worth. Using Streetview on the residential address given shows that none of the prize cars seem to be in there. I believe the logical thing to do would be to actually take the cash.

It reminds me that I went on holiday with a housemate that played BOTB in its retail guise at an airport - he loved cars and was attracted by the actual car being there. Yet if he won, he couldn't have kept it. For one, he couldn't drive to work in it. Affording the insurance would also have been an issue. He would also have to park it on the street outside our house where it would stand out like a sore thumb. Or he would have to pay to keep it somewhere else. The opportunity cost of holding a car instead of cashing it in is thus incredibly high, as he could have used the money to make a deposit to buy a house. Or if he owned a house, make some other investments which dont have such a high maintenance cost.

I think the above is true for a good proportion who win competitions, who didn't give thought to the practicalities of owning. But the winners list implies that nobody takes the cash, and they are pictured with the car. Is that really credible? Maybe I've missed something here, but if your total net worth is under £50k, and you win a car in excess of that, it makes no sense to keep it given the cash alternatives on offer.

I do think the reasons for the non-acquisition by betting companies are a few: the valuation is too high, and the barriers to entry low (the bigger books could simply add a 'Competitions' tab on their site if so inclined) but also that they might not be able to run the competitions in the current guise without attractive adverse attention either from their userbase or the regulators. For instance it seems possible that BOTB could list a Boeing 737 as a prize, even if they had no way of getting one, because they get to choose what the prize is every week.

There seems to be two primary defences against wrong-doing, one is that everything must be above board because its a PLC. This didn't stop Patisserie Valerie being a fraud, even though prior to that it, it looked like a superb company outperforming the market which had director selling despite a bullish outlook.

Second as mentioned before is that it would be hard to keep a secret. But a much bigger competition (McDonalds Monopoly in the US) was a fraud for years before it was discovered.

FWIW like I said before I don't think there is necessarily wrong doing, but what I think is happening is that most people take the cash. In the case of that tech bundle link I posted above, the alternative is £10k and many people would already own most of the items in that bundle. The site gives people the cash under condition of making a video pretending you are taking the prizes and an NDA from talking about it.

That would seem to explain the lack of active Twitter accounts I've seen. After winning it may be that your acquaintances are quick to tag you in a conversation and ask about it, it may be better not to chance it and just not have Twitter for fear of letting something slip that breaches the NDA, or have the not good look of ignoring your acquaintances questions about the car. I do notice that the CEO at some point deleted his Twitter account; that many not mean anything on its own, but I would regard genuine winners social media as some of the best free advertising you could get - such as re-tweeting their interactions.

Why would they do this? I can think of a few reasons; if people suddenly realise that winning a car is more hassle than its worth, or that the cash prize is better value, the kind of 'impulse' element of playing goes, and if you are playing for cash, why not just play the lottery? Secondly there is a hard line in between prize competitions (no regulation) and lotteries (needs licence) so it makes sense to represent as as the former as much as you can.

Genuinely interested to know if I am alone on these concerns.

9th Jul '21

IMO the main danger for Best Of The Best (LON:BOTB) is regulation.

Omaze in US for their car auctions seem to work differently. Each car has a specific end date for auction close. If the car is worth $100k and they have only sold $100k worth of tickets, then tough.

BOTB have a large pool of cars and there is one winner per week (and midweek). But the individual car does not have a specific end date, so they can choose the car where value of tickets sold is greater than the value of the car.

This seems to give them a good deal of flexibility how to run things. So rules such as giving away a specific car on a specific date would be bad for them.

Let me say one thing that seems suspicious to me. The vast majority of players I think would be males from the lower demographic bands who like showing off (why enter a competition for flash cars otherwise).

Yet trawling through the list of winners and Googling some even some of the more unusual names sees the same kind of pattern: a slick BOTB winning video featuring the happy winners published on their website, a collection of spammy news articles from their local press, but no social media profiles like Twitter accounts where you would think they would be celebrating or posting some non-publicity shots of the cars...I find that odd. For instance there is a double-barrelled video game creator who won who you would definitely think would be on Twitter, but he isn't.

Maybe it's just me, but can anyone find a Twitter account of someone who has won? It seems that hardly any of the winners do. Or are names changed to protect the winners, but if so why use real people?

Actually I found one:
Winner 459 was Prash Thurairatnam

He has a Twitter account here, albeit not very active. Photo is of the same guy. He has been active in the past year, but makes no mention at all of winning the car, when you think winning would be a big thing.

Looking back, in 2015 he actually won before, there was a video to it. No pictures of this amazing car though. Also his wife won a car in 2016 on BOTB - he didn't say much about that either.

Seems incredible luck for one household to win 3 cars!

dcon85

When I was researching Best Of The Best (LON:BOTB) I played all their games and to be honest I cringed at the prospect of winning and featuring on their website, and certainly wouldn't post my winnings anywhere if I did win. Not least of which for security reasons, it is unwise to advertise recent big ticket purchases on social media and sports tracking apps etc (See thieves using Strava app to target high end bicycles). Also I don't use social media.

It's hard to imagine the scale of conspiracy that would be required, engaging all of the small press outlets over the country, using hundreds of stooges with false identities and back stories. It seems unlikely. I looked up approx 4-5 winners with "obscure" names and skimmed articles about them from The Herts Advertiser, Coventry Observer and the Doncaster Free Press, found one Linkedin profile (which matches the job description given in the video).

I find it more interesting to note how well BOTB have engaged the local press to further advertise their business.

At least two of those articles sign off with:-

"To see XXXX’s emotional reaction alongside a host of other lucky winners, head over to BOTB.com."

From their terms

=======

11. Winners' Personal Data
11.1 Acceptance of the prize by the Winner will mean they are required to have their photo and video taken by the Promoter for promotional purposes (Public Relations and Marketing), both immediately after their win and in the future for use in accordance with rule 6.2, unless prohibited by law.
11.2 By entering a Competition, you agree to the use of your name, address, and/or photograph or other likeness, as well as your appearance at publicity events without any additional compensation (save for reasonable travel expenses) and as required by the Promoter if you are declared a Winner.

======

I've only skimmed the articles so I can't tell if an interview has been conducted or whether they have taken notes from the videos but participation appears to be mandatory.

Wilbraham

Best Of The Best (LON:BOTB) doesn't interest me as it encourages gambling without, I think, offering any part of the proceeds to charity. From the various threads over on PH it does appear there's loads of similar lotteries and draws - eg https://www.pistonheads.com/ga...

I imagine set-up/ development costs are light - the challenge is to build a recurring client base before the marketing budget is blown. Similar to many SaaS businesses in that respect?

TBH the teaming up with the media isn't of much interest to me considering that one of the directors has a past with News International.

Basically it's a paid advertorial where the article/comments are written already, then the paper gets a cut of the revenues generated when users click the links. That's pretty much what the 'teaming up' with the Sun is. I would think it would be standard practice to try and get a story of the winner featured in the local press, but not all local papers will carry it because it's not really news.

I just don't understand why the past winners seemingly have no social media. For that guy I mentioned, it just seems unnatural considering him and his wife have won a few hundred thousand quid of cars. It is unlikely to be security related, as the videos show where he works, and for his wife, their house and kid. Posting a few pictures of a car is nothing in comparison.

Another guy, Brandon Klayman, has a distinctive name but no social media despite running a digital marketing company! His acceptance video shows him saying he hasn't won anything, but he won an unnatural amount of competitions that month.

rmillaree

Best Of The Best (LON:BOTB)
I had a look at some of the recent you tube vidoes and i find it impossible to believe the winners shown were anything other than 100% pukka. Winners seemed normal bods and all the comments were nice ones that were happy for the winners. I actually came away from watching the you tube videos with the thought that the competitions are less scammy than i previously presumed was the case.
You can watch one very happy winner here.
https://www.youtube.com/watch?v=c-HOiQw8ueg

The videos Best Of The Best (LON:BOTB) make IMO try to make it look like they are off the cuff, but are pretty scripted.

For instance take a look at the video of that Prash guy in 2019. By this time he and his wife had already won a car each. The man comes in with a BOTB logo on the front and he pretends not to know - the guy even has to remind him of his name.... yet only a couple years before there were in a BOTB promo video together.

I don't think it is a scam, but I do think there is some bending of the truth. For instance, the videos imply the winner keeps the car... but I reckon most users might consider the cash to be better. If you lived in a working class or middle class area, parking a supercar on the street looks rather out of place, and for those that are younger, the insurance costs would be extremely high. The depreciation on most of the cars would mean that the car would be worth less than the cash alternative almost as soon as you drive it away.

Tortoise investor

Tamsin, I'll await the Vertu Motors (LON:VTU) presentation with interest and sadly won't be able to make it live. I hold as looks like good value for all the reasons stated on SCVR previously. But one thing that does annoy me about Vertu Motors (LON:VTU) is it seems to waste a lot of money marketing multiple brands and I am finding its multiple online offering confused. With the Formula One adverts for example it is advertising both its Macklin Motors and Bristol Street Motors brands - surely that just undermines name recognition and means their marketing budget is not being put to best use? To improve their online offering I think they should try and focus on a single brand - ideally one that sounds a bit snappier than 'Bristol Street Motors' which always sounds like a single showroom in the backend of nowhere. It would be great if this marketing strategy and multiple brands strategy could be probed during the Q&A!

peterthegreat

Very pleased to see rapid growth at Cambridge Cognition Holdings (COG), the software company, but I wonder if the comparison with "early days" Bioventix is perhaps a little far stretched as Bioventix was profitable since its fairly early days on AIM and has a track record of re-investing its profits to good effect, hence the excellent ROCE. By contrast, COG is not yet profitable, although it did list its shares at about the same time as Bioventix. It may be worth spending a couple of hours doing due diligence on the internet if you are considering investing in COG, particularly visit the Cogstate web site as this Australian competitor's business appears to be a bit more developed than COG's but perhaps the growth being shown by both companies indicates that this is a good sector to be working in. There are also competitors in the US as you might expect.

Richard Goodwin

10th Jul '21

Premier Miton (LON:PMI) I had no problem on Friday buying a larger quantity via Barclays using the Quote and deal facility. Curious!

Trident

Beware of Irish blarney, or any blarney for that matter

James Kerr1

£orph (I hold). I think Mr Friel's business has good value to unlock. I'm not sure his approach to presentations helps his cause.

abtan

Best Of The Best (LON:BOTB) (I hold)

Hi Snoo

Thank you for all your posts. I meant to come back to them earlier, but then got side-tracked.

I'm in a bit of a rush so will bullet point some responses:

I play weekly, but have zero intention of ever taking the car if I won, only the money.
I like my practical car and have no need for another one. Also, I know nothing about cars.
International winners would need to pay import duties and possibly taxes on winning cars, so the cash is a more practical alternative prize.
I have a twitter account, but never post. I don't use any other social media, so if I won I would never advertise it (and to be honest, it's just not me to do so anyway.)
As you pointed out Prash has won twice, which seems ridiculous, but it would be a terrible scam if they kept picking the same winner and telling us about it.

Let's not forget that his parents run the GP surgery he works in (it's on their website). They are clearly not a poor family and I imagine they wouldn't be willing to risk going to jail for participating in a scam.

Also, they do disclose in the youtube video that he has won before.
Youtube Video
The fact that local media post reports on winners gives credence to the competition's legitimacy.
Every winning post comes with a letter signed by auditors and a law firm.
Here are 3:
https://cdn.botb.com/media/228...
https://cdn.botb.com/media/358...
https://cdn.botb.com/media/297...

Note that Wilkins Kennedy was incorporated under the name of Azets (as were several other subsidiary accountancy firms), hence the apparent difference in auditors in the 3 letters marked above, but it really is the same auditor.

I cannot imagine either the auditors (which look international) or the lawyers would let their reputations be tarnished over something as simple as a spot the ball competition.
Prize values have recently decreased. If this was a scam, there would be much less need to do this.

This could of course be a very elaborate scam, but there's a lot of evidence implying that it is really just a spot the ball competition with quite significant cash prizes.

Cheers

Abtan

Thanks for your input, appreciated.

I don't think its a scam, but the audit doesn't really prevent that. All that says to me is that it verifies the judges are there on that day, they picked a location, and that the closest entry in the system has won prize - ie. they haven't allocated it to their friend who was miles off.

So in that sense, BOTB do not 'pick' the winners. If that Prash fella happened to successfully get it right 5 times in a row, the site would have no choice but to award him the 5 cars, no matter how implausible or fixed it sounds to everyone else.

Using a rough estimation if you played every week the expected win rate is 1 in 5000 weeks, or 1 in 2500 if you get your wife to play as well. So 3 in the current space of time and the Brandon Klayman example raises the possibility that people can raise their chances above the norm.

I don't think the audit would pick up a scenario where customers contacted judges, a provisional 'leak' of projected answer given, and multi-accounting used to bombard lots of entries around that spot. The audit would only care that the winner is the closest to what the judges say. So it's possible to have a situation where something passes an audit, but also is not legit.

To see two events of very large probability occurring is quite surprising; i just wouldn't be surprised at all if multi-accounting was in use. After all, it's not illegal, more entries make BOTB more money, I don't expect them to be very hard on it as most people won't do it.

I guess what I haven't been able to shake is how winners are reported. I would guess many people are like yourself, preferring to take the cash and not the car. Yet the winners videos all have the implication that the person has won the car.

The local press stuff is not persuasive to me. I've been a journo a long time ago, stories like these I suspect are already written. How else would a local rag know that someone has won? The stories all pretty much follow the same formula. Given one of the board members previous ties to News International this is no surprise.

I don't think press coverage is any indication of legitimacy. Recently Football Index was exposed as nothing more than a ponzi. But this had a load of features in respected publications, and people 'invested' as a result. The reason why those articles ran was because Football Index paid affiliate revenues for new business generated. The same kind of deal I think BOTB is doing with the Sun - a perfect target market.

So the biggest bugbear is the lack of any winner social media; I find the 'I don't have social media, so why should anyone else', not that good. To be sure not everyone has social media. It would be normal to Google one or two names and find nothing. But when that number goes to 15, 20, and they have nothing or virtually dormant accounts that is a bit suspicious.

I did find a previous winner with an active Facebook account, and very active - multiple posts per day, lots of photos. She posted the official BOTB video of the day she 'collected' the car - but since then, no mentions, no photos of it either. Prior to winning she re-posted BOTB communications like other winner videos, but that all stopped after she won. But you would think that winning would make her to have an even more favourable outlook on the company and enter/repost other competitions.

Combined with that other lifestyle winner who can post pictures of trainers but not of his £12,000 haul of electronics, I really sense that my suspicion of some kind of NDA is about right. But then again, much like the multi-accounting, is this illegal? Probably no, so as a shareholder it may not bother you.

Personally I think more regulation could come in. You could make an argument that for any gamble, punters should be given sufficient information of the probability of winning. For prize competitions online this could be as easy as a real-time counter of tickets sold; and/or a mandatory minimum prize payout ratio. So, there could be a cash top-up to bring that in line if the car is not sufficient.

For instance I regard some of those raffles trying to shift houses as a bit of a con. Omaze's charity structure means that most of the public won't criticise it: 80% of net proceeds go to charity. But I think a lot of us would know that net means that any number of large expenses could be thrown at it. Stuff like TV advertising must be running up the bills heavily, but all that gets paid before the charities get a cut.

The last set of results showed a large increase in turnover (amount of BOTB games played) yet also a bigger increase in profits - less tangible prizes given out per pound staked. Yet I bet virtually all players would have no idea whether implied value is getting better or worse. In fact it would be possible to drive down payout levels to very low levels (which then means profits are very high) and many players wouldn't have a clue.... they pay money every week, not really expecting to win, so are not very disappointed when they don't win, and still play again the next week.

With virtually all players losing, value is very diffcult to perceive. I think BOTB do a much better job than the competition here, with video content and consolation free bets.

But I guess for shareholders there must be some ambivalent feelings regarding this: increasing player fairness with regulations would be seen as a good thing by most of society but would be bad for BOTB business.
If these prize competitions become common, I think its inevitable that it'll happen as no doubt there will be more unscrupulous operators who wouldn't mind ripping people off.

Dachsis Capital

28th Jul '21

Re LON:BOTB I wonder if 'the facts have materially changed' when it comes to operating performance? It seems pretty logical to me that as we were all 'released' and with Euro Football looming other 'normal' distractions of life would resume. You see that reflected positively in todays strong beat from Campari Group. However, what is not discounted in the share any longer is a return to the 'new' normal, something that will become easier under autumn/winter conditions and ping induced self-isolation. I suspect activity is already back up to its pandemic levels and look forward to the companies next report. What is less palatable is to close the 'formal sale process' for the business in February and then a month later see the family take £60m out of the company. The unabashed positive sentiment towards Mr Hindmarch and team will be forever dented if a return to usual trading conditions and cashflows is not forthcoming. As they still have 47% of the capita, I have taken the view to double my holding at £15 over the past week or so. Fingers crossed / ball spotted !

6th Aug '21

Hi Snoo and any holders

I don't usually comment on a company unless there's an update or news, but I have snoozed recurring tabs in Chrome and this morning the following Alexa.com web traffic tab for BOTB popped up:

https://www.alexa.com/siteinfo...

The apparent rebound in July (which was after the last "warning" update) looks good, though for complete transparency:

I never fully trust these web traffic websites, though I have wondered whether the trends are somewhat correct.
Management told me not to trust the numbers in them.

Despite the above, the reason I bring it up is because I noticed a mention of "Omaze" in the Alexa results.

I've heard it mentioned on this site too as a competitor to BOTB so I've decided to check out their website. I have a few thoughts to share:

They only have 2 house draws at the moment, with a "bonus" car prize thrown in if tickets are bought by a certain date.
They say they are a prize draw, not a house raffle.
From the Gambling Commission's website on "Prize Draws":
https://www.gamblingcommission...

As far as I can see there is no skill, judgement or knowledge required - punters just buy a ticket and hope they win.

There is actually a specific section for house raffles on the gambling commission website, but as per the screenshot above, the company specifically states that it is NOT a house raffle.
https://www.gamblingcommission...

4 . Finally Omaze is 100% not a charity, so it can never claim it is running its competitions as such. From the "Fundraising Regulator," which Omaze specifically mention on their website.

https://www.fundraisingregulat...

----

In conclusion, I'm not even sure how Omaze is allowed to do what they are doing in the UK.

With Best Of The Best (LON:BOTB) at least there is a discussion on whether it is skill-based - Omaze seems like it's a pure housing raffle (which it claims it isn't) or possibly a Prize Draw, which if it is, looks to be illegal.

It will be interesting to see how this one pans out. For the moment though, at least in my biased eyes, Omaze doesn't seem like a serious competitor to Best Of The Best (LON:BOTB) .

gus 1065

Fine work Mr Holmes. I suggest Best Of The Best (LON:BOTB) shareholders put a discreet call in to the regulator! The regulator can’t claim Omaze are under the radar as they’ve been on a TV advertising blitz of late.

Gus.

Rusty2

deleted wrong post.

JonBeddell

24th May '22

@Paul Scott it would be great to get your updates views on Tharisa given recent progress and Ukraine etc. Any chance of an update?

Small Cap Value Report (Friday 9 July 2021) - COG, PMI, IKA, THS

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Cambridge Cognition Holdings (LON:COG)

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