Small Cap Value Report (Mon 18 Jun 2018) - PTSG, VLX, ANG, KOOV, OPTI

17th Jun '18 by Paul Scott

21 comments 12531 reads

Good morning, it's Paul here!

I'm making a guest re-appearance, as Graham's busy today (Monday).

Graham's doing the main SCVR writing this summer, as I'm taking a sabbatical. However, I'll still pop up here every now & then, whenever Graham needs some cover, and to comment on stocks mentioned in Graham's articles.

Premier Technical Services (LON:PTSG)

Share price: 172.5p (unchanged today, at 08:33)
No. shares: 104.5m
Market cap: £180.3m

AGM statement (trading update)

This is what the group activities are;

Premier Technical Services Group PLC is the UK's leading provider of façade access and fall arrest equipment services, lightning protection and electrical testing, steeplejack and rope access services and fire solutions.

Operating through four divisions, Access & Safety, Electrical Services, Building Access Specialists and Fire Solutions, the Group provides highly-engineered industrial products and quality services and has a substantial presence in a number of niche markets.

This seems a reassuring update. The company's next year end is 31 Dec 2018;

"I am pleased to report that the Group has seen continued sales growth and strong levels of orders in the year to date.

In addition, working capital utilisation, margin and profit levels are in line with the Board's expectations.

Outlook comments also reassure;

"Contract renewal rates remain high and a number of significant three to five year contracts and framework agreements have been signed across all disciplines with new and existing customers since the beginning of the financial year, underpinning our organic growth strategy.

Acquisitions - going well also;

"The acquisitions completed last year are contributing significantly to the growth of the Group. We have been particularly pleased with the improvement in the contract renewal rates for BEST since its acquisition last year. In addition, we are seeing unprecedented demand for Fire Solutions with UK Sprinklers trading 50% ahead of the acquired business."

The group seems to have a canny eye for acquisitions. When I met the Yorkshireman CEO a couple of years ago, he didn't strike me as the sort of chap who would overpay for anything!

Balance sheet - a reader dismissed my focus on balance sheets last week, quoting Mark Minervini's comments on this matter. Of course I'm not suggesting that the balance sheet is the sole driver of success in investing.…

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ricky65

18th Jun '18

Paul, I wasn't dismissing balance sheets. My point was that a good balance sheet is not a substitute for risk management. A good balance sheet doesn't remove risk just because you'll avoid a 100% loss. A company doesn't have to go broke for it to do significant financial and psychological damage. There's always risk. Bottom line, if you think a good balance sheet will protect you, I’m afraid you will eventually be in for an unpleasant surprise.

Kind regards

Rick

Paul Scott

Rick,

We'll just have to agree to disagree on balance sheets.

My experience has been that avoiding companies with weak balance sheets has greatly improved my investment performance, compared with when I paid little attention to balance sheets.

So I'll stick with what works for me!

I think perhaps where we're getting our wires crossed, is that you seem to imagine I'm suggesting that strong balance sheets remove risk. Whereas what I'm trying to say is that strong balance sheets considerably reduce risk. Sorry if this wasn't clear enough previously. Of course there will always be some risk - that's the nature of equities.

Paul.

bobo

Volex, over the years I have watched this company after working for one ex-ceo who failed to turn it around (more than 30 years ago). I also worked in a few cabling companies in/with the UK and the USA. Volex is unable to offer a diferentiated product, a low cost product, to sit itself in a community of like minded companies or offer a service that cannot be duplicated very quickly elsewhere. Hence it will always sit at the bottom, rather like a hay trader, everyone can do what they do. So nothing to invest in, avoid.

Will Marsh

Great analysis of Optibiotix here. The share has very significant hope value attached to the current price and is being ramped like mad. I have been following this share for a while and must admit to taking a small stake in shares. What was very interesting is your analysis of Morley who show an annual profit of £729k on £30m turnover. I suspect this is not going to transform Morley profits so the likely benefit from any deal is going to be very small for Opti shareholders.

That said a private company buying into this brand is on balance good news as they are likely to be sensible, conservative, know their customers and do their research which bodes well for the opti product.

My big concern on this share is that the board is issuing no proper stab at target revenues over the next two years(that I'm aware of). The Opti product is very current though and if it kicks off it will be huge. This share must one to keep an eye on.

BobHylton

Hi Paul

Please don't leave us for too long - we need you and your comments... who else could come-up with:

Plus ANG seems to be emerging as the leader online in the UK

So that'll be hook, line and sinker :)

Bob

Paul,

Thanks for the clarification. I agree with you that a strong balance sheet reduces but not removes risk.

Anyway, glad to see you back on the SCVR.

Rick

threeputt

Hi Paul

many thanks for your research on Premier Technical Services (LON:PTSG)
I'm also grateful for the mention on new ipo's, these are something I always find of interest for a watchlist but I normally miss their entry either through laziness or not really getting their potential, not sure if this is a regular thing of Stockopedia to pre-advise of future ipo's but really helpful

DJCP

Welcome back Paul, although Graham's been doing a very admirable job :o)

With your Angling Direct (LON:ANG) and Fishing Republic (LON:FISH), all you need now is to invest in 5 bakers (or is it the other way around?), and we'd be able to write a story about you ;^)

Re your comment on niche businesses being under less threat from Amazon - IF Amazon did want to get into fishing tackle/musical equipment (or any other sector), they'd quickly, and (possibly savagely) make their size work to their advantage.

I read a news item of Amazon approaching a book publisher to purchase their books. When dismissed as offering too low a (wholesale) price, Amazon removed ALL that publishers items from their catalogue. Not only their own offerings but also those of marketplace sellers.
They are not allowing (or making it extremely difficult for) new sellers to list many music (vinyl, CD, etc) items - market control, or pushing their streaming/Prime service more?

They have, in the past, bought-out companies to gain traction, but I'm still wary of investing in anything I think Amazon could bully their way into. The other side of the coin is the reward if Amazon were to buy-out a company!

gsbmba99

A quick story of what a difficult industry Volex (LON:VLX) is in. It was probably early noughties. A previous management team was battling to keep pace with price competition. The difficult decision was made to close one of the European facilities and shift this production to a new facility in coastal China where wages were lower. About six months to a year after the new Chinese facility opened, the management team admitted that increases in the labour cost of the coastal China facility rendered it uneconomic and they were going to have to abandon the facility and move to a new facility further inland. The price pressure is relentless.

MiserableJacktPotato

Have you any evidence of this anti-competitive behaviour by Amazon?
If so, I’ll forward it to my MP, MEP, CMA and whatver the European equivalent of the CMA is.
If they are behaving in this way abusing their market position, I can’t see the company not being forced to break up.

Re Amazon ... I'm sure those you've mentioned have been informed, or know about this, but just a few links to give some idea: (A Google for Amazon publisher battle (or similar) shows some of their tactics.
http://www.businessinsider.com/amazon-war-against-publishers-like-hachette-2014-5?IR=T
https://www.vanityfair.com/news/business/2014/12/amazon-hachette-ebook-publishing

It's not in relation to Amazon, but there's an interesting blog post from ProtonMail of being "disappeared" off the search rankings by Google and the impact on their business - https://protonmail.com/blog/search-risk-google/. I have heard similiar stories from European executives.

ambrosia

Paul youll be missed, is your sabbatical away from writing altogether or are there any places we can still follow your insights.

TamzinPiworld

Proactis Holdings (LON:PHD) presentation given at Progressive Equity Research - piworld investor event last week, has been published:

http://www.piworld.co.uk/2018/06/16/proactis-phd-investor-presentation-june-2018/

Covers a little of the history with the acquisition of Perfect Commerce, and some detail behind the latest results. It's about 40 mins.

JohnEustace

I met a Volex (LON:VLX) competitor who designed in hotel facilities on the top floor of their new factory so that visiting customers have somewhere to stay because the factory is in such a remote location.

@IGotPoesJacket
Re Amazon
Here are a couple of links (a Google for Amazon Publisher Battles brings up more):
https://www.vanityfair.com/news/business/2014/12/amazon-hachette-ebook-publishing
https://newrepublic.com/article/142616/amazon-steps-battle-book-industry

Although I may seem Anti-Amazon, I'm quite the opposite, but from an investment viewpoint, always have them as the devil lurking on one shoulder.

If anyone doesn't know, the 'smile' below the Amazon wording on their logo is actually an arrow pointing from A to Z, which is their ultimate aim regarding (online) retailing - Everything. This is why I'm wary of my holdings in Boohoo.Com (LON:BOO) , £G4M , Fishing Republic (LON:FISH) , cloud facilitators... and most of my folio ! lol

I think certain companies have become (too?) large too fast, and are therefore un-... errr not able to be reigned in. Microsoft may have been one of the first (of this recent-ish batch) to rapidly become a world-dominator, but now it seems companies are able to do similar, much faster - This may be good or bad, I don't know - Google, Amazon, etc.

I have also read, possibly on the SCVR, about a company that refused to use Amazon web service to host their online retail website as they couldn't guarantee it wouldn't be 'analysed' and to gain their data. Amazon marketplace sellers quite often have to provide their supplier details, who are then contacted directly by Amazon, for nefarious reasons (possibly?).

Perhaps not the best discussion for a SMALL cap value report board ! lol, so I'll leave it there for now, until I note anything else Amazon-able when discussing relevant SCVR companies.

Well hopefully the markets authorities will do something about that. It’s one thing to dominate a market but another to start warping it to suit yourself.

jonthetourist

19th Jun '18

" So that'll be hook, line and sinker :) "

Not to mention Optibiotix, muesli - sorting the wheat from the chaff.

Little gems :)

swift1467

Hi paul,
thanks for the education. Really useful for a novice like me. So what does a good (or bad) Balance sheet look like?

Best, Tony

gus 1065

19th Jul '18

Interesting to see OptiBiotix Health (LON:OPTI) has moved up from the 65p at the time of this report about a month ago to today’s close at 91p. Plenty of background noise on the various bulletin boards and there have been a number of trade deals coming to the fore of late. Not sure if there’s more to it than this but seems to be on a decent roll at the mo’.

Gus.

Small Cap Value Report (Mon 18 Jun 2018) - PTSG, VLX, ANG, KOOV, OPTI

Premier Technical Services (LON:PTSG)

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Paul Scott

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