Small Cap Value Report (Mon 2 Sep 2019) - MAI, CNIC

Monday, Sep 02 2019 by

Good morning, it's Paul here.

Estimated timing today - I'll be writing here mainly from mid-morning, to mid-afternoon.

EDIT at 12:38 - today's report is now complete. There's hardly anything of interest in the trading updates & results category of the RNS today.

Twitter - a couple of friends have queried what has happened to my Twitter account? After another temporary suspension by Twitter, I just told them to stick it & permanently delete my account. Social media is killing society in my view. For me it's become a colossal waste of time, and a source of unrelenting yet unnecessary stress. Hence it had to go. I'm already feeling a lot more calm, and can spend my time & energy doing more constructive things.

Maintel Holdings (LON:MAI)

Share price: 425p (down c.4% today, at 10:20)
No. shares: 14.3m
Market cap: £60.8m

Interim results

Maintel Holdings Plc, a leading provider of communications cloud and managed services, announces its interim results for the six months to 30 June 2019.  

Reading through my previous notes here, the weak balance sheet has put me off considering any investment in Maintel. The main attraction of this share looks to be the high dividend yield - a key question being whether this is sustainable?

The numbers highlighted from the P&L show decent growth (remember this is just for 6 months trading);


Outlook - the narrative with today's interim results sounds rather downbeat in tone in parts, and upbeat in others. Overall, it strikes me as confusing!

The all-important outlook section says;

The 28% growth in adjusted EBITDA, which includes a positive IFRS 16 adjustment of £0.5m in the period is pleasing, as we continue the transformation of our business, carefully managing our revenue mix and gross margin. We have seen cloud customers grow to represent 20% of our total revenue, up from 15% in 2018, and this is expected to continue to grow in H2 supported by our recently launched ICON Now and Insight Secure propositions.
Underlying demand for our services remains high and our new business pipeline remains strong with some significant project opportunities,however, we are seeing more customers expressing their concerns about the economy and the uncertainty around the prospect of a disorderly exit…

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Maintel Holdings Plc is engaged in the provision of contracted managed services, the sale and installation of telecommunications systems and the provision of fixed line, mobile and data telecommunications services, to the enterprise business sector. The Company operates through three segments: telecommunications managed service and technology sales, telecommunications network services and mobile services. Its managed services and technology division provides the management, maintenance, service and support of office-based voice and data equipment across the United Kingdom and internationally, on a contracted basis. It also supplies and installs voice and data equipment together with providing professional and consultancy services. Its network services division sells a portfolio of services, which includes telephone line rental, inbound and outbound telephone calls, data connectivity, Internet access and hosted Internet protocol (IP) telephony solutions. more »

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CentralNic Group plc (CentralNic) is a holding company. The Company is engaged in the provision of independent global domain name registry services. The Company provides registry services and strategic consultancy, and it is the owner and registrant for a portfolio of domain names, which it uses as Second Level Domain extensions (SLD) for domains. CentralNic's registry services (wholesale) business provides high quality technical and operational services, through its domain registry, billing and cash collection platform. The platform enables retailers around the world to sell domains using a range of domain extensions, and supplies the core Internet infrastructure (DNS) that powers the domains that CentralNic distributes. The Company's platform supports all three categories of domain name extensions: generic Top-Level Domains (gTLDs, such, country code Top-Level Domains (ccTLDs, such as .uk), and SLDs, such as more »

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28 Comments on this Article show/hide all

HumourMe 2nd Sep 9 of 28

Maintel Holdings (LON:MAI) has a ridiculous spread - 1,240bps . Years ago, I've both bought and sold this, effectively setting the days price and reported movement. It was a big wake up call. I see things haven't improved since. It is the principal reason that spread is part of all my screens. Someone must benefit from this but it isn't private investors.

Apologies to Paul: I'd only read as far as 'Maintel' in the title when my long buried experience provoked my response. Paul covers spread at the end, which I've subsequently gone on to read :)

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iwright7 2nd Sep 10 of 28

In reply to post #509271

Agree that the Sylvania Platinum (LON:SLP) results and outlook, look good - Largely due to the huge increase in the price of Rhodium. I wouldn't normally invest in miners, because there is too much that can go wrong, but this one appeals because it's not a mine operation and has excellent Quality numbers and Momentum currently. Sylvania was a tip in July by ST from Investors Chronicle, so I would have thought is likely to be re-tipped in next week or so, pushing the price up further.

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pka 2nd Sep 11 of 28

In reply to post #509346

Hi Humour Me,

That's a good point about spread. I have a rule only to buy stocks with spreads less than 100 basis points, i.e. less than 1% of the current share price.

If one buys a stock like Maintel Holdings with a spread of 1240 bps or 12.4% of the share price, then one needs a 14.2% increase in the share price just to break even! And that's ignoring other transaction costs, such as broker's commission and 0.5% stamp duty (if payable). So the odds are stacked very much against you making a profit on that purchase.

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Aislabie 2nd Sep 12 of 28

There is a common playbook for how things might go at Maintel Holdings (LON:MAI) ( I hold a small remaining amount). A new CEO comes in and “kitchen sinks” the next lot of results, maybe getting rid of some lesser division, cutting some staff. A discounted placement is done for £20mm at, say, 300p, the dividend is cut or eliminated. Half the debt is then repaid and the balance of proceeds used to juice up the core business.
There is now a clean company with negligible debt at a price of around 300p and a predator offers 400p. The company is therefore sold at a price you could get now.
Alternatively the company slowly turns round in which case we have plenty of time to buy the shares before they reach their true potential.
There seems little to lose by selling now - unless you believe a bid could come early ( we always have a chance to be blindsided!)

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Reacher 2nd Sep 13 of 28

In reply to post #509326

It is frustrating that more details were not provided by BPM oon the hit they will take when they say "The Company has assessed the potential impact of this decision on the overall net asset value of the Group. Although the current situation will reduce LEBC's valuation, LEBC are working on a number of initiatives, some of which have already been implemented."

BPM's financial statements show LEBC was valued at £35.5m at 31 January 2019. This equates to approximately 35% of total investments.

Looking at LEBC's website, it does appear to offer a diversified range of services. It is not clear how much revenue was generated from the advice on Defined Benefit pension transfer advice.

With NAV being 350p (£126.2m) at 31 January 2019 and the share price currently at 220p (Market Cap: £82m), perhaps this can be seen more of an opportunity if we make the assumption that LEBC still hold some value. For example, even a sharp 50% write down in value to £17m would result in a NAV of £109m which is 33% above the market cap.

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Camtab 2nd Sep 14 of 28

Just a heads up for BKS this week. Finals out Thursday which should be interesting given the last news.

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simoan 2nd Sep 15 of 28

In reply to post #509336

have never understood why people want to live their lives in public...

Many people want to use it for self-promotion. Younger people cease to exist to their friends if they're not on it. Even if like me you have never used it, it's important to understand why others find it so useful and so central to the way their live and it's not stopped me investing in Facebook, for instance. I have never owned a smartphone either, but it doesn't stop me investing in Apple!

first their lives really aren't that interesting to others...

That's obviously not true. Celebrity culture is alive and kicking. You and I may find it of no interest  whatsoever but  the vast majority of people are more easily influenced by the tosh they read on social media. I agree with Paul that on the whole social media is not good for most people and overall bad for social cohesion. 

All the best, Si

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harrinr 2nd Sep 16 of 28

Hi Paul - what did you make of Gear4Music results last week ? Still going in the right direction ?



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Snoo 2nd Sep 17 of 28

In reply to post #509381

I was going to mention that they are fairly concentrated holdings-wise, this and Nexus must be approaching 50% of all equity.

The inference might be that the rest of the portfolio will combine to take up the slack and NAV can be preserved.

This being said I do wonder if the market sentiment may be different this time, these are valuations in mainly illiquid companies that have margin of error. From Burford we can see that profits built on uplifts in fair value may be contentious. It seems that LEBC itself had a fair value uplift in 2018 of £5.7m due to a change in valuation which made up over one quarter of profit for that year. I have no idea about whether this was deserved or not, aside from that the change in value was significant (c.20%) and it is not cash (yet).

I hold but not really sure what the consequences of today's RNS means in terms of figures, so hopefully they will provide some more detail in their trading update later this month.

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Pennyledges 2nd Sep 18 of 28

Well done giving up on Twitter...never really seen the point of any of the wider social media things...No doubt miss out on photos etc on Facebook ...but not ,in all honesty, interested that much in the trivia of other peoples lives...Have enough to cope with in my own :)

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Mark Carter 2nd Sep 19 of 28

Hi Paul, congrats on giving up on Twitter. So, you've been a naughty boy, have you?

As an experiment, I stopped Twitter for August. Yeah, there's a couple of nice things on it worth reading, but like you, I found it stressful. It's too easy to engage in political arguments with people who seem impervious to reason or nuanced points.

I was going to back to Twitter, but I'll follow your example and stay off of it.

I had abandoned Facebook for quite some time now.

It's quite toxic for the mind and an utter time sink. Hopefully there will be others who see the merit of your example, and follow suit.

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Reacher 2nd Sep 20 of 28

BPM have brought forward their trading update for the 6 mths to 31/7/19 and released it this afternoon:

Advice in the DB transfer market represents approx. 20% of LEBC's total revenue. LEBC produced revenue of £20.5m in the year to 30/9/18. Therefore, the DB advice business loss in revenue would be £4.1m per annum. However, excluding DB revenue, LEBC is expected to produce annual revenue of £19m.

BPM state the investment in LEBC will take a hit (but do not provide further information). But the Board believe BPM will emerge in a "satisfactory position" based on its results for the 6 mths to 31/7/19 as a result of strong performance in other parts of its portfolio.

It's hard to interpret: What does "satisfactory position" mean?

What is concerning is the cash position of £1.4m at 31/7/19 compared to £7.9m at 31/1/19. This has resulted in BPM entering into a loan facility with the Chairman's company.

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InvestorJohn 2nd Sep 21 of 28

In reply to post #509361

RE Sylvania Platinum (LON:SLP) This is the only Mining related holding that I have as like yourself I generally avoid this sector  

I list all my holdings here

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purpleski 2nd Sep 22 of 28

Generally agree with Paul re social media. Never had a Facebook account, have deleted Instagram and Pinterest. 

Personally I find Twitter useful for Fintwit stuff. I have gleaned some good ideas from it and good blogs to follow. 

I certainly think that in general it can be waste of time and certainly ones tweets are not going to change anybody’s mind but for now I intend keep on Twitter. 

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johnsmith68 2nd Sep 23 of 28

In reply to post #509391

Hi Camtab. Could you expand on that? I may have missed something? Thanks

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FREng 2nd Sep 24 of 28

In reply to post #509396

Si posted  in reply to "I have never understood why people want to live their lives in public..."  Many people want to use it for self-promotion. Younger people cease to exist to their friends if they're not on it.

A Professor asked a student why they used Facebook. The student replied:

"It's evolution. All the parties are advertised on FB. If I don't go to parties, I don't get any sex. If I don't get any sex, my genes will die out".

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rmillaree 2nd Sep 25 of 28

B.P. Marsh & Partners (LON:BPM)
I think in some respects this issue at LEBC is the second part of a double whammy in that the june announcement previously advised that LEBC were delaying a proposed listing. Presumably a listing is the best route for them to exit their largest shareholding or presumably add some liquidity to the value of the holding they have in that company (along with valuation transparency) if they have no plans to sell up. I guess this all comes with the territory with the investing they do and fair play to the company for at least trying to add some flesh to the bones asap so that shareholders have some sort of up to date information from which to make a decision.

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Funderstruck 2nd Sep 26 of 28

Well done Paul , in dragging yourself away from the scourge of Social Media and clearly you don't need all those 'Likes' that the youngsters have to collect to feel wanted., but i shall continue to give you thumbs Up for your forensic articles.
I used FB in order to stay in contact with my Grandchildren .I also signed up to 'Linked in' on day one and successfully used it to track down an old business colleague who moved away to Austria. The only one now is Whats App as our Guys group use it to plan the next beer & Curry night. Now that is important.
Agreed it is a total waste of time ; i understand it eats into folks free & no doubt Office time.

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Camtab 2nd Sep 27 of 28

In reply to post #509451

Hi JohnSmith68, as I recall it at last results there was a view emerging that the focus on large tier 1 clients had several disadvantages, lower margin and a much longer time period to bring them on board. I certainly recall at a conference this year they attended the CEO was asked if he was still expecting to bring a new tier one on "near term" and quite clearly he had been disappointed by the number of committees he had to go through to get the new client on board. So my comment as a holder was really to alert existing holders and to identify a opportunity to see how this new tactic is progressing.

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katypar 3rd Sep 28 of 28

Couldn't agree more Paul with your opening comments !

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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