Small Cap Value Report (Mon 1 July 2019) - FUTR, GFIN, GAN, SAG/FST, CRL | Graham Neary

1st Jul '19 by Graham Neary

34 comments 10361 reads

Morning folks,

I'm looking at these today:

Future (LON:FUTR) - trading update - ahead of expectations
Gfinity (LON:GFIN) - trading update - slightly ahead of expectations
GAN (LON:GAN) - update, sounds positive
Science (LON:SAG) bids for Frontier Smart Technologies (LON:FST)
If I have time, I will scroll back and look at Creightons (LON:CRL).

Future (LON:FUTR)

Share price: 1072p (+11%)
No. of shares: 82.5 million
Market cap: £884 million

Update on current trading and Board change

This is a short trading update, so let's just briefly confirm what it says:

more positive trends, performance tracking ahead of expectations
The CFO is becoming "Chief Strategy Officer" from January 1st, 2020. A new CFO will be found before then.

My view - I don't have a strong view on Future's financial prospects, but I can comment on the CFO movement.

It's worrying when a CFO steps down. And it's more worrying when you have a complicated, acquisition-led strategy which a new CFO will need to take over.

In this particular case, we have a CFO moving into a new, non-Board position. Stepping down from the Board means having less overall influence, I think, even if the new title sounds important. While each case is different, a move like this can sometimes be the prelude to the individual leaving the company.

I understand that shareholders in Future have been extremely active this morning, with possible explanations for what has happened.

In my view, the CFO moving into a non-Board role is net neutral for shareholders. If the CFO was unhappy with her prior work for the company, or could predict bad news in the short-term, she would have resigned and moved on as quickly as possible.

For her to stay around means that she still believes in the company's prospects, at least to some extent. It also means that she could potentially help her successor to deal with particular problems, if it is needed.

It also means that Future has the opportunity to hire someone for the next phase of the company's growth.

Changing CFO every four or five years is not so unusual, after…

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MrContrarian

1st Jul '19

My morning smallcap tweet:

Frontier Smart Technologies (LON:FST), Eckoh (LON:ECK), Toople (LON:TOOP), Gfinity (LON:GFIN), GAN (LON:GAN), Boston International Holdings (LON:BIH)

Frontier Smart Technology (FST) firm intention to make a cash offer at 35p from 28% holder Science Group.
Eckoh (ECK) Three-year Coral contract worth $3.8m from US telco.
Toople (TOOP) good May with orders up 250%.
Gfinity (GFIN) guides FY rev and adj EBITDA slightly ahead of market expectations.
GAN (GAN) Q2 ahead of expectations. "Seasonal decline in Internet gambling volumes typically experienced during the early months of Summer mitigated by various factors. Guides FY high double-digit revenue growth.
Boston International (BIH) fails to raise capital for RTO of Cornhill FX Holdings proposed in Aug 2017. Requests unsuspension. Nearly 2 years!

andrea34

Future (LON:FUTR) announce FY ahead of expectations due to continued strong trading - price up 8%.

Carr's (LON:CARR) acquire NW Pump & Valve Ltd for up to £9.6m, which showed turnover of £9.1m and EBITDA of £1.6m last year; seems a good fit and not too expensive.

Hurricane Energy (LON:HUR) plugs and abandons the Warwick Deep well; price down 15%.

Kromek (LON:KMK) announces three contracts worth approx £1.6m over an unspecified period; specifying a contract of £100k sounds like clutching at straws to me to keep the share price buoyant.

fwyburd

Good morning Graham
Malvern International (LON:MLVN) released their results late on Friday - would appreciate your views on them. In particular, I am bothered by the fact they included in their forecast proceeds from a claim against their landlord for water damage which was not forthcoming, resulting in their below market expectation result. Seems strange to me that they would have included this claim but perhaps this is normal?
cheers
Francis

FREng

It's quiet today for news, so I thought I'd ask whether anyone has views on Cenkos Securities (LON:CNKS) which is now yielding over 11.5% (Stockopedia's figure). This is usually a sign that the market believes the dividend to be unsustainable, yet Cenkos has a negative EV and a reputation for prudent management. Is the long delay in getting FCO approval for the new CEO sufficiently unusual that it implies there's a significant problem? (I have a small holding - maybe this is a good time to buy more?)

Edit: by "small holding" I mean shares, not a market garden!

JohnEustace

The FT ran this article highlighting the long standing links between Cenkos and Neil Woodford going back 15 years. I doubt he will have as much business to send their way in future.

I would read and consider it before getting hooked on the yield number. When yields go that high there is usually a reason. That small holding could turn into a few pots of herbs on the patio.
https://www.ft.com/content/551c510e-9289-11e9-b7ea-60e35ef678d2

Edit: I see Crystal Amber are involved so they see some value there. But they are proposing to completely replace the board to unlock it.

davidjhill

Kromek (LON:KMK) - I think you miss the point. The announcement is about working with high value customers. These tend to be small to start and get bigger over time given the others. Their client list is first class, the product is world leading, the margins are high and the CAGR is 30%. Next years revenue forecast is over 80% covered already so expect EBIT upgrades as the year goes on in my view. Trades at just 1.4* TNAV as well. The value in this company is not well understood at all.

The ahead-of-expectations update from Avation (LON:AVAP) looks good to me, very low PER, higher dividend promised... though debt is high, though this is surely owing to the nature of the business. If you have time to spare (unlikely), please can you cover this Graham?

Chrisfarrell21

Morning,

I was intrigued and disappointed by the announcement from Telit Communications (LON:TCM) this morning: https://www.investegate.co.uk/...

In an nutshell it says they have agreed a public censure and fine with the London Stock Exchange for breaching two AIM rules, relating to the non-disclosure of Oozi Cats's previous US indictment.

Initially, this sounded positive, a bit of actual enforcement from the AIM regulator for once, until you get to the bit where it says the fine (which was £350k) has been waived in full because "the Company and its advisers faced real difficulties in being able to reasonably uncover information relating to the former CEO's historical indictment".

I don't know the details of the reasons for why Telit Communications (LON:TCM) was unable to disclose this, so please put me straight if you know the story, but this sounds like a total cop out, again, from the regulator. The fact that the information was not disclosed when it should have been is widely known, so the "public censure" is of no consequence. The fine was the only way the company might think twice about this sort of stuff, but why would they now?

Yours disappointedly,

Chris

Agree, I added further to my Avation (LON:AVAP) holding today. The basic reasoning is simple, they are doubling the size of the business every three years and the share price tends to follow that over time.

yes, also agree on Avation (LON:AVAP). Trades just below NAV even though asset values for planes are higher than what they are being held at on the balance sheet. There is a significant supply gap for planes so second hand values should more than hold up, rental yields will remain strong and the options they hold on future production are probably worth significant amounts if they were also valued, rather than being held at zero.
As you say Mello presentation highlighted that they aim to double the business every 3 years and given the nature of the business the Asset Value follows that. Dividend also starting to progress nicely.

Andrea - re debt. They finance the purchase of planes at around 4%. Then they lease them at circa 12% on a fixed lease matching the duration of the debt. Thus there is no re-financing risk and debt is matched by an asset. The lease is also designed to have repaid the debt at maturity, leaving a residual 2nd hand value and future income stream, which is material. ie a plane will stay in service for 20+ years but a lease will repay the purchase debt in circa 8-10 years. There is no interest rate risk and no currency risk either.

I am long and meant to buy more on the recent dip at 260p but forgot their trading update was today!! Oh well, I will look to buy more around here I think. Very good company with plenty of scope to grow at same levels for many years to come given market size and dynamics.

TamzinPiworld

Another excellent FY results presentation from management at (LON:CRL).

The aspiration remains to get to £60m rev, 5% post tax profit, and ROCE 20% by 2020, but they also include a new aspiration to achieve £100m rev by 2024. They also give a breakdown of how that might be achieved.

Continue to drive down costs through mechanisation, and better sourcing. On-line is a focus. They are moving as the retail landscape moves. Shopping channels are also highlighted.

An excellent presentation full of passion.

Separately, if you haven't seen the Keith Ashworth-Lord interview here, it's excellent. Lots of sage advice for all investors.

Mello companies and Mello Trusts & Funds videos are almost complete here:

https://www.stockopedia.com/content/updated-28619-video-company-presentations-from-mello-may-2019-mello-trusts-and-funds-480006/

A rich selection of those companies and funds who were speaking.

Jetman100

Any views on Manolete (MANO). It has been falling of late like the proverbial brick & yet it seemed to me that the recent results were quite good. I was stopped out this morning. Perhaps Woodford is a shareholder.

Brookeda

Avation (LON:AVAP) is my largest holding and I added to it last week expecting it to re-rate after the announcement. I see no reason why this won't continue to do well for many years and continue to grow at a steady rate. They have an experienced team with plenty of skin in the game.
Biggest thing from todays announcement was the crease in interest rate they now pay which should save them quite a bit in the next couple of years for reinvestment.

Increasingly I see good companies share prices drift down without announcements on anything other than low trade and people with short attention spans getting bored. Adding to these prior to announcements is something I'm increasingly doing when I have conviction on their long term strategy.

Small Cap Value Report (Mon 1 July 2019) - FUTR, GFIN, GAN, SAG/FST, CRL

Future (LON:FUTR)

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Graham Neary

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