Small Cap Value Report (Mon 14 May 2018) - ITQ, SVCA, Cancellations, PKG, CER, ANG, PEG, TERN | Graham Neary

14th May '18 by Graham Neary

38 comments 15276 reads

Good morning!

There's plenty of news to digest today.

I'm going to update this list with planned coverage as the day unfolds:

InterQuest (LON:ITQ) - proposed cancellation
Servoca (LON:SVCA) - proposed cancellation
Park (LON:PKG) - new FD
Cerillion (LON:CER) - interim results
Angling Direct (LON:ANG) - full year results
Petards (LON:PEG) - acquisition
Tern (LON:TERN) - raises £700k

InterQuest (LON:ITQ)

Share price: 19.8p (unch.)
No. of shares: 52 million
Market cap: £10 million

Proposed cancellation of trading on AIM

The writing is on the wall for this small recruitment company. Insiders had previously tried to take it private at 42p.

The Independent Director advised shareholders to reject that offer, on the basis that it materially undervalued the company.

That was last summer. Since then, the Chairman has increased his stake by getting paid shares in deals Interquest made with another company he is involved in.

We now have another proposed cancellation, and the Chairman's holding company proposes to put a bid in in the market for 4.2 million shares at 24p, before the voting takes place. A huge discount even to the 42p price which the Independent Director believed was an undervaluation.

The announcement was released at 5.22pm on Friday evening. It said:

The Directors consider that the Cancellation is in the best interests of the Company and its Shareholders as a whole and therefore unanimously recommend that you vote in favour of the Resolutions

It would be very interesting to hear the Independent Director's rationale for this recommendation! Since the Chairman's bid at 24p is not mandatory, I suppose we can't object on the grounds that the proposal undervalues the company.

Almost 69% of votes have been pledged in favour of the resolutions. The Chairman plans to start buying shares in the market later this week, and this will bring the concert party's aggregate shareholding closer to if not above the 75% of votes needed to push it through.

Assuming that it goes ahead, if minority shareholders don't want to stay invested in a private company which will be completely dominated…

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MrContrarian

14th May '18

My morning smallcap tweet:

Uvenco UK (LON:UVEN), Tern (LON:TERN), Servoca (LON:SVCA)

Uvenco UK (UVEN) cash crisis. "The Company is now in discussions with a third party that may lead to the sale of its trading subsidiaries, Uvenco Limited, the vending operator, and Snack in the Box Limited, the franchising operator. It is expected that the purchaser would also assume a substantial proportion of the Company's debt obligations, therefore it is likely that the consideration receivable by the Company will be minimal."
Tern (TERN) second placing this month, also at 18.5p. At least the discount is small this time but only because the SP was creamed by the previous placing. Buys stake in medical VR company.
Servoca (SVCA) will delist because the SP is too low. 80% of holders in favour. A new broker and nominated advisor [sic] failed to stimulate buying - step forward Alex Price of N+1 Singer.

threeputt

agh, caught out in Servoca (LON:SVCA) delisting. ! I do have some profit from a previous trade in here so not all bad. I'd be interested however whether there remains value in the share if it heads too low and what happens after it delists as it still appears to be a good company, presumably they could discontinue dividend payments for example ? How could the institutional investors see it from their standpoint ?

Would be great to a write up on this as an alternative idea

The dangers of holding thinly traded shares I guess

runthejoules

I think the Tern (LON:TERN) RNS refers to the investment they made with last week's placing, not with another one, though I may have not read it properly? (Small position)

InvestedGeordie

Good Morning Graham,

Three things caught my eye this morning which could be of interest to readers:

i) Spectra Systems (LON:SPSY) announced a G20 central bank have begun funding phase 1 (of 4 phases) sensor development for polymer notes. "Once completed this will become a decade or longer direct sale"
ii) Servoca (LON:SVCA) delisting
iii) Angling Direct (LON:ANG) release full year results showing, on the face of it, some positive numbers.

Disclosure: I hold shares in Spectra Systems (LON:SPSY)

Thanks,

IG

Andrew L

InterQuest (LON:ITQ) is all very interesting but in reality the only solution for investors is not to buy junk. I don't really know the InterQuest (LON:ITQ) story but things appeared to go downhill and now it is being taken private. I note that Servoca (LON:SVCA) is also going private today.

I think investors also need to look at their own strategies here. You need to avoid junk companies to avoid these kinds of situations. InterQuest (LON:ITQ) was the only company rated as ok by Stockopedia a few years back at the UK investors show and I spoke to them there. The CEO seemed confident and ok but I am not really interested in small cap recruiters. It is a low quality area with low barriers to entry.

I know that InterQuest (LON:ITQ) has generated a lot of column inches on Stockopedia and elsewhere but in reality who cares? Why not spend your time looking for higher quality companies?

andrea34

I believe that it will be almost impossible to trade your Servoca (LON:SVCA) shares once they are delisted, in only five days time. Thus I have dumped mine :-/

drvodkaquickstep

Hi Graham

I would be interested in your thoughts on Angling Direct (LON:ANG) as also noted by invested Geordie above.

Thanks!

gsbmba99

A few more for consideration:
- Cerillion (LON:CER) reported 1H results
- Eckoh (LON:ECK) had a trading update
- CML Microsystems (LON:CML) had a trading update.

goingbroke

Cerillion would be good one to look at

Wol

Re the delisting of Servoca (LON:SVCA)
I am sure Graham will have a more complete and considered view. Mine comes from previous experience. When I was ven more of a rookie investor than now I bought shares in a company that had problems and then delisted. What can be so bad, I thought. I still own shares in the company. Since then.... absolutely nothing, no dividends, no information, absolutely no ability to sell the shares. They are in effect totally worthless.
So my best guess would be to sell the shares immediately at whatever minimal price you can get.
And how come this can happen? The RNS says 80% of the investors agree. That is because there is only a 17% free float. So the risk comes not just from it being a micro cap but also from such a small free float which allows the inside holders to do whatever they want regardless of the interests of minority investors.
My commiserations.

Zipmanpeter

Non-Standard Finance (LON:NSF) slipped out 'in line with Mgt expectations" trading statement with their AGM today. Since the business is now probably at a peak executional risk moment now (as major investments made but still loss making), an "in line" trading statement is all I need to see to be happy.

All seems well with rapid (near 20% pa) organic growth in all 3 divisions now and controlled impairment ie leaving high 30% risk adjusted margin

1. EveryDay Loans already rolled out 11 (of 12) more branches this year (now at 64 I think)
2. Guarantor Loans growing fast, record volumes and clear no 2 (to Amigo)
3. Loans@Home still growing customer base (from ex- Provident Financial (LON:PFG) agents) without impairment rising

In my view, should see this share start to appreciate as statutory profitability nears (normalised profit already there) even with IRS9, tail end of acquisition accounting and system investments.

Non-Standard Finance (LON:NSF) is now my biggest conviction hold at present since it involves betting against the computers (SR 20, Q 14, V74, M 6). However, I believe this is a mechanical output of short term thinking on a still new business with major investments in last 18 months to seize 2 great opportunities - buying GB guarantor loans when its P2P funding dried up suddenly and doubling home credit division when Provident Financial (LON:PFG) blew up. (For perspective, it paid S&U £82.5Mn in 2015 for Loans at Home for £37Mn Rev/£8.4Mn profit but paid only £7Mn to add (my estimate) £22Mn Revenue with central costs already in place.)

Underlying cash business is doing very well IMHO and will be hugely profitable in 2+ yrs time when all this had bedded down regardless of whether or not recession hits (recession = impairment up but customers numbers up). Already paying a good divi and has been buying back shares.

Appreciate any thoughtful bear thinking before I make a big fool of myself! Clearly a holder.

JamesrWilson1989

I would counter your agreement ratio. It is important for investors to know WHY InterQuest (LON:ITQ) went the way it did.

I learn alot more from mistakes than victories. I wasn't invested in InterQuest (LON:ITQ) but I'm still keen on learning how it went the way it did so I can look at my own portfolio to see whether anything I own could possibly go the same way.

Not really. It is important to know the characteristics of InterQuest (LON:ITQ) to avoid these kind of stocks. It is not important to know the whole InterQuest (LON:ITQ) saga. There are 100s' of sagas like InterQuest (LON:ITQ) on AIM and who cares. It is not time well spent to look at dodgy companies IMO.

rmillaree

ref Servoca (LON:SVCA)

So my best guess would be to sell the shares immediately at whatever minimal price you can get.

I know nothing about this company, but have had a reasonably pleasant experience from holding a couple of de-listed company shares . Those companies though were both profitable and paying dividends at the time they de-listed. Just Car Clinics resulted in me being bought out a price that was probably 5 x that of what the price was when it delisted - a couple of years later. Touchstone Group is another that have paid decent divis since de-listing and provided a facility for those that want to sell the shares at a price that was possible double what it was when de-listing.

so if you have a reasonably sound financially speaking business i wouldn't presume that selling at any price is generally the best option - particularly if its a cheap lowball exit price compared to what the financials say the company should be worth.

a very quick look at the newsflow seems to suggest the reasons given could be plausible - albeit i would say recruitment industry is one where i would not place much trust in anyone particularly.

Matboulton

Hi Graham,

Another shout for Angling Direct (LON:ANG) please. Impressive results from both their online and traditional sales. I really like their approach to online sales as you can take home delivery or deliver to store next day. I would imagine with the nature of the business this would advantageous and reduces the cost of returns which typically affects the profitability of transitioning to online for many businesses.

This combined with the location and size of the retail units I would imagine traditional angling retailers would struggle to compete with Angling Direct (LON:ANG).

Only downside with Angling Direct (LON:ANG) is the quality of their RNS's which are infrequent and give very little insight in to the business performance, new entrant to AIM so maybe they will improve in time.

rivaldo

I'd like to flag up Petards Group (LON:PEG) after today's excellent acquisition. PEG is a £15m m/cap tiddler, so this earnings-enhancing software company purchase is reasonably sizeable in relative terms, adding around £300,000 of PBT, and with 50% recurring revenues too. Plus it's complementary to the existing business

The acquisition should increase EPS this year to say 2.15p-2.2p EPS, and next year to say 2.4p-2.5p EPS (previous forecasts were £1.2m PBT rising to £1.3m next year). I'm waiting to see WH Ireland's new forecasts.

At 27p that's a pretty low P/E getting towards single-digits. The AGM statement last month showed a great deal of confidence in this year's outlook given the increased £18m order book, noting:

""The visibility of forward revenues, together with the continuing discussions for major new projects referred to in the 2017 Annual Report, provides the Board with confidence that the 2018 full year results will show further progress over those achieved in 2017."

And there's potential for much more imo given the strong outlook for PEG's core global rail and defence electronic counter-measures sectors in the next few years.

Thanks rmillaree
It's really good to hear that some directors and majority shareholders do the honourable thing. From your experience it sounds as if holding on in a delisted company can make since. The risk of course is that the directors / majority shareholders with >80% of the shares can do pretty much whatever they want to keep all the profits for themselves. And I hope the Servoca directors are honest and honourable. The Stock Report suggested a decent business not reflected in the share price.
I am looking forward to hearing Graham's opinions.
Disclosure - I don't and never have held Servoca

Graham Neary

Mat/ Norbert/ IG

Your requests for Angling Direct (LON:ANG) are noted - I will include! Cheers. G

Small Cap Value Report (Mon 14 May 2018) - ITQ, SVCA, Cancellations, PKG, CER, ANG, PEG, TERN

InterQuest (LON:ITQ)

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