Small Cap Value Report (Mon 1 Oct 2018) - BOTB, WEY, BST, RNWH

Monday, Oct 01 2018 by
81

Good morning!


CEO Interview - Best Of The Best (LON:BOTB)

(at the time of writing, I hold a long position in this share)

It's been nearly 3 years since I last interviewed William Hindmarch, CEO of BOTB - a small AIM-listed company which operates weekly supercar & luxury goods competitions. The company has transitioned from operating in airports, to online. There is only 1 airport location left, Birmingham. This has partially obscured the growth from online.

My feeling is that the company has the potential to become more highly valued, if the growth rate can be stepped up. It has been paying generous divis in the last few years, including specials.

As usual, I like to crowd-source the questions for my interviews, from you. Therefore, if you have a question that you would like me to ask William, please leave a comment on today's report here, below.



Wey Education (LON:WEY)

Share price: 15.0p (before market open today)
No. shares: 130.7m
Market cap: £19.6m

(I no longer hold any position in this share)

Trading update

This is an educational business, operating online home schooling services.

Setting up the proposed JV in China is taking longer than expected.

The delay is not expected to have any material effect on revenues or profits for the current year given the internal budgets for the anticipated build-up of the operations this year.


The current year ends on 31 Aug 2019.

Current trading - the main business seem to be going well;

The Company is pleased to report that at this early stage of the new financial year all business divisions are reporting an encouraging start. The Company has previously stated that in addition to its international operations, its priority for the current year is to drive growth in its traditional online school and B2B division.

It is pleased to note at this stage of the year, those divisions are reporting sales activity materially ahead of the equivalent position at this time last year.


Broker update - the house broker has put out a short note today, saying that it will not be making any changes to existing forecasts.

My opinion - the 2019 forecast looks very aggressive - with revenues more than doubling, and…

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Best of the Best Plc runs car competitions. The Company displays luxury cars as competition prizes in rented retail space within airport terminals, at shopping centers and online. The Company is engaged in selling tickets to passing airport passengers, as well as from online customers through its Website. The Company operates from approximately eight United Kingdom and over two international airport sites, as well as approximately from three shopping centers. The Company operates from various airport sites located at Gatwick North, Gatwick South, Birmingham, Manchester Terminal 1, Edinburgh, Dublin's Terminal 2 and Westfield shopping center located in London's Shepherds Bush. The Company's Indian franchise trades under the BOTB brand from Hyderabad airport. The Company carries out its principal operations in the United Kingdom. The Company's subsidiary is Best of the Best ApS. more »

LSE Price
232p
Change
 
Mkt Cap (£m)
23.4
P/E (fwd)
n/a
Yield (fwd)
n/a

Wey Education plc is a holding company. The Company, through InterHigh Education Limited (InterHigh), operates online independent secondary school in the United Kingdom, offering The International General Certificate of Secondary Education (IGCSE), AS Levels and A Levels. The Company's subsidiaries include Wey ecademy Limited, Wey (Newco 1) Limited, Wey (Newco 2) Limited, Wey (Newco 3) Limited and Wey (Newco 4) Limited. more »

LSE Price
12.6p
Change
2.0%
Mkt Cap (£m)
16.5
P/E (fwd)
8.8
Yield (fwd)
n/a

Big Sofa Technologies Group PLC, formerly HubCo Investments PLC, is a holding company for Big Sofa Limited. The Company is a business to business (b2b) technology company that provides video analytics, serving both brand owners and market research agencies. The Company has built a platform developed in the Ruby language and using the Rails Web framework. Its platform enables users to ingest, manage, search and perform detailed analysis of video, images and audio content. It enables consumers to upload unstructured video content to its cloud-based analytics platform. The platform then transcodes and transcribes the data into a structured and downloadable archive of content. The platform can be used on a software as a service basis or in conjunction with its account teams. In addition to the analytics platform, the Company has developed a range of ancillary services for brands, agencies and consumers to upload video into the core platform. more »

LSE Price
2.9p
Change
 
Mkt Cap (£m)
4.0
P/E (fwd)
n/a
Yield (fwd)
n/a



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


24 Comments on this Article show/hide all

IGotPoesJacket 1st Oct 5 of 24
4

In reply to post #403369

My understanding is the ticket price changes depending on what car you pick, therefore on average it doesn’t matter what car the client chooses, no different to any other betting system really.

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Zipmanpeter 1st Oct 6 of 24
6

Paul,
Re Best Of The Best (LON:BOTB) - My fear as a BOTB investor is that it is, and plans to remain, effectively a profitable small, private company with a legacy AIM listing (obtained for credibility years ago, now maybe for retained tax benefits/status) that gives its director owners a great lifestyle. What I WANT to hear is that that is has professional management with ambitious plans to realise and MAXIMISE its potential for investors. Hence:

Q1. What is the scale of ambition/numeric target within 5 years - in terms of either turnover, net profit
Q2 What are its key long term strategies to achieve that growth - grow international sales, drive social media, drive non-car lifestyle tickets.

Current annual 'strategic report' is really a summary of short term tactical decisions/plans and is short of numbers/splits - although I like it has tested its way to dropping physical sites, is adding a lower price point lifestyle competition and "As confidence in the returns on investment improves, we anticipate increasing our marketing budget by approximately 40%" in 2019

...But if it cannot think how to grow even faster by retaining cash for investment (and I do doubt its real marketing skills !) and it plans to continue to return cash as dividends,
Q3. Why can it not offer higher regular dividends at predictable points vs ad hoc, variable ones (vs when a bill for school fees or similar comes in as seems to be the driver now?).

Sure you will word questions more positively and constructively than I have.

I continue to hold since I can't bring what I think is a great business ......but I worry someone more aggressive and with deep pockets could steal the pot.

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Stocks123456 1st Oct 7 of 24
8

Paul thanks for calling BST out in your previous article. I got out because of that. Another Share Prophets howler.

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Paul Scott 1st Oct 8 of 24
25

In reply to post #403404

Hi Stocks123456

I'm very pleased that my previous article on Big Sofa Technologies (LON:BST) saved you some money!

AIM is an absolute minefield, so a key purpose of this column is to warn people away from shares which have little commercial substance, but are promoted heavily elsewhere.

Obviously we don't get everything right here, but Graham & I get a lot more right than wrong. I think that's because we focus on the numbers, and not the hype!

Best wishes, Paul.

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rmillaree 1st Oct 9 of 24
1

Wey Education (LON:WEY)

With WEY - excellent piece of bluntness Paul - along the lines of "i don't believe it"

I can see where you are coming from in this regard , i would be interested to know how much the company thinks the overseas China/Africa stuff will contribute this year towards their expected turnover and profit totals . I would be alot more comfortable if this was all very minimal and i suspect that may not be the case.

Note the company did say the following back in August which does make me suspect there is some risk with regard to their current forecast expectations being achievable. Particularly as they are already being delayed in China. Could in be a case of their pint glasses are permanently brimmed to bursting perhaps :)

"The board is planning for significant revenue growth in the year ahead, but the extent will be partly dependent on the pace of overseas growth."

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Gromley 1st Oct 10 of 24
29

My initial reaction first thing this morning to the trading statement issued by Wey Education (LON:WEY) was that it was preparing the ground for a future profits warning.

On further reading, I think it is an actual (but ‘camouflaged’)  profits warning and I have other concerns.

So what do they tell us in today’s trading update?

On China : 

The board had hoped to conclude all matters to do with its proposed joint venture by the end of September. Wey wishes to ensure that the arrangements in place for corporate governance and financial reporting for the proposed JV in China are at a high standard, but the necessary documentation is taking longer to complete than originally anticipated.

That is all very reasonable. If I were looking to do business in China I would certainly want the very highest standards of corporate governance before going ahead and a small delay to ensure that would be the correct course of action.

  Also :

The delay is not expected to have any material effect on revenues or profits for the current year given the internal budgets for the anticipated build-up of the operations this year.

Again perfectly reasonable, you wouldn’t expect a new start up to make much contribution in the first year.

But, in a trading statement little more than a month ago they said :

With first sales expected in September 2018, it anticipated that China should make a meaningful contribution to revenues next year [being the now current year] but the extent of this contribution will be dependent on timing of new contracts.

 So at best we have drifting timelines and selective interpretation as to whether China is material/meaningful this year.

China though was not my main concern here, there is a trading update on the existing business divisions who had an :

encouraging start
materially ahead of the equivalent position at this time last year

Well, pardon me for being picky, but if I was expecting to double my turnover between YE 2018 and YE 2019 (as per forecasts) I think I would be looking for an “exciting” start and to be (at least ‘significantly’ ahead of the prior year.

 

And what exactly is it that is ‘materially ahead’ of last year?

sales activity

Now, I might well just be getting overly pedantic here, but if actual sales were ahead, why would you feel the need to add the word ‘activity’ . It might just be sloppy use of language, but it might be something else.

My final concern , is that in looking back at this I see that last week they had an EGM to pass resolutions to give  them authority to allot up to 40,00,000 additional share and dis-apply pre-emption rights[*]

The previous authority expired in August; I am not sure why given that these motions are normally passed on the nod at AGMs and routinely last until the next AGM.

Equally with the next AGM, presumably, scheduled for January; which is not so far away; I wonder why they were in such a hurry to reinstate this authority?

One POTENTIAL scenario, that would tie this all together, would be that they do indeed intend to raise new funds in the very short term (before January? ) and that with the share price having fallen by nearly 20% over the last few weeks, they were keen to use today’s TU to shore up the share price.

I believe they have enough cash and cash-flow to keep the business running, so any fundraise would likely be for growth  which would not necessarily be a bad thing for shareholders in the medium term. However, discounted placings are generally bad in the short term for existing shareholders who are not invited to take part.

This may of course all be wild speculation, but food for thought at least.

DISCLOSURE :  I have a small short position here as part of my highly diversified SR based short portfolio.


[*] Just a quick side bar  rant on disallowing pre-emption rights.


This essentially allows the company to conduct offer new shares (e.g. placing) without having to make the offer to all shareholders. Now I do understand that is costs money to do a full rights issue  or such like involving all shareholders and that in the case of small fundraises it is may not be cost effective, however it is clearly not fair.

It just occurred to me that the idea that an EGM can disapply these rights is quite farcical really. Who will carry the vote at such a meeting? The large shareholders not the small shareholders. Who will be invited to take part in any discounted placing? The large shareholders not the small shareholders.

Anyway I’ll leave the rant there, I don’t expect anything to change.

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john652 1st Oct 11 of 24

In reply to post #403379

Hi IGPJ,

that may be the case but payout ratio still applies, the more tickets they sell the worse the odds. I thought by law they had to publish the odds, bit I cant see them anywhere.

Paul (sorry thought Graham was writing today) I still think this is a very valid question.

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Flitty 1st Oct 12 of 24
4

I bought BST last year due to the hype on ADVFN and Hotstock Rockets.The latter said it would be soaring way beyond 60p by now or words to that effect.They painted a very rosy picture and I was not the only one suckered in.The tipsters claimed to have a very close relationship with the then CEO Mr Reynolds and hinted they had the inside track straight from the horses mouth.Cant the FCA step in and close down these tipsters for once and for all?

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Zipmanpeter 1st Oct 13 of 24
1

In reply to post #403409

Paul,

Thanks to Gromley (comment no 10) for this and proof of how wide a business understanding is required to invest successfully as a small investor (and the benefit of the SCVR/stocko group mind).

Following his note on Wey Education (LON:WEY) I recalled that I had just read in the Best Of The Best (LON:BOTB) Annual report (p51-52) about plans for ordinary/special AGM resolutions.  Resolution 6 was to allow allotment of shares to 168, 309 nominal value (which at 5p =  168,309/0.05 = 3.36Mn shares), equivalent to 30% of the company.  Resolution 7 was to  "Dis-apply pre-exemption rights" to the same

Since the management effectively control the business, the resolutions passed (99.8% votes cast were in favour!)  

I therefore now have a Q4 for BOTB
Q4 Do Best Of The Best (LON:BOTB) they plan a rights issue/bring in a major new investor in next 12months and if so how will small shareholder be treated.  (And if yes, should we be worried or happy!)

Apologies if paranoid but I come from a Marketing not Finance background so the financial/legal language and its import is tough for me to understand

As an optimist, I hope this mean a deal whereby a big company might buy in at a premium (enabling current owners to cash out in whole or in part) and use their scale/mailing lists to drive faster growth.  More pessimistically, I am going to regret a dominant ownership structure.

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Gromley 1st Oct 14 of 24
2

In reply to post #403449

Hi Peter,

Hopefully this will put your mind slightly at rest, but I had a look at the resolutions and if my reading is correct ( from the R&A page 58)  then they were granted authority to issue c. 33% additional shares but the disallowance of pre-emption rights only applies to the first 5%. IE if they wanted to issue more than 5% extra shares I believe (but I a not a layer!) they would be obliged to offer them pro-rata to all existing shareholders.

(In the case of Wey the have authority to issue c.30% new shares and the first 10%  are covered by the ability to disallow pre-emption rights)

I wouldn't suggest that companies generally would issue new shares with the intent to dilute small shareholders, but it can be effect if they choose the easy route to raise new funds.

Yours imho though is a worthwhile question to ask of BOTB to get a feel for how attuned they are to their smaller shareholders.

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rmillaree 1st Oct 15 of 24
1

In reply to post #403429

Gromley

Wey Education (LON:WEY)

I don't think this should be deemed a profit warning on the basis that the current broker forecasts are remaining unchanged - surely if they were lowering profit forecasts the broker would have been in the picture and therefore lowered their projected figures. So presumably any slack in one part of the business is being made up elsewhere. so the semantics may be poor but they are not changing overall expectations. also to be fair to the company we are only one month into the new year so i would expect the wording to be wishy washy - in some respects to me materially ahead comes across exactly the same as significantly ahead.

It is though very annoying as usual the trend of companies to make everything as complicated as possible to digest - a one line statement saying we are happy current expectations remain unchanged (in alignment with the broker saying the same with some figures) is all i need to see if its as it was, anyway what they say one month into the year is worth zilch as there is plenty of time for their expectations to end up with Dusty later in the year as most bods seem to think will be the case.

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Zipmanpeter 1st Oct 16 of 24
1

In reply to post #403454

Thx Gromley re Best Of The Best (LON:BOTB) response on potential share issue/dilution. I am re-assured having now read p58 (except I am not sure why I previously stopped reading at P52 other than from mental exhaustion at legal syntax!). It does look as if this is simply a continuation of a sensible precaution not anything more or new.

I leave the field chastened but (hopefully) a little bit wiser !!

:)

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Nick Plantman 1st Oct 17 of 24
2

BOTB - I like this company I hold a few shares and play the weekly competitions and understand the business so with that in mind I would be interested to know has the new lifestyle competition been a positive move for the business and has it increased both the amount people play this and the Dream Car game has it pulled more players to the site, and has lowering the overall price of dream cars but decreasing the discount for multiple plays worked well for the company.. Finally has the new gaming tax been a higher tax than VAT or roughly the same?
Thank you Nick

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sharw 1st Oct 18 of 24

In reply to post #403434

".....the more tickets they sell the worse the odds. I thought by law they had to publish the odds, bit I cant see them anywhere".

That may be the case for a lottery but I was surprised (and put off) by the fact that Best Of The Best (LON:BOTB) is not a lottery but a spot the ball competition and it is your skill in that respect that will win you the prize.

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Edward John Canham 1st Oct 19 of 24
5

Best Of The Best (LON:BOTB)

Keep on coming back to this:-

MV - £26m
Free float - 15.3%

MV of shares that can be traded - £4m.

No need for funds.

What's the point? Just take it private.One would hope they'd look after the PI - but there's no guarantee.

Phil

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barnetpeter 1st Oct 20 of 24

WEY looks ok to me. Only a small position though. Can see a placing at around 12p though...so wont be adding atm.

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uktim32 1st Oct 21 of 24
1

In reply to post #403444

"I bought BST last year due to the hype on ADVFN and Hotstock Rockets.The latter said it would be soaring way beyond 60p by now or words to that effect.They painted a very rosy picture and I was not the only one suckered in.The tipsters claimed to have a very close relationship with the then CEO Mr Reynolds and hinted they had the inside track straight from the horses mouth.Cant the FCA step in and close down these tipsters for once and for all?"

No keep them them going. Just short everything they promote and you'll make money lol!

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Gromley 1st Oct 22 of 24
2

In reply to post #403469

I leave the field chastened but (hopefully) a little bit wiser !!

Certainly no need to feel chastened peter, we all hopefully learn new stuff every day and I think I might have learned more from the exchange than you.

Although I vaguely understood the disallowance of pre-emption rights , its not something I'd looked at in detail.

Big Sofa Technologies (LON:BST) , covered today, provide us with an horrific example.

Small shareholders were presented with a fait au complet announcement that they will be massively diluted at a massive discount.

How did this happen?

Well firstly at the AGM on 3rd July shareholders voted to allow the board to issue up to 50% additional shares, without applying pre-emption rights.

But that's not the end of the story, today's announcement indicates the company is actually increasing the share count by 64%, which is why they need an EGM on the 18th of October before the issue of the second tranche of new shares can be authorised.

Hurrah shareholders still have the chance to block this massive dilution!

Hmm, except I wonder what percentage of shares are held by holders that would benefit from this deal, rather than small shareholders would be massively diluted?

Answers on a postcard.

Apparently this stuff is legal!

 

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paraic84 2nd Oct 23 of 24

Paul I would appreciate it if you can ask Best Of The Best (LON:BOTB) What specific plans, if any, do they have to enter new international markets or market themselves more in other countries? I just think they lack ambition as a company and would like some clarity about whether they have genuine, detailed plans to go into new markets or whether they just want an easier life and nice dividends focused on the UK.

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Gromley 2nd Oct 24 of 24
1

In reply to post #403459

Re   Wey Education (LON:WEY) .

a one line statement saying we are happy current expectations remain unchanged (in alignment with the broker saying the same with some figures) is all i need to see if its as it was,

Indeed, but they did not make such a statement and it is not because they are incapable of writing a clear RNS , nor I would contend is it because 1 month in to the year is too early.

Last year, they issued a trading update one month earlier, on the eve of the new FY starting.

But despite it being early they were able to give a much rosier view of the year ahead including the statement.

Within the schools, recruitment of pupils continues for the new academic year.  Overall pupil recruitment is on track with management expectations. Pupils already enrolled to study at InterHigh (www.interhigh.co.uk) are ahead of last year.

Whether anyone individually treats this years statement as a profit warning or not is somewhat moot, but I would suggest that one possible explanation for them not making such a clear statement would be if it were not true.

Anyway, we can hope for greater clarity when the FY results are presented later this month.


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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 Stockopedia.com on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »

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