Small Cap Value Report (Mon 11 June 2018) - XLM, SOM, RDL, TRD, IGR, Quindell

Monday, Jun 11 2018 by

Good morning!

Before I get into today's report, I'd just like say how thankful I am for the early comments. Besides alerting me to the stories which you find most interesting, they also help me to spot things I might otherwise have missed. So long may this continue!

Today, the following stories have grabbed my attention so far:


  • Share price: 118p (-31%)
  • No. of shares: 220 million
  • Market cap: £260 million

Trading Update

Performance has stalled at this Israeli performance marketing group, registered in Jersey.

General thoughts

Can we trust these Israeli (and Greek, Cypriot, etc.) small-caps, listed on AIM? It's difficult to generalise, but my basic point of view is that I always want to feel like the shares I buy have a sturdy relationship between the shareholders, directors and the company itself.

This is related to something I was taught about property investing. From a legal point of view, you can't buy land. You can only buy title to land, i.e. the right to do certain things with a specific piece of land.

It's the same with companies. We don't buy companies, we buy securities (bonds, shares, etc) which give us rights to do certain things (collect coupon payments, collect dividends, vote for Directors, etc). If there is something wrong with the securities themselves, then there is something fundamentally wrong with our investment.

Usually, we don't have to worry too much about the legal integrity of company shares. But sometimes, it matters a great deal.

I currently own shares in just one company not registered in the UK: DP Eurasia NV (LON:DPEU). This is active in Turkey and Russia, and is registered in the Netherlands. I accept that this is a risky stock, and so my position is very small. However, I do take some comfort in the Netherlands registration, since the Netherlands is on…

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All my own views. I am not regulated by the FSA. No advice.

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XLMedia PLC is the United Kingdom-based online performance marketing company. The Company focuses on paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers. The Company's segments include Publishing, Media and Partners Network. The Company owns over 2,000 informational Websites in approximately 20 languages. Its Media division acquires online and mobile advertising targeted at online traffic with the objective of directing it to its customers. It buys advertising space on search engines, Websites, mobile and social networks and places advertisement referring users to its customers Websites or to its own Websites. It manages marketing partners, whose role is to direct online traffic to its customers. Its partner program enables affiliates to have a single point of contact for directing traffic. more »

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Somero Enterprises, Inc. is a manufacturer of laser-guided equipment. The Company's equipment automates the process of spreading and leveling volumes of concrete for commercial flooring and other horizontal surfaces, such as paved parking lots in North America. The Company's products include S-22E, S-15R, S-15M, STS-11M, S-840, S-485, CopperHead XD 3.0, Mini Screed C, PowerRake 3.0, 3-D Profiler and SiteShape. Its Somero Floor Levelness System monitors Laser Screed performance, operator performance and reports alert percentages of issues. The Somero SiteShape System allows for grade shaping automatically using users' motor grader, dozer or other grading machine. The Somero 3-D Profiler System allows automatic paving of contoured sites using a Somero Laser Screed equipment. The CopperHead XD machine encounters applications, such as chaired rebar, low slump and poor subgrades. The Somero eXtreme Platform (SXP) allows users use their Laser Screed equipment. more »

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RDL Realisation PLC, formerly Ranger Direct Lending Fund Plc, is a United Kingdom-based company focused on realization strategy and a managed wind-down. The Company’s investment objective is to seek to effect a managed wind-down with a view to realize all of its investment. It seeks to sell its investments either to co-investors in the relevant investment or to third parties. more »

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

55 Comments on this Article show/hide all

Graham Neary 11th Jun '18 36 of 55

In reply to post #372304

Hi V, thanks for the suggestion. I didn't get around to covering Aquis today. Exchanges can be fabulous investments, so I will hopefully get a chance to study it in the weeks ahead.

RNS announcement at this link:

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john652 11th Jun '18 37 of 55

post removed as duplicate of John2's post

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Graham Neary 11th Jun '18 38 of 55

In reply to post #372204

Hi Gus & abtan, thanks for mentioning the receivables point re: IG Design (LON:IGR). I've updated the report to reflect this. Cheers. G

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willhampson 11th Jun '18 39 of 55

Several RNSs from Air Partner (LON:AIR) released a few minutes ago. In the circumstances, to me, the outcome seems the best it could have been for shareholders.

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sharmvr 11th Jun '18 40 of 55

In reply to post #372509

Wtf man. Someone should tell them sun is shining and the beer garden awaits!

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sharmvr 11th Jun '18 41 of 55

In reply to post #372484

Thanks Graham - appreciate the response.
Great set of analysis today and last week!

As long as people are driving, doesn't hurt to own the road! Will add to the WL, will be looking at the market share and growth

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shipoffrogs 11th Jun '18 42 of 55

"KPMG accepts the findings in relation to two particular areas where it should have done better, but also points out that it was led astray by Rob Terry & Co."

The trouble with that is that quite a few people who didn't have the access that the auditors had could quite clearly see what was going on, and called it out for what it was.

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Johnny2509 11th Jun '18 43 of 55

Air Partner (LON:AIR) finally get their house in order and the results are’t as bad as first feared. Which is nice.

Financial Highlights:

· Gross profit of £36.1m, a year-on-year increase of 13.8%, reflecting robust trading in the Charter division and continued progress in the Consulting & Training division
· Underlying profit before tax of £5.8m, a year-on-year increase of 23.7%
· Statutory profit before tax of £4.8m, a year-on-year increase of 20%
· Underlying EPS of 8.4p, a year-on-year increase of 41.8%
· Proposed final dividend of 3.8p, an increase of 5.6%, payable on 20 July 2018. Full Year dividend up 5.8% to 5.5p
· Strong Group financial position with net cash of £4.8m

· Accounting review completed
o £4.0m overstatement of net assets, net of associated corporation tax, in line with the RNS of 11 April 2018
o Profits restated across years 2010/11 - 2017/18
o Total cost impact of £1.3m to be expensed in 2018/19; review fees of £0.8m and £0.5m of aborted acquisition costs
o A thorough, transparent and detailed review
o The issue has been contained, reviewed and resolved
o Air Partner is well placed to pursue its strategic aims

Pleased to see the board have confidence for the upcoming year ahead:

Mark Briffa, CEO of Air Partner, commented: "I am pleased to be reporting a strong trading performance. In addition to robust trading in our Charter division, we saw an encouraging performance from the Consulting & Training division, reflecting the progress we are making against our strategic objective to create a balanced business mix. Since the year end, Baines Simmons and SafeSkys have been awarded multi-year contracts by the Ministry of Defence and the Royal Air Force respectively, and the pipeline ahead is healthy across all our divisions.

It’ll be interesting for current shareholders once trading starts tomorrow. Will they run to the hills or sit tight?

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Trident 11th Jun '18 44 of 55

Off Topic. I notice the interactive investor website had a website format change. Looks fairly disastrous to me, and to quite a few users.

Seems to totally lack an intuitive approach, and you feel disorientated when you try and pick up where you left off in terms of usage. Strangely the share price information, and volumes seem to be absent, which is slightly amazing for an investor website. Or maybe stuck in the confetti of the new look, I totally failed to find it!?

I think it sort of feels like a shop where when you eventually find what you want after an exhausting search, they smugly tell you how many other people where looking for the same thing, losing the key imperative of why you were there.

Anyway, a great warning to all who wish to change their websites, but unfortunately quite a common failing.

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sharmvr 11th Jun '18 45 of 55

In reply to post #372554


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Edward John Canham 11th Jun '18 46 of 55

In reply to post #372579

Air Partner

I think its worth bearing in mind that every figure you have noted in the financial highlights is subject to the following:-

'Accounting Treatment

· The total cumulative impact on total net assets as at 31 January 2018 was an overstatement of £4.0m net of corporation tax (£4.4m gross); this is in line with the guidance previously communicated.

· Of the gross total, £0.9m was identified as relating to the year ended 31 July 2011. The nature of the accounting information systems meant that it has not been possible to reproduce all original supporting documents at given points in time and so it has not been possible to specifically attribute the remaining £3.5m to individual trading years, nor to individual lines in the Income Statement.

· The Directors deemed it appropriate to correct the unidentified £3.5m overstatement by apportioning this amount on a straight line basis across each trading period. The Directors believe that, after adopting this correction, the historic adjusted accounts broadly represent the growth pattern of the company since 2010.

· As a result of the Board's apportionment the profit for both 2017/18 and the prior year is stated after a £0.4m pre-tax correction presented as exceptional costs in each of these years. There was no related impact on cash or debt balances.'

This straight-line apportionment means you cannot have the normal level of certainty concerning the income statements for the FY's 2017 and 2018 and therefore, also, the movements from year to year.

The normal way to have dealt with the error arising would be to confirm the revised balance sheet situations at the end of FY 2016, 2017 and 2018 and the income statements, therefore for FY 2017 and 2018. This would have given 'clean' results for FY 2017 and 2018 and the remainder prorated backwards from FY 2016. Since this has not been done the inference is that the accounting system has been woeful.

I think a bit of caution is indicated.


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hayashi22 11th Jun '18 47 of 55

Re Trident post 44.Got to agree about iii. Shambolic and clearly not done by anyone who actually invests or uses an investment site. The key thing is quick access to the posts -no idea where they have gone.

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abtan 11th Jun '18 48 of 55

In reply to post #372329

Thank you for highlighting this,

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abtan 11th Jun '18 49 of 55

In reply to post #372334

As a holder of Somero Enterprises Inc (LON:SOM) I thought that management have been quite honest when it has come to China and the potential for growth there.

The last I remember, they said China wasn't really working; today they're saying there's reason to be optimistic.

As you and Graham have noted it would certainly be good if there was progress in China, but Somero Enterprises Inc (LON:SOM) is still a core holding for me without it

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abtan 11th Jun '18 50 of 55

In reply to post #372204

Hi Gus

I emailed IG Design (LON:IGR) IR this morning regarding the increased receivables and they impressively responded to me before 9am. Their response:

"Thanks for getting in touch with your question. This is due to an increase in total sales, the acquisition of Biscay, and the larger amount of sales achieved in the last quarter of the year. I hope this is helpful."

I didn't notice that a comment had been made on high 4th quarter sales, but it does help explain things.


I then added a follow-up question on the increase in late payments (image included again below) and whether it was an issue. Their response:

"The Company has no concerns around this increase, it was primarily due to timing and is now substantially collected."

I do wonder why they didn't simply state this as the increase is quite significant, but all cleared up now.





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Julianh 12th Jun '18 51 of 55

In reply to post #372149

Hello abtan
I am most impressed that you picked up the overdue debt issue. With other RNS's to read and maybe other work to go to or to do it is always easy to miss important points buried deep within the body of a results statement. And things like this can be really important.
I wrote to Giles Willits (Chief Financial Officer) to find out more. His response included the following:
"In terms of the increased overdue balance then this is really a timing around year end point and the significant majority of the debt is now collected. No bad debt"
I was most impressed by the speed and clarity of his response. I am taking these words as a confirmation that there is no (or at least no significant) problem here. On that basis I am very happy to continue holding.

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hawkipa 15th Jun '18 52 of 55

Hi Graham,

Ranger Direct Lending Fund (LON:RDL)

Have been pondering Ranger Direct Lending Fund (LON:RDL) a little and wondered about the validity of the NAV. Whilst I'm no expert on the holdings, it could well be the case that as the market senses they will become sellers of the assets during a wind up period that bid levels will be much reduced. The sales process could be done in a number of ways, but one thing is for sure is that the valuations will be aggressively marked down whichever process is undertaken. The worst thing for secondary illiquid assets is always a public sale and this will undoubtedly be so. Also, if you add into the mix that the sales process might be undertaken by someone not familiar with the assets then the risk of destruction to the NAV is substantial. So, if the NAV is at risk does this not challenge the investment thesis? Just a thought.

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Graham Neary 15th Jun '18 53 of 55

In reply to post #374519

Hi Paul, the validity of the NAV is indeed the key question.

The loan portfolio has been created through investment on a range of lending platforms to a variety of sectors, and their typical liquidity would be poor.

Both Oaktree and LIM have indicated that they want for an orderly wind-down. LIM in particular said that they would be happy for the existing investment manager to be retained to collect the loans as they mature, while also being open for block sales of the loans should a bidder re-emerge.

Average length of the loans is 2 years. Allowing the existing portfolio to mature is the strategy I would be in favour of. As the portfolio shrinks and of course if there are reasonable bids. then a sale could also be considered.

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Wimbledonsprinter 25th Jun '18 54 of 55

In reply to post #372289


Thanks for your comments re Triad (LON:TRD). I have looked into the company intrigued by its valuation. I notice that on 7 April 2017, 3 1/4 million shares were vested into the care of Paul Atkinson, as Trustee in Bankruptcy. Upto 15 May 2017, Atkinson sold 556,000 shares. Since then there have been no further disclosures of sales. Presumably it is the reference to these shares that are referred to in the full year report where the company says that, after a “thorough investigation”, it is able to confirm that there is no overhang of stock waiting to be sold in the hands of a trustee in bankruptcy. Do you have any further info on ths situation? It is a bit confusing.

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insy09 27th Jun '18 55 of 55

For (LON:XLM) 22% of revenue is from North America with the recent legalisation of gambling in Jersey and other states expected to follow. (LON:WHM) expected to perform well from their footprint in the US for example and Stars purchase of Sky Bet.
I can see a huge upside in mobile gambling when retail customers convert to mobile. Is their something im missing here?

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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