Small Cap Value Report (Mon 16 Apr 2018) - Mello 2018, OMI, PCF, XLM, CER, KNOS

Monday, Apr 16 2018 by
69

Good morning!

RNS announcements have hit the tape at 7.25am, giving us 35 mins to read and decide what to do in advance of the market open.

Would anybody like to start a petition for after-hours updates instead of 7am (when we're lucky) updates?!

Anyway, here are some stocks which have caught my attention so far.

  • Orosur Mining Inc (LON:OMI) - Q3 results
  • PCF (LON:PCF) - £100 million in retail deposits (I hold)
  • Carr's (LON:CARR) - interim results
  • XLMedia (LON:XLM) - "acquisition of leading UK Bingo comparison site"

We also had trading updates from Cerillion (LON:CER) and Kainos (LON:KNOS). I originally thought that Cerillion was in-line, but it looks like an EBITDA miss with the shares down by 7% in early trading.



Mello 2018

A quick word on the Mello 2018 conference which is coming up in less than two weeks. Paul, I and many of the Stockopedia team will be there so hopefully we will meet as many of you as possible.

Paul will be presenting a session on small-cap opportunities and threats while I will be taking part in a ShareSoc Masterclass event with Peter Higgins, Lord Lee, Leon Boros and Phil Oakley. We'll be covering two crucial topics - risk management and red flags.

Tickets for the Masterclass are sold separately and are nearly all sold out, but if you'd like to attend then please use the form on ShareSoc's website: link here.




Orosur Mining Inc (LON:OMI)

  • Share price: 5.625p (-12%)
  • No. of shares: 117.6 million
  • Market cap: £7 million

Q3 2018 Results

Apologies for going off-topic with this South American gold miner (we don't usually cover resources here).

Production is down and cash operating costs are up ($1065/oz). The company performed to expectations for several years but is now enduring a period of bad luck.

It is taking some drastic measures to preserve cash:

During the Quarter, and in large part due to the performance of the SG UG [San Gregorio Underground Mine], the Company commenced the implementation of a strategic initiative…

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Disclaimer:  

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

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Orosur Mining Inc. (Orosur) is a Canada-based gold producer and exploration company. The Company is focused on identifying and developing mineral opportunities. The Company operates in Uruguay, Chile and Colombia. In Uruguay, the Company operates the San Gregorio gold areas in the northern Department of Rivera. The Company is operating the Arenal Deeps underground mine and several open pits in the San Gregorio district. The Company has land holdings with active near mine and regional exploration programs. The gold is produced in the form of dore, which is shipped to refineries for final processing. In Chile, the Company conducts exploration and development activities on the Anillo property. The Company also owns the Pantanillo property, located in the Maricunga Belt and holds interests in the Talca exploration asset located close to La Serena, north of Santiago in Chile. more »

LSE Price
5.2p
Change
 
Mkt Cap (£m)
6.2
P/E (fwd)
1.6
Yield (fwd)
n/a

PCF Group plc, formerly Private & Commercial Finance Group plc, is engaged in banking business. The Company offers retail savings products for individuals. In addition, the Company deploys those funds through its two lending divisions such as consumer finance and business finance. Consumer finance, which provides finance for motor vehicles to consumers. Business finance, which provides finance for vehicles, plant and equipment to small and medium-sized enterprises (SMEs). The Company also provides both depositors and borrowers with a service and a straightforward, range of products tailored to suit their needs. more »

LSE Price
32.5p
Change
 
Mkt Cap (£m)
70.5
P/E (fwd)
12.8
Yield (fwd)
1.2

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 »

LSE Price
165p
Change
-1.8%
Mkt Cap (£m)
370.2
P/E (fwd)
14.4
Yield (fwd)
3.8



  Is Orosur Mining Inc fundamentally strong or weak? Find out More »


20 Comments on this Article show/hide all

MrContrarian Mon 7:47am 1 of 20
19

My morning smallcap tweet:

ECSC (LON:ECSC), Itaconix (LON:ITX), Carr's (LON:CARR)

ECSC Group (ECSC) The Gooch made a NED. Elizabeth 'Because I'm worth it' Gooch MBE was founder & CEO of EG Solutions. She phoned me once to justify her enormous remuneration. That's a half hour I'll never get back.
Itaconix (ITX) Q1 rev up 8%. How much is 8%? £11k. "The Board is confident, subject to the availability of further funding, that the Company is well positioned to continue to deliver revenue growth through 2018 in line with expectations." No thanks.
Carr's Group (CARR) H1 slightly exceeded the Board's expectations and guides FY similarly.

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Housemartin2 Mon 8:40am 2 of 20
4

XLMedia (LON:XLM) Does anyone else feel deprived of financial info with this RNS ? Maybe I am being unreasonable.

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clarea Mon 8:57am 3 of 20
4

XLMedia (LON:XLM) & Kainos (LON:KNOS) please Graham

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Edward John Canham Mon 9:08am 4 of 20
9

In reply to Housemartin2, post #2

XLMedia (LON:XLM)

This transaction was in the public domain a week ago.

https://onlinebingo.co.uk/news/whichbingo-sold-to-xl-media

Lack of financial information implies it's not very large but my veiw is that if they put out an RNS the values should be given otherwise it's impossible to assess the impact.

Phil

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mammyoko Mon 9:20am 5 of 20
1

Cerillion (LON:CER) please Graham. They have been winning significant contracts but these don't seem to be translating into expectation-beating results. I thought the market might mark them down more severely as a consequence this morning.

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ppdrs Mon 10:06am 6 of 20
3

In reply to Housemartin2, post #2

I agree. An RNS from XLMedia (LON:XLM) that gives no financial details about the acquisition target, what they paid (or even a ballpark indication of size), how they've funded it, or what impact it will have on earnings. Basically this RNS was completely pointless!


Graham, if you have time, I'd appreciate any brief comments about the trading update from Kainos (LON:KNOS).  Also to add my thanks for the very informative commentary from you and Paul!

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Chrisfarrell21 Mon 10:47am 7 of 20
1

In reply to ppdrs, post #6

On XLMedia (LON:XLM) it's one of those grey RNSs which I understand to be marketing gumpf. I don't know what, if any, rules there are for what's contained in a grey RNS, but it presumably means it's not financially material.

Thanks

Chris

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bestace Mon 10:52am 8 of 20
10

In reply to Housemartin2, post #2

It's been issued as a non-regulatory RNS, so it's immaterial. The most recently filed accounts for Whichbingo are for the year ending 31 December 2016, which showed net assets of less than £1.5m, of which cash was £1.2m.

The company was small enough not to have to report an income statement, but looking at the movement on retained earnings it seems to have made a net profit in 2016 of £600k. By adding back the depreciation charge and the year end creditor for corporation tax gives an implied EBITDA of around £800k. Then apply a 'finger in the air' multiple to either of those figures to get an indication of what they might have paid.

It's always a bit suspect trying to analyse the accounts of private companies which have limited disclosures, are now over a year out of date, and where the reported figures may not necessarily reflect the performance of the actual business, so the above should be taken with a big pinch of salt.

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willhampson Mon 11:03am 9 of 20
6

My suspicion with the XLMedia (LON:XLM) announcement this morning, given that the deal was public about a week ago (as Phil points out above), is that originally it was not deemed a material transaction but they then decided to put out the RNS to attempt to arrest the SP slide. It seems to have failed. A patient, but slightly frustrated holder.

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Graham N Mon 11:49am 10 of 20

In reply to clarea, post #3

re: XLMedia (LON:XLM). Kainos (LON:KNOS). Will do! G

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mercury61 Mon 12:00pm 11 of 20
4

GAME Digital (LON:GMD) seems to have some heavy hicoups

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barnetpeter Mon 1:26pm 12 of 20
4

Don't forget to vote for Paul and Graham in the 2018 investor awards! Only takes a moment.....

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xxx Mon 1:26pm 13 of 20

Graham, do you think that having post hrs updates is impractical due to the number of stocks quoted on US exchanges ?

| Link | Share | 1 reply
Graham N Mon 2:25pm 14 of 20
1

In reply to xxx, post #13

Hi, do you mean dual-listed stocks? If they need to wait to announce when the US market closes, they could keep doing that. Apologies if I have misunderstood your question.

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Zipmanpeter Mon 2:41pm 15 of 20
7

Graham,

Appreciate the write up of £PCL and cannot really fault its prospects. The operating margin has been going up for 5 years even before the move to full bank status permitted retail deposits (11-12% in 2012 to 18% in 2017). The process of obtaining the bank licence has not really caused costs to explode or credit execution to go awry, suggesting good management.  Now it is well set to grow fast

The 3 concerns that one could have are:
i) the 0.5% default level is so extremely low that it has (somehow) been dressed up/lucky  since lending on cars and SME machinery would normally see higher defaults even under benign conditions - although I see no evidence of this in weak policies
ii) that this level of control will be lost if the business grows as fast as it is targetting, especially if this coincides with a sharp UK recession for SME and/or a big decline in used car prices  - neither an unimaginable scenario
iii) as the banks have withdrawn, this has created a big opportunity for new financial models/new (bank) lenders like PCF. The flip of this is that if one of these new models really takes off, it could disrupt the PCF model in a big way eg crowd funding. The average retail lender is depositing £40K for a 2% return pa !! People like this have many options. However, people are typically very conservative with the way they bank cash.

What's more, the simplicity of the model and the sticky (penalty) notice periods for deposits mean at worst, I think would then simply grow less fast than forecast.  But this is a risk since the price is nearly x2 book value when most banking companies would be closer to 1 or even less and with a much better dividend than PCF and will likely be several years before PCF pay a good one.

Finally, I agree your observation re the equity raise depressing ROE might 'confuse' valuation on a less followed stock.  This can be one the ever fewer sources of extra advantage a human has over a machine since it must be hard to write a programme to distinguish a 'good problem' like an expansion supporting equity raise which depressing a metric from one to fix a balance sheet.   (My current financial favourite Non-Standard Finance (LON:NSF) is (I hope and believe) suffering a similar blind spot as its reported statutory losses have exacerbated by acquisition costs accounting  and future short term profits depressed by early recognition of impairment losses in new IAS standards.  In between stands a good business).

| Link | Share | 1 reply
Graham N Mon 3:09pm 16 of 20

In reply to clarea, post #3

re: XLMedia (LON:XLM) and Kainos (LON:KNOS). Getting there. Cheers! G

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Graham N Mon 4:22pm 17 of 20
2

In reply to Zipmanpeter, post #15

Brilliant stuff, Peter, thanks. I agree with you that PCF (LON:PCF) valuation could be a bit punchy for some. You've made plenty of good points there for me and other bulls to digest.

Best,

Graham

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daveinthelakes Tue 7:55am 18 of 20

Graham,

It would be interesting to have your thoughts on the relative merits of PCF (LON:PCF) and Arbuthnot Banking (LON:ARBB) as you have looked at both recently.

Dave

I am a long term holder of Arbuthnot

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Graham N Tue 9:50pm 19 of 20

In reply to daveinthelakes, post #18

Thanks for the suggestion Dave, I guess I could do some kind of round-up of financial stocks. G

| Link | Share | 1 reply
daveinthelakes Tue 10:06pm 20 of 20

In reply to Graham N, post #19

Thanks Graham. That is a great idea if time permits. Dave

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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