Small Cap Value Report (Mon 20 Feb 2017) - HAYT, PHD, FISH

Monday, Feb 20 2017 by

Good morning!

Today I intend reporting on;

Hayward Tyler (LON:HAYT) - profit warning, but strong pipeline. Issue with bank funding?

Proactis Holdings (LON:PHD) - in line H1 update, and upbeat commentary (I hold this stock personally)

Graham has emailed me a section on:

Fishing Republic (LON:FISH) - in line 2016 update.

Hayward Tyler (LON:HAYT)

Share price: 43p (down 11.3% at the time of writing, 08:30)
No. shares: 55.4m
Market cap: £23.8m

Update on trading & continued bank support - that's the exact title of the RNS, which would be enough to make me hit the sell button on the opening bell, and ask questions later.

This company manufactures heavy-duty electric motors, pumps, etc.

Reviewing the last few RNSs, it looks an interesting situation where the company has been raising loan funding from investors, to take the pressure off its bank borrowings. I reported in Mar 2016 here, on a property sale & leaseback, noting that the finances looked stretched.

The share price had been around 80-90p until Nov 2016, when these funding issues emerged, and has since halved. Clearly the best course of action for small shareholders would have been to exit promptly, as soon as funding issues emerged in Dec 2016, as is so often the case.

Anyway, let's look at today's update. It's rather confusingly worded, as the first paragraph seems to be saying that things are going well, with a strong order book;

The Board indicated in its interim results statement that the current financial year would be very much second half weighted.

This is, as expected, proving to be the case with aggregate order intake1 of £24.3 million secured in the four months to 31 January 2017, giving order intake for the 10 months to that date of £49.7 million and a significant increase in the order book2 to £52.2 million. 

However, the next paragraph seems to be saying that the increase in H2 order intake isn't enough, with a considerable (£30m) amount of delayed orders;

The Board's revenue3 expectations for 2H2017 relied on a number of additional contracts being secured across both Hayward Tyler and Peter Brotherhood in 4Q2017, however, to date there has been a delay in securing a number of these contracts to later in the quarter…

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Hayward Tyler Group PLC is engaged in the business of designs, manufactures, and services fluid-filled electric motors and pumps for high-pressure, high-temperature applications and environments across the energy sector. The Company's segments include Original Equipment (OE) and Aftermarket (AM). The Company's OE segment activities include the design and manufacture of motors, pumps and steam generators. The AM segment provides range of aftermarket services and spares. The Company caters to the markets, including power, oil and gas, renewables, nuclear, process and marine. The Company's products include Boiler Circulating Pumps, Canned Motor Pump, Varley Gear Pumps, Subsea motors and Submersible motors. The Company's products applications include Heat Transfer and Process Pumps, Primary and Secondary Nuclear Circulation pumps, Reactor Water Clean-up, Solar Power Tower Application and SynGas. The Company offers engineering services. more »

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PROACTIS Holdings PLC is a United Kingdom-based company, which is a Spend control and e-Procurement solution provider. The Company is engaged in the development and sale of business software, installation and related services. It offers a range of solutions, such as PROACTIS Source-to-Contract, PROACTIS Purchase-to-Pay and PROACTIS Supplier Network solutions. It offers managed services, such as procurement-related managed services, such as Sourcing and Content Management; Finance-related managed services, such as Invoice Data Capture and Accelerated Payment Facility, and information technology (IT)-related managed services, such as Application Hosting & Management. Its Solutions for Finance and Procurement include cloud, hosted or on-premise software applications. PROACTIS Spend Analysis offers company-wide data on users' laptop, tablet or mobile. Its PROACTIS Invoice Data Capture turns paper, fax and Portable Document Format (PDF) invoices into system-ready electronic records. more »

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Fishing Republic plc is a fishing tackle retailer in the United Kingdom. The Company's principal activities are the retailing, production and wholesaling of fishing equipment. The Company operates through the segment, being that of the retail of fishing tackle and equipment. It operates from a chain of retail outlets principally located in the North of England and online. It caters for various types of the anglers, such as coarse, carp, game and sea fishing, and supplies a range of products, including brands. It also offers consumables, such as bait, lines and hooks; clothing, and luggage products. The Company's product offerings include a range of own-brand ranges, such as Klobba for clothing and Theseus for carp fishing products. Its stores are located in Barnsley, Doncaster, Hull, Manchester, Rotherham, Sheffield and Sunderland. Its subsidiaries include Fishing Republic Trading Limited and Fishing Republic Retail Limited, which are engaged in the retail of fishing equipment. more »

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  Is LON:HAYT fundamentally strong or weak? Find out More »

23 Comments on this Article show/hide all

simoan 20th Feb '17 4 of 23

In reply to post #172189

Unfortunately the CEO seemed to be more motivated by awards & royal visits than securing the orders they needed.

I completely agree and would add "questionable management quality" to Paul's list. In the cold light of day given the state of the balance sheet, spending £10m on the acquisition of Peter Brotherhood and another £10m on a new development centre to be opened by the Duke and Duchess of Cambridge looks poor decision making and financial control.

All the best, Si

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FREng 20th Feb '17 5 of 23

I sold Hayward Tyler (LON:HAYT) when it breached my stoploss at 70p.

I recall that it was often said that appearing on Tomorrow's World was an warning of future commercial trouble. Other awards and celebrity visits may have the same predictive effect.

Another consideration to add to our checklists, perhaps.

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tabhair 20th Feb '17 6 of 23

When you look at other large retailers, many of whom trade at a multiple of well under 10, the valuation attached to Fishing Republic (LON:FISH) just looks crazy.

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Martin Gould 20th Feb '17 7 of 23

Fishing Republic were in dire need of a new Website re online sales and I note that this is being delivered 1/3/17.

This may increase trade but you have to be in for the long term for this one.

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Trident 20th Feb '17 8 of 23


With regard to Proactis: PHD I am particularly fascinated with the idea that they have the theoretical ability to earn fees from allowing their software into a Customer's supplier base (with the Customer's permission) producing savings to the Customer, and to the Customer's supplier.

However, this strategy which is always hinted at, and which could theoretically generate significant revenues to PHD never had any metric attached to it, to measure progress. They can't keep trailing it as they do, and not report on it IMO. It maybe a slower cross-sell than they anticipated, but there is a danger of hype over substance, which is not a typical feature of a generally sensible company. I shall be looking for some info on this in the detailed next report of results.

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00mrmark00 20th Feb '17 9 of 23

Hi Paul, did you publish your research on Next and Pets over the weekend? Just in case I missed it...

Cheers. Mark

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Wimbledonsprinter 20th Feb '17 10 of 23

Hayward Tyler (LON:HAYT) should be a significant beneficiary of the sterling depreciation, the fact that it is not indicates the problems that it is having integrating Peter Brotherhood, where business has been particularly weak. Today's announcement does not really contain much new news, as previous statement that the RBS loan needed to be rolled over indicated second half cash flow was flat. What I find difficult to read is why RBS is continually giving such short-term extensions to the debt rollover (RNSs on 14 Nov and 1 Feb). Is management indicating that cash flow just about to improve (so far without result) or has the bank little faith in management (despite management saying RBS is being supportive and RBS apparently demanding little in return for the debt rollovers)?

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rhomboid1 20th Feb '17 11 of 23

In reply to post #172219

I think it's more likely that RBS are "inside" on the progress of a capital raise by Hayward Tyler (LON:HAYT), that's obviously not going too smoothly as the best rights issues are the ones done early before the share price halves..

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sg31 20th Feb '17 12 of 23

Fishing Republic, I'm a fisherman and know and use a number of shops and online retailers. I don't see anything special in the FISH offering. I don't see why people will use them instead of established firms like
Both are well established names with a good reputation.
The fishing tackle market depends on new products being released regularly. Big ticket items are redesigned annually and previous models have to be discounted to sell. It's capital intensive and short product life.
There's no reason they can't be profitable but this doesn't strike me as a roll out situation.
I might be wrong but I won't be buying.

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hayashi22 20th Feb '17 13 of 23

I think you are bang on the money Rhomboid.

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jonthetourist 21st Feb '17 14 of 23

In reply to post #172210

It's a fair question, but my understanding is that they have pilot projects with three clients underway.

Given that no plan survives contact with the enemy, I am not expecting them to report marvellous progress on all fronts when do update us. My faith comes from believing that what they are proposing is both commercially sensible for the parties involved, and technically unchallenging.

Proactis has been a long-term commitment share for me, and recent price growth makes it my biggest single holding.


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Paul Scott 21st Feb '17 15 of 23

In reply to post #172213

Hi Mark,

No, it takes too long to do reports on all the companies I research.
FWIW here's the conclusion I've come to;

Pets at Home (LON:PETS) - looks potentially interesting on the numbers (huge disparity between valuation of this, and £CVS although they do have different business models.
A friend raised some concerns about ethics/risks about PETS operations, which put me off rather (e.g. unsold animals being disposed of to be killed & used as food at zoos, etc. Risk of spreading diseases, relatively inexperienced & poorly trained staff dealing with animals).

Next (LON:NXT) - I've taken the plunge here, and bought some. Although the sector is struggling, I feel this is now reflected in the valuation (fwd PER of 9.5 is the cheapest I can remember it).

Regards, Paul.

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Ramridge 21st Feb '17 16 of 23

In reply to post #172237

Hi sg31 -

As Graham has pointed out they do seem to carry a lot of inventory. Items are in inventory roughly 365 days.
If as you point out big ticket items are redesigned and previous models are heavily discounted, why carry a large inventory when the shelf life and hence value of goods declines so rapidly?

I agree with you, there is nothing in this company that justifies a high multiple.

Regards, Ram

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Paul Scott 21st Feb '17 17 of 23

In reply to post #172237

Hi sg31,

That's great info on Fishing Republic (LON:FISH) - many thanks.

I've checked the Alexa (estimated web traffic rankings), and they look like this; (Alexa ranking 1,314,128) (Alexa ranking 157,000, and ranked 16,145 in UK) (Alexa ranking 748,000, and ranked 61,772 in UK)

The lower the ranking, the better - because 1 would be the most popular website in the world.

So clearly AnglingDirect is well ahead of FishingRepublic, and the only way to catch up, is to spend heavily on marketing. As one eCommerce entrepreneur said to me recently, "There are few barriers to entry, but huge barriers to achieving scale".

Also, I've just done a Google search for "fishing tackle", and there are absolutely loads of companies selling online. Fishing Republic appeared on page 3 of my search - so nowhere near where it needs to be, basically.

Regards, Paul.

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Wimbledonsprinter 21st Feb '17 18 of 23

In reply to post #172222

Thanks. Sounds logical.

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drvodkaquickstep 21st Feb '17 19 of 23

In reply to post #172261

sg31 / Paul

Good to see some discussion on here re: Fishing Republic (LON:FISH). I have been an investor since just after the IPO.

The issue of stock / inventory levels is consistently raised by investors (for good reason when measured against other retailers etc). I have discussed this personally with management and being an angler myself (and having visited their operations) tackle retailers have to carry a vast array of stock to meet anglers demand. FISH are not unique here other than their very high stock levels are compounded by the need to stock the ongoing new store roll-out; each requiring around £200k of stock.

I understand that stock is often discounted (as it does become outdated due to constant new product launches), however, very little discounted stock is sold at cost or less due to the decent margins. These margins are improving all the time as economies of scale kick in due to FISH's size / buying power especially as they are the only UK listed tackle retailer. I understand that once a store is established stock turn is around 4 times /yr.

A bigger issue for tackle retailers is NOT having stock as the angler / customer will just go elsewhere and Angling Direct are a major (online) competitor. FISH do have an advantage over online only retailers namely that anglers / customers can 'try before they buy' or otherwise look at the item they want to buy in any of the stores and can then purchase it for the same price as online.

I have bought from Angling Direct on a number of occasions (prior to being a FISH investor) and they do have a good site and good stock levels. The company is run / owned by some savvy accountants and they are certainly competition.

Glad to see that FISH are launching a new website as it did need work and was a bit clunky.

There has been some M&A activity (PE / VC) over recent years and I understand management ambition is to grow FISH to at least a £30m business and then look for a US or other major player to acquire them. I would expect to see 30+ stores (min) over the coming years.

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Richard Cockbain 21st Feb '17 20 of 23

In reply to post #172255

An interesting (and detailed) article has been posted about Next (LON:NXT) on the discussion forum:

Paul, how does this compare with your own analysis?

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ganthorpe 21st Feb '17 21 of 23

In reply to post #172261

I went to FISH presentation last year put on by Share Soc in Leeds.
I am a retailer rather than a fisherman but I was very unimpressed with the management and their shops and website.
I could not believe the share price then or now - it's about double what I would have expected.
I am often wrong but I really don't see this one going anywhere against capable competition.

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WDWombat 22nd Feb '17 22 of 23

I sold Proactis on this release after working through figures and making very tentative forward estimates. I think it is too expensive on an ev/ebitda of (what I reckon) is over x12. The company has pretty much grown entirely on a load of acquisitions of which by far the largest was in Nov 16 of Millstream. I suspespect the US business is doing badly. It is terribly difficult to pin down valuations given the constant addition of new businesses - adjusted p/es are pretty meaningless, statutory makes it look miles overpriced but I accept these are distorted by amortisation schedules etc. I agree it COULD be a very good company but the CEO has recently left and I suspect there is a large share overhang to be cleared to boot. So too much uncertainty for me.

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acdoug 6th Mar '17 23 of 23

re Proactis Holdings (LON:PHD), having met the management Paul, how strong a leader do you think Jones was, and how hard will it be to replace him?

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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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