Small Cap Value Report (Mon 21 Jan 2019) - CAKE, BOOM, RBN, PTSG, PEN

Monday, Jan 21 2019 by

Good morning! It's Paul here, I'll be writing this week's reports.

Graham was scheduled to write today's report, but messaged me this morning, to ask if I could cover for him, as he's tired. Maybe he was up during the night to see the lunar eclipse? I got up at about 5am to see it, but couldn't see the moon at all - too much cloud, and background light. Pity. I studied astronomy at Uni, as my subsidiary subject, and found it fascinating. So have just bought a cheap plastic telescope, to rekindle my interest in the stars.

The vast scale of the universe means that there must be a very high probability of intelligent life existing elsewhere. Indeed, some astronomers believe that the universe could be teeming with life, but all a very long way away (too far for us to communicate with it, because by the time any alien signals reach us, they would be millions of years old). On the balance of probabilities, I think there must be life elsewhere, and I really hope we do discover extraterrestrial life forms in my lifetime. Providing they're friendly!


It seems to me that things might be turning bullish again. I'm certainly going back into buying mode, when companies put out positive updates, and providing the valuation is attractive (which many are, after savage recent falls).

My macro view, rightly or wrongly, is that the US-China trade problems seem to be getting resolved. I don't see any reason for a recession to happen. Real incomes are rising nicely in the UK, as wages rise (full employment) and inflation comes down.

As regards Brexit - it's not going to happen, is it? I don't think our politicians ever intended to actually implement Brexit. They just lied to us, in the hope that they could persuade us, over a couple of years, that it was a bad idea. The damage to our pseudo-democracy is going to be very serious, in my view. However, that's a topic for a Twitter rant, not for here.

Talking to many of my investor friends, most of them seem to be very nervous, and sitting on the sidelines in cash. That means that there's a wall of money to come back into the market, at some point. I want to be ahead of that wall of money, buying back into companies I like…

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Audioboom Group plc operates an audio platform for hosting, distributing and monetizing content. The Company works with approximately 2,400 active broadcasters, content creators and podcasters around the world, and hosts in over 7,400 content channels. The Company's hosting and distribution platform allows partners to embed, share through social channels and re-syndicate their content. The Company receives over 40 million listens per month. It also works with its partners to monetize their audio through live in-reads, the dynamic insertion of pre and post roll audio adverts and video advertisements. Its audio, cloud-based, software as a service (SaaS) platform enables the creation, broadcast and syndication of digital audio content across various devices, networks and geographies. Its subsidiaries include Audioboom Limited, Audioboom Inc, One Delta Limited and Audioboom Pty Limited. more »

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Patisserie Holdings PLC is a United Kingdom-based cafe and casual dining company. The Company offers cakes, pastries, snacks, meals, and hot and cold drinks across the United Kingdom. The Company's segments include Druckers, Flour Power and Philpotts. It offers products, such as coffee, dairy, fruit, packaging, cocoa and wheat items. It offers cakes in various categories, including celebration cakes, gluten free cakes and wedding cakes. The Company operates under various brands, including Druckers-Vienna Patisserie, Philpotts and Flour Power City Bakery. The Company offers a range of cakes, such as Gluten Free Flapjack, Gluten Free Chocolate Chip Muffin, Cortina, Chocolate Box, Carrot Cake, Cheesecake, Blackforest, Exotic Fruit Tart, Pecan Tart, Citron Tart, Choc Mousse, Mixed Berry Mousse, Raspberry Tart, Madame Valerie Slice, Mille-Feuille, Gluten Free Chocolate Brownie and Gluten Free Marble Cake. more »

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Robinson plc is a United Kingdom-based company engaged in the business of manufacturing plastic and paperboard packaging. The Company provides packaging solutions that specialize in injection, blow and stretch-blow molded plastic, and rigid paperboard. It serves the food, drink, toiletries, cosmetic and household markets. It operates through plastic and paperboard packaging segment. The Company has over five manufacturing facilities, which include Kirkby facility, Stanton Hill facility, Lodz facility, Chesterfield facility and Madrox facility. Its subsidiaries include Robinson (Overseas) Limited, Robinson Paperbox Packaging Limited, Robinson Plastic Packaging Limited, Robinson Plastic Packaging (Stanton Hill) Limited, Robinson Packaging Polska Sp. z o.o., Walton Mill (Chesterfield) Limited, Griffin Estates (Chesterfield) Limited, Robinson Industrial Properties Limited, Walton Estates (Chesterfield) Limited, Madrox Spolka Akcyjna and Walton Mill (Chesterfield) Limited. more »

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57 Comments on this Article show/hide all

peterthegreat 21st Jan 38 of 57

Glad to see that Paul's comments on extraterrestrial life have generated at least as much interest as investment matters. For my part, it seems blindingly obvious that life as intelligent as us can only exist for thousands (or tens of thousands) rather than millions of years as technology makes it ever easier for humankind to destroy itself. The industrial revolution only started a couple of hundred years and we have already come pretty close to a nuclear war (Bay of Pigs incident) in the 1960s. I can not imagine us avoiding worse incidents in the next 200 thousand years when destructive technology will be even more powerful. I am sure intelligent life has developed in many areas of the universe but I am much less sure that it avoids self-destruction for long enough to allow independently evolved intelligent life forms to exist at the same time in different places.

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Bezhe 21st Jan 39 of 57

My accounting training was many years ago but, at that time, the audit programmes required us to reconcile supplier balances in the accounts with statements from suppliers. In cases where there was a low overall percentage of clean agreement/reconciliation, there was provision for creditor circularisations. Typically that was done in companies with poorly organised accounts departments. We also circularised banks who were known or suspected to hold company accounts. It will be interesting to see what was done in the case of Patisserie Holdings (LON:CAKE).

I can also recall from my studies that it can be difficult to identify fraud where there is collusion between various parties. Will the current debacle show some of this?

And finally, the last bit I recall was that the law requires the auditor to be "a watchdog, not a bloodhound": in the absence of suspicious circumstances, the auditor is not obliged to dig too deeply but, where suspicions are aroused, the auditor is required "to probe it to the bottom".

Being completely uninvolved as an investor, I have a deep professional curiosity as to the details of the scandal. My suspicion is that responsibility lies closer to the top of the pyramid than the bottom.

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timarr 21st Jan 40 of 57

On extraterrestrial life - the development of advanced creatures (e.g. slugs, spiders, MPs, etc) appears to have been due to the one-off fusion of a bacteria and a virus. Given that there are lots and lots of both of those and this has only happened once there's a decent chance that we are the only sentient species in the universe. There's probably plenty of life out there but it's likely it doesn't get out much.

On Brexit the short-term investment landscape is very dependent on the outcome. In a no-Brexit scenario - surely only possible on the back of another referendum - sterling would recover, our overseas assets would drop in value and exporters see a hit. But currency fluctuations are normal, I try to adjust them out when looking at company earnings.

In a soft-Brexit - presumably May's existing deal - then sterling would recover a bit and exporters would fluctuate a bit. There's be another period of uncertainty until the final exit, but markets would probably bounce in relief before normal concerns take over.

In a hard-Brexit you'd see a drop in sterling and probably in markets too - the uncertainty of tariffs and added friction plus concerns over interest rate rises would likely disturb markets. After that it would depend on how well we'd prepared.

In passing, I'd note that if the UK government really wanted to exert pressure on the EU to negotiate it would be making a strong case that we're really ready for a hard Brexit. As it stands both politicians and civil servants rather give the impression that they don't have a clue. The concern, of course, is that they really don't have a clue and that the baffling newsflow - ferryless ferry companies, iPhone apps that don't work, staged traffic jams, large scale fridge ordering, zero trade deals ready to go and the use of NDAs with any company that has anything to do with no-deal preparation - is a genuine reflection of the state of play.

Still, it means there are lots of very cheap looking valuations around, if you fancy a flutter.


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tomps3 21st Jan 41 of 57

We've just published a fascinating interview with Reg Hoare, one of the MDs at MHP Communications, giving us a glimpse behind the scenes of Financial PR. Reg has worked in the City for over 30 years, and in financial PR since 1995.

Brilliant both from current day perspective, to find out what's going on behind the scenes with an RNS, but equally from an historic perspective, on how financial reporting has changed.

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Zipmanpeter 21st Jan 42 of 57

Overall, IMHO for long term investors with a 3-5yr horizon, Brexit will be just a blip and noise in 5 yrs time regardless as to how it plays out - at least in respect of investing.

If soft Brexit/no Brexit, we will (deliberately) see little change in trading arrangements and thus in our income (although actually we should really care about income/hd which might improve if Brexit leads to fewer low skill immigrants - although this is an assumption too: immigration may simply pivot to Africa/Asia vs E Europe)

Even if 'no deal' AND a disaster (it may be/may not be!) , nothing stops an independent UK from negotiating a trade deal with the EU who will also have likely lost - especially in those areas where trade losses have been greatest.

Not ideal but experts are talking about a few % points in cumulative net growth after 10 yrs - ie lets say we back to income standards of 2003: not the the end of our modern market economy! (Note 2003 is arbitrary and reflects real incme stagnation since the financial crisis

Thus anyone investing (vs trading by the month) need only have a small interest in Brexit but a big interest in the health of a specific company's brand, business model & management. These will have a far bigger effect on our individual portfolio performances.

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Aislabie 21st Jan 43 of 57

I too was concerned at the apparently huge receivables days showing on Premier Technical Services (LON:PTSG) but in a call to Numis (their Nomad) I was told that this related to the cradles business (the baskets lowered up and down the side of tall buildings for cleaning and maintenance). They said that the installation contracts were usually paid out on building completion and therefore resulted in extended payment and these are ceratainly not past due.
As other parts of the business are growing the cradles business percentage will be declining in future.
I hold PTSG

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rivaldo 21st Jan 44 of 57

Excellent news today from PTSG, with trading nicely in line with expectations and a transformational Fire Solutions acquisition.

Trinity seems like a bargain. It's costing a net £7.7m, yet now makes £2.2m EBITDA, and the £5m deferred is based on achieving stretching targets.

Plus two-thirds of Trinity's £37m revenues are recurring as they're largely based on regulatory compliance. With PTSG's record for cross-selling, margin enhancement etc Trinity should be more than capable of fast growth from here.

Numis have raised their forecasts by 10% for this year. That means they now go for around 13.7p EPS. Which puts PTSG on a current year P/E of only 11.2, for a business which is increasing EPS by over 20% every year.

PTSG has historically had poor cash flows which are common within its sector. However, Paul has perhaps been over-simplistic in his analysis of debtor days?

At 31/12/17 PTSG had a similar £32.5m total receivables. However, of this only £20.2m were true trade receivables - the balance comprised £9.8m accrued income and £2.5m other debtors/prepayments. This split isn't available for the interims, but is likely to be similar as it's barely moved in total (which is encouraging in itself given the 40%+ rise in turnover year on year). Assuming trade receivables are around the same, I calculate debtor days at around 97, which at 3 months is poor but (I would hazard a guess!) not too out of line with the sector. And PTSG's cash flows did improve in H1'18.

Today's acquisition has extremely high recurring income, presumably from the many maintenance contracts - so it should therefore help PTSG's cash flows no end.

I'm a holder - I've seen PTSG present several times and believe they are a very well-run company and are cheap at the current price - and much of their income emanates from blue chip companies or governmental organisations who will always pay up, even if over a lengthy time frame.

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ttjs4 21st Jan 45 of 57

Accrol Group (LON:ACRL) :

The Financial Conduct Authority (the "FCA") has notified Accrol that it has commenced an investigation into the Company relating to certain statements that it made to the market between 1 April 2017 and 20 November 2017. Accrol is cooperating fully with the FCA.

The Company will issue its Half Year Results for the six months ended 31 October 2019 tomorrow, as previously announced.

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FREng 21st Jan 46 of 57

In reply to post #438728

Stephen Hawking and others wrote this about technology, aliens and AI in particular:

Looking further ahead, there are no fundamental limits to what can be achieved: there is no physical law precluding particles from being organised in ways that perform even more advanced computations than the arrangements of particles in human brains. An explosive transition is possible, although it might play out differently from in the movie: as Irving Good realised in 1965, machines with superhuman intelligence could repeatedly improve their design even further, triggering what Vernor Vinge called a "singularity" and Johnny Depp's movie character calls "transcendence".
One can imagine such technology outsmarting financial markets, out-inventing human researchers, out-manipulating human leaders, and developing weapons we cannot even understand. Whereas the short-term impact of AI depends on who controls it, the long-term impact depends on whether it can be controlled at all.
So, facing possible futures of incalculable benefits and risks, the experts are surely doing everything possible to ensure the best outcome, right? Wrong. If a superior alien civilisation sent us a message saying, "We'll arrive in a few decades," would we just reply, "OK, call us when you get here – we'll leave the lights on"? Probably not – but this is more or less what is happening with AI.

Sleep well.

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AnonymousUser252054 21st Jan 47 of 57

In reply to post #438643

I always assumed that to even reach us aliens would most likely be more evolved and therefore more compassionate to those rare other life forms that they may encounter. Obviously if they were similar to us they'd offer peace and trade arrangements before taking our planet as their own and harvesting us like we do lower animals.

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peterg 21st Jan 48 of 57

I always assumed that to even reach us aliens would most likely be more evolved and therefore more compassionate to those rare other life forms that they may encounter. 

I'm not sure the indigenous inhabitants of the Americas, Australia etc would agree. Let alone Dodos and a large number of other species!

Perhaps more cheering is the thought that it seems very unlikely that practical interstellar travel is likely to be possible, or attractive to those spending generations between stars.

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Michael C 21st Jan 49 of 57

CAKE - there was a fascinating comment on here, posted by someone who had talked to an accountant he met at the most recent Mello. She had discovered the fraud using only published accounts by digging into the trading subsidiaries and trying to reconcile back to the listed vehicle. I'd love to know more about how she did that.

And there's this:

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bobsandy12 21st Jan 50 of 57

Out there shivering at 3.30 to also be deprived of a view of the moon so, really appreciate your candid views on today's stocks .......great stuff and keep em coming. Good to hear pragmatic view re Brexit impact/opportunity....let's see

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apad 21st Jan 51 of 57

Construction industry payments.

"A 2015 study by the Asset Based Finance Association found that construction firms were having to wait, on average, over 15 weeks to receive payment, and the delays were growing. Waits for payment in this industry increased 22% in five years from 88 days in 2008.2 "

Excellent paper here:

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nquaile875 21st Jan 52 of 57

Any chance of having a look at Arena Events guys?

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Paul Scott 22nd Jan 53 of 57

Premier Technical Services (LON:PTSG) - thanks for the comments on the massive debtors on its balance sheet. I'm not convinced.

In previous meetings with management, they did not give any indication at all that their activities were based on new builds - hence getting payment late, on delayed completion of the new build.

Quite the opposite actually. They gave me the impression that their work was mainly maintenance, on quite old buildings.

5 month receivables, within a business that prides itself on super-efficiency, is a glaring anomaly.

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gus 1065 22nd Jan 54 of 57

I used to have an interest in astronomy and spent several fruitless years looking for intelligent life. Probably should have tried looking further afield than the House of Commons ......


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mrosbiston 22nd Jan 55 of 57

In reply to post #438518

i sold out my holding of K3C yesterday.

my experience was if a company misses, it is likely to miss again in the future. i'm fairly close to the corporate broking world and the phones are dead, no-one wants to do any business.

i agree this is a solid business, excellent margins and cash generation, which attracted me in the first place. my issue is timing and growth, at a PE of 20x fwd earnings, the company doesn't have much room and a miss on any updates gets punished. Momentum is negative at the moment. I'm more of a swing trader than an investor - so bottom fishing is out for me.

Will remain on watchlist if price momentum turns around, potentially at much lower levels. MM would say 50% chance of 80% decline and 80% chance of a 50% decline, so a new phase 1 base around 150p would be a good opportunity.

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bryaz 22nd Jan 56 of 57

In reply to post #438573

if you want to see extraterrestrial life forms come over the border to wales there is loads of them here (toll bridge is free now)

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Fangorn 22nd Jan 57 of 57

If you're interested in "extra terrestrial" life forms there is plenty of information on such on youtube..

Moon related
By "Of sound mind and body"

Mars related
Anonymous official

Secureteam 10

Of Sound Body & Mind



Plenty of interesting stuff out there one has to say coverign most angles...


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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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