Small Cap Value Report (Mon 15 Jan 2018) - CLLN, SPSY, CAR, CMCL, JDG, WJG, SAL | Graham Neary

15th Jan '18 by Graham Neary

51 comments 22219 reads

Good morning folks,

Looks like it has been another interesting morning for updates.

I'm looking at the following:

Carillion (LON:CLLN) (won't spend too long on this, as it's game over)
Spectra Systems (LON:SPSY)
Carclo (LON:CAR)
Caledonia Mining (LON:CMCL)
Judges Scientific (LON:JDG)
Watkin Jones (LON:WJG)
Spaceandpeople (LON:SAL)

This list is provisional. I'll see how things are going as the morning/afternoon progresses!

Also, Paul has written an article discussing how MiFID II has affected him. It's available here:

Problems Caused by MiFID II

Cheers!

Graham

Carillion (LON:CLLN)

Share price: Suspended.

Compulsory Liquidation of Carillion

Putting this here as a full stop for the story, which has reached its conclusion as far as shareholders in the construction support services group are concerned. It had about £900 million in financial debt through 2017, plus a £700 million pension deficit.

Late on Friday evening, an RNS informed us that the company was "in constructive dialogue in relation to additional short term financing while the longer term discussions are continuing".

It was completely out of cash, and needed new funds just to keep the lights on.

The lenders weren't willing to provide such funds, and the gap was too large to be plugged by fresh equity. So as of this morning, the shares are suspended.

Honestly, I'm a little surprised that the end came as abruptly as it did. It looked like there was going to be a conversion from debt to equity, along with a fundraising, so that existing shareholders were reduced to a token percentage holding.

Instead, existing shareholders will be reduced to zero, and the company will cease to exist in its current form. Employees, creditors and customers (including the Government) will need to figure out what happens next for them. The Construction Enquirer (external link) reports that work has temporarily stopped on "scores" of Carillion's former projects.

Pensioners will move to the Pension Protection Fund, meanwhile, which looks like it will be able to take care of most of their entitlements, particularly for those who have…

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LeoInvestorUK

15th Jan '18

tads,

Do tell, why should we be interested in Versarien (LON:VRS) ? Some kind of announcement? If so, perhaps you could summarise it and maybe give us your analysis? Do you think that the share price has under / overreacted / it is a buy / it is a sell, and more importantly: why?

Camtab

Graham, I would be interested in your thoughts on Carclo. They have become a serial underperformer despite having an interesting range of products. Op Margin isn't great which is a measure I use a lot, suggesting not much defence against the dark arts. But price has fallen to such an extent I wonder if it isn't one to put away in ones back pocket for the longer term. Balance Sheet doesn't seem too bad so doesn't appear to be going bust? Any thoughts appreciated.

FREng

Another vote for Spectra Systems (LON:SPSY) and a reminder that there is a second listing as Spectra Systems (LON:SPSC) .

iwright7

Another Spectra Systems (LON:SPSY) please. Accouncements seem transformational, but very little public info. Have any of the Stocko community done any research that goes beyond a Goggle search? Ian

sharw

Graham - Camtab has requested Carclo (LON:CAR). Perhaps you could link that with Coral Products (LON:CRU) who issued a warning on Friday afternoon - discussed at the end of your Friday thread. In both cases the previous outlook was quite upbeat. What lessons can be learned from these?

tads

RNS this am. NR....”second industrial revolution “ on Twitter. I hold and will add on any weakness.

nigelpm

https://www.wilsonfield.co.uk/...

The difference between administration and liquidation and their relevancy to the task at hand is governed by the desired fate of the company. Liquidation is the route to take to wind up and finish the company entirely. If all/some of the business needs rescuing, administration is the mechanism to go for. If the business is large with several sub organisations, it may be a mixture of both.

Suggests the situation with Carillion was more serious or perhaps they felt there was more value to be had for remaining stakeholders by trying to sell off parts quickly - a fire sale will almost certainly ensure there is very little left after pension deficit, HMRC and employees are paid.

Further RE: Carillion from PwC:

https://www.pwc.co.uk/services/business-recovery/administrations/project-rome.html

A brief explanation of a compulsory liquidation and the roles of the Official Receiver and special managers will appear here shortly. In particular, it explains that a special manager is an officer of the court with his/her powers and functions defined by the court.

This website will be regularly updated to provide more information as it becomes available.

The Official Receiver’s priority is to ensure the continuity of public services while securing the best outcome for creditors. Unless told otherwise, all employees, agents and subcontractors are being asked to continue to work as normal and they will be paid for the work they do during the liquidations.

Shareholders
Unfortunately, as a result of the liquidation appointments, there is no prospect of any return to shareholders.

cig

Maybe it's the best way to structure a government bail-out without the negative press of nationalising the thing? With a quick reset of the pension question, at taxpayer expense (through the pension guarantee thing), and possibly some short term working capital support (notionally for essential public sector projects) they may be able to sell or refinance the operating businesses more efficiently than through other routes.

tony akram

Anybody have any thoughts on WEY (I have a very small holding ) seems to be falling since the presentation last week the general feedback is that people were not convinced with the market strategy ?

Samsgrandad

Re Carillion (LON:CLLN), this question may have been covered before but I can't remember.
What is the position with a short sell when the company folds.
Thanks

slopsjon

Joint Venture with Carillion plc

Galliford Try (LON:GFRD) Galliford Try plc (the "Group") notes the announcement by Carillion plc this morning. The Group is in joint venture with Carillion and Balfour Beatty on the £550 million Aberdeen Western Peripheral Route contract. The terms of the contract are such that the remaining joint venture members, Balfour Beatty and Galliford Try, are obliged to complete the contract. Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is £60-80 million, of which any shortfall will be funded equally between the joint venture members.

andrea34

I'm wondering if Wey Education (LON:WEY) (and Sosandar (LON:SOS) a little bit too) are suffering due to market makers having recently artificially inflated the share prices on small buying after "tipping" (either here - even though this is a DYOR commentary-only site - or elsewhere).

Re Carillion (LON:CLLN), this in my mind is exactly like AMEY all over again... which I lost all of my small investment on; happy to have not made the same mistake again.

daveinthelakes

I agree and as a holder of Non-Standard Finance (LON:NSF) was somewhat surprised at the shares falling 4% this morning.

This company was set up by the chap who ran Provident Financial (LON:PFG) for 20 years and under him their share's went up 1400%. All Provy's woes set in well after he had departed.

Peel Hunt and Liberum have just issued buy recs at 84 and 95p and at 73p I am considering topping up.

tony,

Re: Wey Education (LON:WEY) , there has been a lot of positive newsflow and a large share price rise in the past few months, all culminating last week's presentation. This will have attracted momentum investors and, as you say, reports back from the presentation weren't particularly positive.

What is there to drive the share price now / look forward to in the short term? Based on last year the next news will be interims in May. Although we can hope for a update on acquisition integration and new enquiries before then, the timing of the academic year may mean there isn't much to say.

Negative factors in my mind are:
* Relatively new to AIM - some kind of hiccup seems quite likely.
* Recently raised lots of money at 22p
* Management sitting on large profits and may wish to diversify financially
* Forecast PE of 40 assuming a massive rise in profits.
* Likely considerable uncertainty over forecast profits (this is also a positive)

Overall, this is a share I want to own much more of, but at this time it looks too expensive and risky even after the falls.

Boon

Regarding Spaceandpeople (LON:SAL)

I seem to remember from a previous results statement from last year that their Germany contracts are expiring end of January, and that if they were unable to reach a renewal, then that is the bulk of the Germany business gone and they were planning to shut down in Germany.

I haven't seen any updates as to those German contract negotiations yet, and end of January is coming up.

It seems it could be both good and bad news. Good news because the German contracts were not very profitable. Bad news because I think it was a big share of revenues (and overheads). So if there is a wind down, could be further temporary losses and maybe some impairments? Who knows.

For that reason I'm sitting on the sidelines till this issue becomes clear.

Graham Neary

Hi there, re: Carillion (LON:CLLN).

I think if you are short when shares are suspended, the position is marked to full value and you have to hold it until your broker deems that the shares are proven worthless. So you have to wait until the long positions are deemed worthless, too. This can take several months, it depends on your broker and the specifics of the company you are short. Sometimes there is a payout to shareholders, after all.

At least, this is how my broker is supposed to deal with it.

JohnEustace

Fellow Burford Capital (LON:BUR) holders will be interested in today’s Times report that litigation funder Vannin Capital intends to launch an IPO in London.
Competition for Burford Capital (LON:BUR) and a sign of the growing maturity of the sector they have created.

https://www.thetimes.co.uk/article/lawsuit-funder-vannin-capital-seeks-public-backing-9xrbn97sx

simoan

For those who are still interested in the sector, Carillion's joint venture partner Kier (LON:KIE) has seen its shares nudge higher this morning, and trades on less than 9x earnings.

Hi Graham,

ON Kier (LON:KIE) I'd say that rating is about right for a low quality company with margins < 2%. I'm with you on ignoring this sector completely - it often looks very cheap if you only look at the PER but the operational gearing and nature of the business means the risks of a blow up are higher than may be perceived by the valuation alone. Someone else mentioned Amey but it was Balfour Beatty's near death experience a couple of years ago that first came to my mind.

I think the main thing to look for now is collateral damage from Carillion (LON:CLLN). I see that Galliford Try (LON:GFRD) and Balfour Beatty (LON:BBY) are both lower and have admitted they will have to complete the work and provide extra funding for a joint venture road project in Aberdeen. Also it seems Speedy Hire (LON:SDY) has been effected as it has an ongoing equipment supply contract with Carillion.

All the best, Si

In the case of Carillion (LON:CLLN), PWC have already stated that there is no prospect of any return to shareholders, so that should simplify things.
https://www.pwc.co.uk/services/business-recovery/administrations/carillion.html

Small Cap Value Report (Mon 15 Jan 2018) - CLLN, SPSY, CAR, CMCL, JDG, WJG, SAL

Carillion (LON:CLLN)

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Graham Neary

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