Small Cap Value Report (Mon 20 May 2019) - Mello Slides, WYG, LWB, CER, FOXT, ACT

20th May '19 by Paul Scott

21 comments 7853 reads

Good morning, it's Paul here.

Pre-7am intro

Mello London was another rip-roaring success last week. I did my usual talk on small caps, and so that everyone can see (including those who were not able to attend Mello) what I rattled on about, here are my presentation slides.

NB. This is an expanded set of slides, with my full talk on ZANE towards the end, which is new material beyond what I was able to say at Mello. I wanted to talk in more detail about ZANE, and was given a late presenting slot, but the previous panel show thing over-ran by so long, there was no time for me to talk properly about ZANE.

Its founder, Tom Benyon, has become a good friend, and I'm seeing him for lunch today actually.

Tom's a remarkable man, not only did he found ZANE, but he still does c.10-day sponsored walks each summer, even with 2 replacement hips and more recently a replacement knee joint. His walks, plus his military & political contacts make him (by far) the largest fundraiser for his own charity. That seems in stark contrast to a lot of larger charities that seem to have become so corporate these days, with 6-figure salaries for CEOs, etc.

Unfortunately, at Mello, some of audience visibly zoned out, the moment I switched from talking about shares that might make them money, to talking about ZANE. Out came the smartphones, and glazed eyes! I was rather dispirited by this, and later apologised to Tom Benyon, feeling I'd let him down, by failing to produce an interesting enough presentation to hold the audience's attention.

Tom feels that it doesn't work, trying to combine charity stuff with investing. After all, as he pointed out, if he went to a charity conference & started talking about shares, the audience there would zone out too!

Clearly then, I've got a lot to learn about how to do charity fundraising, but like everything, one has to start somewhere!

EDIT: to save anyone asking the question who might be curious, I am not asking for, or being paid anything by ZANE to promote it. I paid for my own return flights to Zimbabwe, and internally, plus I paid for the restaurant meal we had whilst in the country, for the trustees. So please be reassured, I'm putting money in, not taking it out.

ZANE has…

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LeoInvestorUK

20th May '19

It seems to me that, like investing for your own benefit, giving money to charity should involve a lot of due diligence, for example to be sure that an unreasonable amount your money isn't just going to management or middlemen, that it hasn't become a machine operating mostly for the benefit for directors and staff, that they have a sensible strategy, and that they are executing well. Many people I know feel unable to make these checks and either then don't give money to charity and/or invest at-all, or else adopt a scattergun approach on the basis that not all the charity money can be wasted and/or not all their investments can go bad.

When buying shares I always do my own independent research before committing money, regardless of who else has already investigated and come away with a positive view. However for charities, if I trust the person who is recommending them to have checked strategy, execution, overheads etc. (and I like the cause) then I am much more likely to just go ahead without further investigation.

So, I do think there is a synergy between investing and giving to charity (beyond the fact that investors hopefully have more money to give away!) and I am especially grateful when someone I trust has done all the work in checking out a charity for me!

PS: WYG (LON:WYG) - who'd have thought it?!?

Paul Scott

Hi Leoinvestor,

That's a nice post, thank you!

I totally agree with you, that doing due diligence on charities is essential before donating. As you would expect no doubt, I've checked out ZANE's accounts, here, and there's more information here from the charity commission.

Also, I've met almost the whole team of staff & trustees, both here in the UK, and in Zimbabwe, and seen them at work. Meeting many of the recipients of ZANE's help in Zimbabwe was also a form of due diligence I suppose. They're incredibly grateful, and many would have died without help from the charity. They all wanted to shake my hand, and say thank you to the people in the UK who donate. Very heart-warming, so I'm sure you can understand why this cause has really inspired me.

I do sometimes wonder if I go on about it too much here, as I respect the fact that many readers will already have their own favourite charities. On the other hand, my ZANE comments are always in the intro, so it's easy enough for people to skip the intro if they wish.

Best wishes, Paul.

doublelutz

COS - Collagen Solutions - an outright gamble of mine has announced a placing at 5p per share around 1p up on recent prices. £4.18M of shares will be taken up by a US strategic partner who will help COS develop their animal tissue related biomedical products. I took a gamble on this small company at a very low price after seeing a good list of purchases by directors and the chart now looks as if it is improving.

andrea34

StatPro (LON:SOG) announce a £2.44m contract win over three years; this is reassuring, though not monumental compared to their current-year turnover of approx £54m. Any view on StatPro (LON:SOG) please Paul? With profit expected to be up 32%, they don't seem on a very demanding PER... though I am slightly put off by all the goodwill and the recent legal ruling against them in respect of the dispute with SiSoft which potentially sees a charge of up to £1m in this year's accounts.

City Pub (LON:CPC) give a trading update, with sales expected to be up 35%... but there is no indication of lfl sales, which I feel is disappointing. They seem to be a buy-and-build type pub operation, so sales will rise as renovated sites open. On this basis, I don't find the valuation attractive.

Forterra (LON:FORT) announce 4 month revenue up 7.8%, which doesn't set my heart on fire.

I consider the open offer element of the placing by Ab Dynamics (LON:ABDP) rather mean - there are some of us (like me) whose portfolio is not of such a significant size that it permits a holding of over 86.5 shares in order to take part in it. It seems like a token small-investor offer rather than a serious one :-(

Re. ZANE and charities, my view of the world is that as time goes on it is becoming a more a self-centred, greedy place and charities are supported by rather fewer people than they could be. I wonder for example how many people give even £1 to a charity when they make a purchase on eBay (which is always presented as an option at checkout); I do so almost every time. I can't comment on how you conducted your presentation Paul as I was not at Mello. I had a look at your slides and there is some very interesting information on there... although I would say they were a bit verbose, with too many toilet photos as well; the bare-shelves photo brings it home though, and the Father & Son photo was nice (if you want any more feedback, pls message me). There are a lot of worthwhile charities out there, though some have been tainted by substandard conduct of people running them or the way they use money given to them. I support several charities, on either a regular or one off basis. I have made a one-off donation to ZANE this morning after you mentioning them... so you have achieved something!

hayashi22

£COS?? Solutions!!

Sorry, edited and corrected. I should know the names of my own shares but "resources" sounded better!

Michael Tee

Morning Paul,

Great to see you at Mello Paul.
What's the address for Zane to send glasses to?

Michael
PS: I found the PTSG discussion interesting although I thought it was a disease.

Lloyd Garvey

Hi Paul
I also have had to do fund raising talks.(Conservation charities) Please do not be disgruntled. Like investing it's a percentage game.
As Tom said it is easier to talk at a charity event, but these people are already keen and probably already donating.
Where you are talking to a completely different audience. If Just one extra person starts donating, then surely this is a success?

Lloyd

Re. RBG in the Mello slides, I think a LOT of work still has to be done to reverse, or even halt, the decline:

JamesS

Hi Paul,

Thank you for linking your Mello slides for those of us that werent there. Both the Small Caps and Zane items were very interesting on my first skim read.

KR
James

Chipspa

Cerillion (LON:CER)

Whilst I note commentary that would normally induce flag-raising ( "positive high value contracts in the final stages of being negotiated / H2 weighting"), management do seem to be encouragingly conservative about recognising revenue:

Note 2 following the CEO's comments reads:

"Back order book consists of £11.4m of sales contracted but not yet recognised at the end of the reporting period plus £4.0m of annualised support and maintenance revenue. It is anticipated that 75% of the £11.4m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 12 to 24 months"

Personally, this provides me with enough comfort that they are likely to hit their targets to keep holding.

However, if one of the "two high value opportunities in the last stages of negotiation" fails to complete, I imagine a profit miss is likely.

Chipspa

dmjram

Morning Paul,
Thanks for the Mello slides, not able to make it so much appreciated. The toilet interlude brought back memories of Africa - you were fortunate not to encounter the "pit" toilet on your travels! Zane looks a great operation so thanks for giving it the attention it merits.

Re Foxtons
"The lettings business cushions things"
It maybe time to get a little wary of the lettings side of the business as well given the adverse tax environment landlords are facing - additional stamp duty, restricted income tax relief for mortgage payments and the upcoming abolition of lettings relief for capital gains in most cases.

There seems to be a deliberate policy to encourage institutional rather than individual lettings, with many smaller landlords planning to sell up.

jonthetourist

I liked the point Richard Bernstein of Crystal Amber made in his presentation. As the fund gives 0.25% of value to charity each year, he feels an imperative to confront bad corporate governance which is impacting performance.

I will look at Zane, following Paul's words. Currently I confess to mainly supporting the Salvation Army, despite being virulently anti-religion. I just think those guys "walk the walk" and I have no fear that my money is squandered.

Jon

shauniekent

I support https://www.givewell.org/

They review charities in depth and rank by 'good done' per £ donated. They work out 'good done' using a number of factors including lives saved. Essentially they rank charities enabling you to put your donation to maximum possible use. More info on the website.

When I fist heard of such an approach and organisation I thought what a fantastic idea.

Shaun

Yes I think the Sally Army is a good one and no doubt ZANE. With some charities you feel you are supporting a left wing agenda eg Amnesty or loads of £100k a year types (or more) in plush offices who take several exotic overseas trips a year to shag vulnerable locals. With the SA you feel it gets to the right people. I used to do alot of Friday night drinking up north and was always happy to put into the tin when they came round.

Trident

Made a small contribution to ZANE, which seems like it is making a difference in a difficult set of circumstances, though its name does sounds as if it could be the next child of the Beckhams.

Cricketfan

I have been a ZANE supporter for a few years now and, whilst I have never visited Zimbabwe, I can
vouch for everything that Paul has said re Tom Benyon and his tiny but loyal team. They do a magnificent job in a little known and desperate situation.
Well done Paul for visiting and thanks for giving ZANE such much needed and honest airing.
BW Mark

shopping365

Andrea341

Re Ab Dynamics (LON:ABDP) you said:
"I consider the open offer element of the placing by Ab Dynamics (LON:ABDP) rather mean - there are some of us (like me) whose portfolio is not of such a significant size that it permits a holding of over 86.5 shares in order to take part in it. It seems like a token small-investor offer rather than a serious one :-("

I agree that is quite a significant number of shares required before you can participate in the Open Offer as an existing shareholder. The last time the company had an Open Offer was in December 2016 when there was no such specification of the size of the qualifying holding and contained the following statement "there is no maximum or minimum subscription per applicant". However, if you do own at least 87 shares now you can apply for as many additional shares as you like after that (although this may of course be scaled back if they are over subscribed). The relevant quote from today's announcement being "Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares as an Excess Entitlement, up to the total number of Open Offer Shares available to Qualifying Shareholders under the Open Offer." I'm wondering if the limitation is partly due to the administrative costs of servicing a large number of applications.

I should add that I first bought shares in Ab Dynamics (LON:ABDP) towards the end of 2015 @£3.25 and did add to my holding at the time of the last Open Offer when the price was £4.75, so have been delighted with the performance of my holding.

andyfwwrench

r.e. Actual Experience (LON:ACT) . First I've heard of it, but as story it is one to cause some introspection in small cap investors especially. Can't disagree with the analysis above, revenue should be at gangbuster growth in a hot sector like analytics if it has a viable business model. The logical conclusion from the impartial observer is it has nothing. Yet as you say Paul it still has a more than full market cap.
It is an easy trap for the investor to fall into, especially when a share price is drifting down slowly. The losses creep up, and just as bad that dead money spends years doing nothing productive. One has to be very strict with ones own process to acknowledge when an investment thesis has failed to emerge over time and exit accordingly. It's a big trap for investors in minerals explorers for example, which can survive for decades on the fumes of futile expectation. Somewhat ironically it is much easier to exit a company that badly misses revenue or profits and gaps down sharply.
The sucker stock moniker Stockopedia attaches is a valuable 'best friend' description to help get out of a speculation in a reasonable amount of time.

Bonitabeach

21st May '19

Revolution Bars (Lon:RBG)

From Paul's presentation slides: Paul's Mello Presentation Slides

New management very clear about what went wrong;

roll out of new sites left old sites neglected
“brain drain” as key area managers left
drinks too expensive, service too slow
not sure what customers want
too many sticky/sweet cocktails that take too long to make
multiple reasons for weak LFL sales in 2018
bungled changes to food menu

I think Paul forgot to add "too much football" and "warm weather" to what is already a long list that leaves my head spinning - I am please to read that it is all very clear to the new management!

The one item that stands out to me that the management is very clear about is "drinks too expensive".

Revolution Bars enjoys a gross margin of ~ 76%. If they reduce the price of one of their cocktails from £10 to £8 how many extra cocktails do they have to sell just to stand still? Answers on a postcard please........

No position.

Small Cap Value Report (Mon 20 May 2019) - Mello slides, WYG, LWB, CER, FOXT, ACT

Pre-7am intro

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Paul Scott

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