Small Cap Value Report (Mon 18 Sep 2017) - IPX, FIF, SPO, VLTY

Monday, Sep 18 2017 by

Good morning!

Impax Asset Management (LON:IPX)

  • Share price: 107.5p (pre-open)
  • No. of shares: 128 million
  • Market cap: £137 million

Acquisition of Pax World

This environmental asset manager announces it's buying a US (New Hampshire)-based asset manager ("Pax World"), operating in the same field of sustainable investing.

The two companies already have a partnership together, running a $511 million environmental fund, so they should know each other well.

Impax's run-rate Revenue and EBITDA are given as £36 million and £11 million, respectively (July 2017) based on managing £7.2 billion of AUM.

This deal will create an entity with combined AuM of over £10 billion, using August figures. It's a >40% increase in AUM in one shot! And it will now be a trans-Atlantic operation with a much wider range of research capabilities, and wider product ranges.

The deal is valued at $52.5 million plus up to $37.5 million in contingent payments out to 2021. It's mostly being paid in cash, with a $26 million bank facility being involved.

My opinion

Looks very exciting! Asset managers thrive on scale: the costs of infrastructure weigh them down initially, but then they are scalable to infinity.

Reaching over £10 billion in AuM puts this in a new size category and gives a fresh reason to invest. The overall risk has certainly increased with the addition of a large debt facility, but successfully integrating this company should set Impax up nicely for many years ahead.

Finsbury Food (LON:FIF)

  • Share price: 101.25p (+2%)
  • No. of shares: 130.4 million
  • Market cap: £132 million

Preliminary Results

Paul has been rather underwhelmed about this bakery for a while. It's not hard to see why, as like-for-like sales and earnings growth have been underwhelming for a while. Profit forecasts have been gradually sinking too:


Today's final results confirm adjusted EPS of 9.6p, putting this share firmly in "cheap" territory (though not necessarily value!)

Full-year like-for-like sales are flat at £314 million, adjusted operating profit is up 4% to £17 million, and PBT comes in at £13 million, vs £11.8 million last year. The CEO describes it as "solid delivery against expectations".

Given the conditions in the sector, it seems like a reasonable set of results.…

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

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Impax Asset Management Group plc is an investment company offering listed and private equity strategies primarily to institutional clients. The Company has six listed equity strategies: Specialists, Leaders, Water, Asia-Pacific, Global Opportunities, and Food and Agriculture. Its real assets business comprises renewable power generation and sustainable property private equity funds. The Company has investments sectors, such as energy efficiency, which includes power network and buildings; alternative energy, which include solar, wind and biofuels; water infrastructure/technologies, which include treatment and utilities; pollution control, which include pollution control solutions, and testing and gas sensing; food, agriculture and forestry, which include logistics and sustainable forestry; waste management and technologies, which include tech equipment and hazardous, and environmental support services, which include consultancies and diversified environmental. more »

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Finsbury Food Group Plc is a United Kingdom-based bakery manufacturer. The Company is engaged in producing a range of cakes, bread and bakery snack products for retailers and the foodservice channel. The Company's segments include UK bakery, Overseas and Group Operations. The Company's UK Bakery segment manufactures and sells bakery products to the United Kingdom's multiple grocers and foodservice sectors. The UK bakery segment primarily includes the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. The Overseas segment is engaged in the distribution of the Company's product manufactured in the United Kingdom along with the sale of third party products primarily to Europe. Kara is the Company's foodservice brand. Its licensed brands include Disney, Thorntons, Weight Watchers, Vogel's, Village Bakery and Cranks. more »

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Sportech PLC is a United Kingdom-based pool betting operator and technology supplier. The principal activities of the Company are pools betting, both business-to-business (B2B) and business-to-consumer (B2C), and supply of wagering technology solutions. The Company's segments include Sportech Racing and Digital, Sportech Venues, Sportech Bump 50:50. Sportech Racing and Digital is engaged in the provision of pari-mutuel wagering services and systems principally to the horseracing industry. Sportech Venues is engaged in off-track betting venue management. Corporate costs segment include central costs relating to the Company in its capacity as the holding company. Sportech Bump 50:50 is a professional sports charitable lotteries business. Sportech Bump 50:50 enables sports teams to raise significant money for good causes by using its digital raffle technology platform in stadia on game day. more »

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32 Comments on this Article show/hide all

yamaha865 18th Sep '17 13 of 32

On Sportech, I sold out a few days ago after seeing comments made by the judge's that they were likely to allow HMRC's appeal. I cant remember where I read this so not helpful I appreciate! so DYOR on that one.

Also bear in mind, if awarded compound interest this is likely to be subject to a circa 45% tax rate

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andrea34l 18th Sep '17 14 of 32

FDEV and TSTL continue to be hit today.... :-/

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dangersimpson 18th Sep '17 15 of 32

Not within the remit of Graham & Paul due to being a resource stock but worth a mention Goldplat (LON:GDP) reported prelims today:

Goldplat (LON:GDP) are more at the pick's & shovels end of mining with their primary business being recovery of gold from mining by-products (fine carbon, mill liners, grease etc.) and the main South African recovery business has been operating since 1979.

A foray into explo was badly timed by previous management but has been rationalised under the current management and 1 primary mine, Kilimapesa in Kenya, remains in the portfolio. A major focus of management over the past year has been to return this mine to profitable operation. All other licenses have been relinquished (this is the non-cash write down in today's results) or JV'ed out to remove the capital drain of exploration activity.

And it is this development that makes this an interesting investment situation. The results released today showed fully diluted EPS of 0.73p but these include a £1.1m loss from the Kilimapesa mine. Since this reached profitability towards the end of the last fiscal year then going forward if the recovery operations continue to perform as expected we will be looking at a minimum of 1.3p fully diluted EPS for FY18.

This compares favourably to the current 6.5p to buy and there are several reasons to believe that 1.3p may prove conservative:
- 1.3p EPS assumes break even at Kilimapesa, profitability would increase this further.
- There are opportunities to increase the output of their Ghana recovery operations through importing material from South America and a contract to clean up artisanal tailings that are currently polluting land areas in Ghana.
- There is an opportunity to reprocess their own tailings dump in South Africa - this would be highly profitable because the material is already owned.
- Average gold price in FY17 was $1258 current price is $1315 - although less exposed to gold price than a traditional miner this will act as a tailwind.

Being an Africa focused operation there are risks with Goldplat:
- BEE legislation in SA - although the impact on GDP is likely to be limited to c4% of SA subsidiary.
- Government taxation & licensing policies changing.
- Financial health of customers/suppliers.

The share price reaction today has been relatively muted. Given the challenges of the past mining strategy the market may be adopting a wait-and-see approach to believing future profitability. However if things continue to go well the company will generate significant profit and cash flow compared to their current market cap and holders will be well rewarded for taking this risk. (Discl. For this reason I am a holder of the equity.)

Book: Excellent Investing: How to Build a Winning Portfolio
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paraic84 18th Sep '17 16 of 32

The results, and not just the executive chairman's musings, were also interesting from City of London Investment (LON:CLIG). Basic earnings per share are now 36.9p putting this on a P/E of around 11 - historically it has traded more around a p/e of 13 (from memory). The company is cash rich and nicely sets out on its website how it will maintain its 25p dividend:

In some years the dividend has not been covered but this has not been a problem because it has so much cash in reserves.

Obviously this is partly a play on emerging markets and a weak pound, but it's a good option for diversifying a portfolio with a high yielding share.

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stockopediausername 18th Sep '17 17 of 32

Hi there,

would you consider covering MGP? Unaudited half year results today.

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ricky65 18th Sep '17 18 of 32

In reply to post #219823

I remember being skeptical about the acquisition as NetDimensions wasn't profitable in its last two years IIRC.

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Paul Scott 18th Sep '17 19 of 32

In reply to post #219758

Hi MrContrarian,

Thanks for posting quick fire snippets of results/TUs, in comment no. 6 above - that's really helpful, and highly complementary to Graham & my posts. So more of this please! :-)
The more companies we collectively cover, the better. It's a team sport!

Regards, Paul.

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fred9566 18th Sep '17 20 of 32

In reply to post #219823

yes I agree but thye appear to have taken the financial hits in H1 following a number of initiatives following the acquisition of Net Dimension- following these initiatives thye are forecasting "margins improving substantially in H2".They have strong operating cash flows and their trading and outlook statement is very positive : "confidence in the outlook fro the rest of the year and of achieving further significant growth in 2018"
I think we are just at the beginning

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davidjhill 18th Sep '17 21 of 32

In reply to post #219728

hadn't seen this before so thanks for highlighting it. I bought a few.

The only things I was a little unsure about was two things

1) cashflow significantly lagged profit : I can forgive this given that profits in the 6 months went up so rapidly that even on payment terms of 60-90 days there would inevitably be a large increase in debtors and thus deferred revenue collection. I will be watching this over the next couple of reports though to make sure it comes back in line.

2) how much a clients marketing spend is likely to be cyclical or impacted by regulation changes and whether there is a mass concentration of any one client in those numbers. Haven't found any answers to this so something else I will be keen to find out.

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Ramridge 18th Sep '17 22 of 32

In reply to post #219908

Hi davidhill Veltyco (LON:VLTY) I am actually in the middle of digging deeper into this company's business.
Just a few warning bells.
1. They are based in the Isle of Man so presumably lightly regulated
2. they operate in the same space as XLM and TAP i.e online marketing for the gaming industry. But worth noting that they are also into binary options. A danger signal.
3. From their commentary, I suspect that most of their recent growth has come from the binary option segment. That leaves me a little cold.

I took an entry position this morning. Will review this once I have completed my analysis.
So, superb growth and profits but at what risk?

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Beginner 18th Sep '17 23 of 32

In reply to post #219758

Just to say 'thank you' to you, Mr C. I am a long-time follower on Twitter, but have not been able to offer my thanks properly before. Your musings are the first thing I look for each morning.

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Graham Ford 18th Sep '17 24 of 32

In reply to post #219923

Hi Ramridge. If by TAP you are referring to Taptica I'm not sure this is really what they are are doing. As I understand it they are involved in mobile Ad-tech generally rather than being aligned to the gaming industry.

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dangersimpson 18th Sep '17 25 of 32

In reply to post #219858

Goldplat (LON:GDP) house broker note now on company website:

Always have to be careful with the rose tinted views of house brokers but the 39% 12-month target price upgrade to 17p shows the potential if the company continues to deliver operationally.

Book: Excellent Investing: How to Build a Winning Portfolio
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Ramridge 18th Sep '17 26 of 32

In reply to post #219978

Hi Graham - I think you are right. I had to go to the admission document to understand Veltyco's business model.
Veltyco is a marketing and promotion company to the gaming industry and not a gambling operator. They strike exclusive deals with online gambling companies to market & promote their websites and then receive revenue share of the punters they attract.
These exclusive arrangements cover Betsafe (casino, poker, etc), LottoPalace, and binary options via They are adding more exclusive partners.
I have not found any document which shows segmented revenues. But the RNS narrative and business tv interviews suggest their binary options arm is currently providing the huge growth.

This definitely qualifies in my book as a high risk/ high reward share.

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Graham Neary 18th Sep '17 27 of 32

In reply to post #219728

Hey ram, covered it.


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herbie47 18th Sep '17 28 of 32

In reply to post #219978

I agree I don't think Taptica International (LON:TAP) are into that, that's gambling something that I avoid. I'm not sure about XLMedia (LON:XLM).

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Ramridge 18th Sep '17 29 of 32

In reply to post #220003

Many thanks Graham. I think you have landed in the same place as I have. High risk/ high reward.

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VegPatch 18th Sep '17 30 of 32

In reply to post #219788

Impax presented at the ShareSoc evening last week and I topped up my position. I think this business has a differentiated product as it is sold as a clean, environmental fund with good returns via distributors like BNP Paribas in Europe. In the US the funds are more sold along straight performance lines ie against the benchmark. But overall I feel that as an ex fund manger, there are too many me too products out there. You need something different to stand out. So the environmental angle plus good long term returns, ticks my box.

I think the deal today is sensible. Impax has known Pax for over 10 years as they have sub advised on an environmental fund. The selling shareholders, the Shadek family who own over 80% of the equity, bought Pax Worldwide in 1996, but have played a passive role ie they just bought the business, they havent run it and they havent introduced loads of clients which has grown AUM. Therefore I am less worried about what will happen when they get the $$$ in the mail.  The Shadeks are rolling some of their position into Impax shares. Management of Pax Worldwide, ie not the shadeks, are incentivised by a lock in until 2020. These dont always work as I found out when a number of older colleagues retired after one merger. However it least it can provide an opportunity for younger members to take over.

Ian Simm, CEO of Impax strikes me as a sensible manager who realises the need to diversify his product streams by geography (ie increase his US funds) and by type (the Pax funds arent strictly environmental funds, but they are pretty close). My only concern is taking on debt as a fund manager when markets are near record highs and Impax doesnt much non-equity products of scale in the P&L to cushion any falls in the equity markets.

I am holding on to my position as the asset gathering stories tend to feed on themselves, growing AUM and performance at the same time. Impax seems to have hit a distribution sweetspot. I can also see a larger competitor with a more vanilla equity offering looking enviously at Impax's niche environmental funds and wanting a piece of the action by buying Impax. There is the small issue of BNP Paribas 25% shareholding, is this a poison pill? or could a buyer strike a long term distribution deal with BNP Paribas? I dont know. However that would just be icing on the cake. As I tweeted last week after the ShareSoc event, an EV/AUM basis it looks cheap given the growth.

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daveinthelakes 18th Sep '17 31 of 32

In reply to post #220038

Thanks for the reply.

I am convinced BNP have their stake purely to stop others getting control of the company which I believe may be the only one that invests solely in the field of sustainability.

I bought in a couple of days before they released the annual results in November 16 and top sliced 20% of my holding in June being wary of the double whammy that asset managers can be hit by in a market fall and so my cost base is about 38p. I just wonder if at today's close next years growth is to a large extent already in the price?

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VegPatch 18th Sep '17 32 of 32

In reply to post #220053

Nice buy, well done.
To a certain extent yes, but analyst numbers are still behind the curve ASSUMING AUM growth continues. I put assuming in capitals because clearly thats a massive risk. However Equity Developments numbers were only £36m of rev next year before the acquisition. As I said on twitter I felt that the August AUM (on their website) justified this number, implying no new net inflows and assuming a stable market from here. Big risk also that markets may fall. So dont disagree with booking a partial profit.

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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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