Small Cap Value Report (Mon 2 Aug 2021) - PHTM, DIA, ESC, RCDO, GETB

2nd Aug by Paul Scott

59 comments 9294 reads

Good morning, it's just Paul here with the SCVR for Monday. As it's a quiet day for news, Jack is doing other things today.

Timing - today's report is now finished.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to cover trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research) - don't blame us if you buy something that doesn't work out. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Agenda -

Paul's Section:

Photo-me International (LON:PHTM) - another upgrade to guidance. Shares still look good value, although the long-term outlook for the business is opaque, hence a lowish PER is to be expected.

Dialight (LON:DIA) - interim results show a return to just above breakeven. Outlook comments point to an improving performance in H2. Difficult to value, so I'm neutral on this one.

Escape Hunt (LON:ESC) - positive sounding re-opening trading, but no meaningful numbers provided. Not much cash. Speculative, unproven business model. It's not for me.

Ricardo (LON:RCDO) (I hold) - a straggler left over from last week. Trading update is in line, with lots of detail provided. Seems to be recovering from the pandemic, and valuation looks cheap. I like it.

Getbusy (LON:GETB) - Brief thoughts on today's InvestorMeetCompany webinar.

Photo-me International (LON:PHTM)

75p (Friday’s close) - mkt cap £290m

Trading Update

Photo-Me International plc (PHTM.L), the instant-service equipment group, announces an update on the Group's trading position.

The company has a 31 October year end.

I’ve reported on this company 3 times so far this year, and have had a quick look back (our summaries at…

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abtan

2nd Aug

Augean (LON:AUG) (I hold)

If HMRC do not appeal by the end of this month, don't we just get the extra 20p now?

In which case, is it not better to just hold for a few more weeks?
I can't imagine a delisting will happen this month, but I'm happy to be corrected if I missed that detail.

And of course there is still that minimal chance of a counter-offer, whilst 280p is on the table.

In my mind there was always a risk that if HMRC won the case, Augean would need to pay the higher landfill tax for 2018-2021 as well (an extra c£25m by my estimates), so I'm happy to take the win, which is only just below my target price anyway, and move on.

ridavies

Thanks again JimMcLad for that snippet of more extensive success in research for the Parsortix process owned and heavily patented by Angle (LON:AGL) . All good news but the best will be FDA approval. We eagerly 'some time in the second half of Calendar 2021' for that.

Westway001

One has to be very careful with surveys because the answers depend entirely on how the question is phrased. The inflation question may have been “If inflation went and remained above 5% would you be concerned about the potential impact?”
it also depends on what sectors were polled.

Frontrunner72

That would be wonderful!

GN100

RajanP Saga (LON:SAGA) thanks for posting the DM link - at last, something positive

dahokolomoki

On Photo-me International (LON:PHTM) I actually think the story is terrible for H2.

Adjusted PBT was £12.9m in H1.

Now they're guiding £25-30m FY, say £27.5m midpoint. That's £14.6m PBT for H2. Looks good on paper, sequential HY improvement in PBT.

However, if you look back at prior years, H2 PBT is significantly higher than H1! Its all over the place, but its been as high as +100% and as low as +60%. Seasonality is high in this business.

So it looks like, potentially, H1 was a bumper half. H2 is going to be a reversal.

So it'll be a red herring to take FY21 EPS and assume that FY22 would do better, as the H1 bumper profits look it really was a one-off. The extra profits from the Japan photo booths.

Off the back of the envelope I think I can see 5.8p EPS next year, which is below the current broker forecast of 7.6p.

Always thought there's potential here, what with the chairman buying loads in 2020-2021. But I just can't justify going in at the current 77p price. It doesn't look like lots of potential; and in fact looks like a lot of the growth next year is already baked into the price.

Zipmanpeter

Re Saga (LON:SAGA) - just spent the day doing covid testing/screening to get Virgin cruises going ex Portsmouth. All passengers double jabbed and keen to go; no sign of an issue on demand side and ability to supply "safely" steadily improving.

Liquidium

But why does "here" have to be the SCVR topic every day, why can't "here" be the stockopedia discussion board as a whole. Its a vicious circle where everybody wants everything mentioned in the SCVR because its the most active place and the circle repeats, its just a spam fest.

I think if people dont put the effort in to try and make the message board as a whole become more active then it may as well just be binned and simply have a single posting thread each day for the SCVR and 100% of posting all spammed in there. At the moment 95% of stocko users are in SCVR and then 5% are posting stuff outside and just getting ignored.

GrahamF

I don’t hold Versarien (LON:VRS) but note that it is up over 9% today.

This has been a perennial jam tomorrow business. Such a farce one wonders if someone was having a bet with the company management to see how many RNS they could issue about their collaborations with potential customers before the whole thing collapses.

Well there’s no RNS today, so, given their predilection for issuing these at the drop of a hat, there cannot be anything too dramatic/material happening. However, an article in the Times talks about HS2 using graphene enhanced concrete printed with a 3D printer in situ rather than traditional reinforced concrete parts brought to site. And a press release from HS2 themselves confirms it and that the graphene is from Versarien.
https://mediacentre.hs2.org.uk/news/3d-concrete-printing-and-graphene-combined-on-hs2-set-to-cut-carbon-content-by-up-to-50-percent

So, what to conclude? Either the company is very dozy at present, perhaps they are all isolating, or it is not material to their numbers. I had thought that the problem with their product was that it may cost too much, but could the issue here be that the quantities of the magic carbon dust are just so small it doesn’t move the dial. Or perhaps it is just a trial and even if successful HS2 will only do very minor work this way. (So, more a bit of PR from HS2 than something of significance).

Just shows how difficult it is to know with any certainty when new tech will actually gain traction.

Photo-me International (LON:PHTM) (no position)

The main issue for me with this one is that the CEO owns too much of the company. He can literally do anything he wants and given how long he's ran the business there's nothing to stop him delisting. That's a risk too far for me

Metatron

Saloon bar theory why Photo Me CEO has bought so many shares over the last year is to enable the CEO's job to go to his daughter

chrisgb

RNS seem to have dried up at Versarien (LON:VRS) . Adding graphene to concrete has been in the public domain - https://www.graphene-info.com/...

jonesj

Going back a few decades, the main speciality of Ricardo (LON:RCDO) was R&D on engines, for which they had a very good reputation.

They now seem more diversified, although if I understand correctly, the Performance Powertrains business is developing and selling engines to McLaren (road cars, not racing, obviously).
According to the last presentation on their site, Automotive, Industrial and Performance Powertrains was just over 50% of revenue.

When the share price gets cheap enough to think about it more, my first task would be to work out how this business adapts to electrification, alternative fuels etc

BouncingBack

3rd Aug

After doing some work for a civil engineering company that was installing national LED lighting, I thought that a UK supplier would be a good investment. But, like Versarian, a good product killed by lousy management.

9th Aug

Augean (LON:AUG)

For any interested here is the latest Augean vs HMRC court ruling, which looks like it's finally been published:
https://www.casemine.com/judge...

I've only glanced through parts of it, but it seems quite conclusive that HMRC have no grounds to ask for high rate of landfill tax retrospectively.

Paragraph 48 in particular seemed quite positive (sorry, it won't let me copy and paste.)

It's 56 days from 22nd June 2021 to appeal. That's August 17th by my understanding. Hopefully there will be no appeal by this date therefore releasing the extra 20p from the recent bid.

Here's hoping.

gus 1065

10th Aug

Hi abtan.

Thanks for posting the link. I’m no lawyer but a layman‘s read of the judgement suggests Augean (LON:AUG) have a pretty strong case/judgement in their favour. Gist of the argument appears to be that in seeking to clarify whether a company is liable to pay a standard rate or lower rate tax on landfill deposits, HMRC in effect extended its powers in the original legislation to levy a higher rate of tax that was not prescribed in the original law. The judge’s view is that HMRC is not clarifying the position but making new law. As it’s Parliament rather than HMRC that makes laws in the U.K. this is outside HMRC‘s authority so they are not allowed to do this, hence the ruling in favour of Augean (LON:AUG) . No doubt HMRC legal counsel could try and pick holes in the argument but at face value the judgement seems pretty definitive.

Gus.

WDWombat

20th Aug

I sold my holding in 2017 at about 750p. I notice that every instution named as major shareholder here has bought more this year so they must agree with the Liberum note which has a TP of 570 based on £20mn net in 2 years time. That puts them on a foward p/e of around x10 for June 23 and the current ev/ebitda is already well below 10 which feels cheap by current inflated standards. Possible value tob target? I actually hope not as too many good companues being snapped up by vultures from the US.

My small concern is whether they may be negatively affected by the move to more electric vehicles. But on the other hand Ricardo seems to be pretty active in very important project work on lowering emissions, especially I note work in the Mexico heavy transport sector and the hydrogen aeroplane initiative in the UK. Perhaps it is a (relatively) safe route into important future sectors without the glitz, a bit like Johnson Matthey?

June 21 (figures out next month) adjusted est PBT of £18mn but reported PBT of only £4mn due to some exceptional costs (writedowns I assume) though this should normalise next year to June 22.

I am a bit surprised the share has come back so much from the year high but perhaps the resurgence of covid, well pubilcised problems (chip shortages, factory closures etc) in the automotive sector have been the root cause. Plus they are still looking for a new CEO. Standard Life has been a quite argse seller but they are (imo) useless.

21st Aug

The big risk with small, one-trick software like Getbusy (LON:GETB) is that the larger software vendors who supply the same clients, decide to start offering this, and initially give it away for free/cheaply to squeeze out competition.

Think Slack in the USA in 2019/2020, and how Microsoft invested in Teams, gave it away for free, and caused huge headaches for Slack.

What's to say MSFT or any of the large software vendors to accountancy firms don't do the same? Strategically they will do this because they might lose money replicating SmartVault / document signing, but then have deeper tentacles in their clients and make them more sticky for their core, cash-cow software.

The flip side, of course, is that one of the larger software vendors might buy GETB at a premium to do exactly the strategy I've described, rather than develop it from scratch in-house.

But they won't have to buy GETB on the public markets and have the hassle of take-private; I'm sure there are a few PE owned, similar platforms to GETB that they could acquire much more easily.

re. Augean (LON:AUG) , August 17th hypothetical deadline for the HMRC appeal has come and gone. Haven’t seen any news either way although schare price is staying stubbornly close to the 280p level suggesting the market isn’t too confident the extra 20p is coming. Hopefully some clarity next week.

Hi Gus

I've been away for a few days with terrible internet, so my apologies for posting this so late.

Mark Fryer, the CFO, emailed me a few days ago to confirm that HMRC have asked for an extension to the appeal deadline.

He further added:

"There is no reality of payout pre completion though as this is only one aspect of the case (out of around 6) and only the Lower Tier. There is still the Upper Tier, Court of Appeal and High Court for whoever loses and seeks to challenge up to the next level. This means that we will be in this process for the next 3-5 possibly 10 years. I appreciate this is hugely frustrating for shareholders."

So it looks like nothing is going to happen pre-delisting.

Given the current share price of 281p, there doesn't seem to be much point in selling right now anyway so I personally will be holding on.

The extra 20p/share next month would have been nice though...

Cheers

Small Cap Value Report (Mon 2 Aug 2021) - PHTM, DIA, ESC, RCDO, GETB

Photo-me International (LON:PHTM)

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Paul Scott

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