Small Cap Value Report (Mon 21 May 2018) - SEE, GTLY, GAN, SRC, ASY

21st May '18 by Graham Neary

31 comments 14407 reads

Morning!

It's a little quiet on the newswires today. I shouldn't complain, as I'm just back from a very busy few days in London! Yesterday, I did some secret shopping at about half a dozen companies whose shares are of interest to me. A very interesting and worthwhile exercise, which I'll write about over the next couple of weeks.

Today's news includes:

Seeing Machines (LON:SEE) - warning on sales. Share price -9%.
Gateley Holdings (LON:GTLY) - trading update and proposed acquisition. Share price +5%.
RM2 - annual results & open offer at 1p. Share price -14% at 1.375p.
GAN (LON:GAN) - fundraising at 50p. Share price +5% (at nearly 70p!)

Seeing Machines (LON:SEE)

Share price: 7.75p (-9%)
No. of shares: 2240 million
Market cap: £174 million

Business Outlook Update

An unusual title for an RNS. Is this because of the company's Australian origins, I wonder?

Seeing Machines develops technology that can monitor humans, having particular applications in driver and pilot safety.

This is a warning on sales:

The Company has been informed by its manufacturer partner that, owing to a global shortage in traditionally short lead-time parts (capacitors and power supply) which are used in the Company's second-generation fleet product, Guardian Gen 2, production of a number of units that were due to be shipped shortly, will now be delayed by approximately six weeks.

Seeing Machines can't recognise the revenue for these units until they've been shipped to customers, so this revenue will now fall outside FY 2018 (ending in June).

Sales will be A$30 - A$35 million, instead of A$38 - A$43 million.

There has indeed been a general shortage in capacitors, so I'm inclined to think we can give Seeing Machines the benefit of the doubt as far as this particular profit warning is concerned - based on the information in front of me, I don't suspect that there is some other reason for the delay in revenue, other than the parts shortage.

Despite today's gap lower, the shares still sit at a premium compared to a week ago, thanks to the European Commission:

"Europe on the Move" will see all new cars, vans, trucks and buses sold in Europe fitted, as…

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Graham Neary

21st May '18

Hi RTJ, Seeing Machines (LON:SEE) is now included... thank you for the good suggestion. G

Hi, I might get around to Sigmaroc (LON:SRC) a bit later, cheers. G

re: Seeing Machines (LON:SEE)

Excellent comment Leo, cheers. Yes, I researched that issue this morning too and founds lots of commentary on a general capacitor shortage. So I trust that this is the real issue facing SEE. But could they have avoided it? Good point. G

barnetpeter

Would like to see comments on the gambling industry after the USA Supreme Court decision which in effect allows each state to consider internet and sports betting.

Micro cap WEB, which I have held for yonks, today hit an 8 fold since the above news was released. Note that well known billionaire investor Jim Mellon owns 63% of the equity.

GAN today placed at 50p ...I had to pay 68p today to add......and that really has strengthened the balance sheet.

This is a potential huge market...50 billion dollars to 400 billion dollars per year has been suggested ....and every time a US state passes legislation that allows sports betting etc. affected stocks are likely to rise.

I don't understand much about the implications.....will spread betting on shares and bonds and currency be allowed? I just know I have to be in this sector.

xcity

I notice that the Carluccio's CVA statement shows that there has been minimal refurbishment of their sites and that this will be addressed (up to £250k per site) only if the CVA is approved. Demonstrates that all previously announced 'profits' were overstated.

wildshot

Hi Graham, last Friday Paul said he would cover Andrews Sykes (LON:ASY) but then seemed to run out of time. If you have chance could you please circle round and provide your view on their results?

DaviStoVest

Hi Graham,

One of those occasions where name confusion is a risk. I was relieved to discover on working my way back to the top of the thread that your reference to "RM" was to £RM2 and not to RM (LON:RM.), which I hold.

Stopped me in my tracks at first.

David.

Whoops -sorry.

Banzii

Not related to any of today's stocks but I know a lot of you are interested in UK retail. I see there is an episode of "The trouble with" covering M&S this Thursday on Channel 5 at 9pm.

http://www.channel5.com/show/the-trouble-with/

MiserableJacktPotato

Seeing Machines (LON:SEE) - just seen a demo of a generic technology that can monitor driver behavior using a well known cloud provider's tooling.
I personally don't see a competitive wall being built here and would recommend potential investors do a lot of research about the possibilities of iot for anything that relies on sensors. I know little about driver monitoring and it may be the case the generic doesn't meet regulatory requirements or may have other technical issues.
Happy to hear contrarian views :)

Disclosure, no position in Seeing Machines (LON:SEE) but I work for and hold stock of a well known cloud provider.

bobo

Having run into capacitor shortages two cycles ago, it is not a sign of bad planning but a serious global issue which may limit global growth esp.in phone technology.

AnonymousUser192020

Spot on, IGotPoesJacket. OK, Seeing Machines (LON:SEE) may have a first mover advantage but the technological risk is that someone builds a better, cheaper mousetrap. A bright app developer with a true-depth vcsel enabled phone should be able to build a functional DMS system for the mass market. Obviously Seeing Machines (LON:SEE) have a head start in analysing head and eye movements to predict dozing off but AI should enable others to catch up. I may be mistaken but seem to remember Seeing Machine's original offering being a clunky head-worn hearing aid type device, so there's been considerable progress in just a few years and probably more to come.

Taking a quick look at Andrews Sykes (LON:ASY) now, cheers. G

Many thanks for covering Andrews Sykes (LON:ASY) Graham, it has been very profitable for me in recent times although the free float is an area of concern, but for a small part of my portfolio it is a risk I'm prepared to take.

Also thanks for covering Sigmaroc (LON:SRC), I added it to my watch list a few months ago to see how their story develops.

JohnWigg

22nd May '18

re Gateley - "Why would a law firm float?" In this particular case ... to reward staff more equitably than is usually done in LLPs, and recruit and retain newcomers. How? via share options. Also, to allow expansion into related areas (ie. not other law firms) and get a more flexible balance sheet. (LLPs can't borrow except secured against property.)
So GTLY was an pretty good investment for me, but on balance I sold recently because of a couple of niggles. First, I'm scared of the existinging economic situation which will lead to recession; GTLY is particularly focussed on the construction industry so, second, because its level of receivables is a bit scary, and some are, I think, distressed. Maybe the flipside of a flexible balance sheet?
There are now three other law firms quoted on AIM. Each has its own USP and they are all interesting.

Jon1958

25th May '18

Re GTLY: Paul I think you are on the nail. The simple Maths is that law firms owned by partners pay all their profits to partners whilst those who are listed pay less profits to partners because they have to pay their shareholders. Why should good partners work for the latter when they can make more money at the former? Why did Gateley list? So the founding partners who are all 60ish could cash out. Good business but for me not a long term investment. KEYS is a much more interesting investment in my view and much more scalable - a platform for freelance lawyers to service clients and cross refer. That may be the law firm of the future.

There was a lady Radio 4 Today the other morning (last week? I can't remember which day) talking about listed Law firms - she made the point that Partnered law firms don't provide good customer service and are expensive. For everyday legal matters listed firms, in her view, provide better service as they need to attract and retain everyday customers. Most people can't afford "Mr Fixit" hot shot lawyers kept on retainers, these people are the market for listed firms. Plenty of scope for perfectly good legal professionals to earn good money, the very best in demand ones will still be able to name their price as they have always done.
I might be using this term incorrectly as I am an idiot, but I think of it as commodification of access to legal services.

Yes, Nicola Foulston, CEO of Rosenblatt (unless there was another one!). A key feature of their offering will be Litigation Funding which they can manage in-house rather than through third party funders.

"Commodification of access" - the holy grail being sought is using AI to control the legal process, but I understand it's still at a very crude stage.

peterthegreat

7th Aug '18

Hello Wildshot,
Like you I have been a long term holder of Andrews Sykes and I have been pondering the effect of the recent blisteringly hot weather on the company's air conditioning business. Of course Andrews Sykes provides precious few updates on RNS but I just came across this on their blog dated 26.7.18.

"Despite unprecedented levels of enquiries and orders, Andrews Air Conditioning have taken steps to ensure supply continues to outstrip the incredible demand by ordering additional units – and these are now ready for immediate hire."

I like the "unprecedented levels of orders and enquiries bit" and I must admit that sounds almost share price sensistive info to me, although it refers to only part of their business. I have topped up my holding as I reckon the next lot of results are going to be excellent but the spread is awfully large so I would not encourage anyone else unless they are prepared to hold for the long term. Let's hope I am right.

Albertos

I think that's the lowest free float I've seen.

Does that worry you?

Phil

Small Cap Value Report (Mon 21 May 2018) - SEE, GTLY, GAN, SRC, ASY

Seeing Machines (LON:SEE)

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Graham Neary

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