Small Cap Value Report (Mon 22 July 2019) - LTG, MIDW, TSTL, JDG

Monday, Jul 22 2019 by

Good morning, it's Paul here.

Apologies for last week's poor service from me. Let's get this show back on the road.

Learning Technologies (LON:LTG)

Share price: 93.8p (pre market open)
No. shares: 667.8m
Market cap: £626.4m

Half year trading update

Learning Technologies Group plc, provider of services and technologies for digital learning and talent management, announces the following trading update for the six months to 30 June 2019.

This acquisitive group was the subject of a shorting dossier c. Feb 2019. I've checked through the archive here, and can only find a brief mention from me here on 12 Feb 2019 saying that I thought the shorting dossier looked weak. I can remember printing it off, and struggling to read it by candlelight, in a rather dark local Italian restaurant! The crux of the shorting dossier was that the operating margin looked too high, and was likely to fall.

How wrong that looks today. There's a cracking update out today;

For the first half of the year, the Board expects Group revenues to be approximately £62.5 million (H1 2018: £33.8 million), an increase of c.85%

Adjusted EBIT is anticipated to be ahead of expectations at not less than £20.0 million for the first half of 2019 (H1 2018: £8.9 million), representing an EBIT increase of c.125% and EBIT margin increase from 26.3% to c.32.0%.

The Board is confident that full-year adjusted EBIT will be materially ahead of current market expectations.

That seems to have comprehensively blown the shorters out of the water!

More detail is given, with one point about net debt of £13.9m looking modest.

My opinion - I actually bought some of this share, after the shorting attack had pushed the price down, as it looked good value. What a pity I didn't hang on to them, as the price is up about 50% since then (in 6 months).

The PER is currently about 23, but with forecasts now bound to increase, that should fall back somewhat (maybe to about 20?). Not cheap on a value basis, but a not unreasonable price to pay for a growth company that is exceeding expectations.

The operating profit margin of 32% is exceptionally high. Is that sustainable long term?

I imagine the share is likely to rise again today, perhaps 100p+ is on…

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Learning Technologies Group plc (LTG) is a United Kingdom-based holding company. The Company is engaged in the provision of e-learning services. The Company is engaged in the production of interactive multimedia programs. The Company's portfolio includes LEO, a learning technologies firm, the multi-device authoring tool gomo learning, games with purpose company Preloaded and Eukleia, and an e-learning provider to the financial services sector. The Company's subsidiaries include Epic Group Limited, gomo Learning Limited, Leo Learning Limited, Leo Learning Ag, Leo Learning Inc, Preloaded Limited, Learning Technologies Group (Trustee) Limited, Eukleia Training Limited, Line Communications Holdings Limited, Line Communications Group Limited, Line Learning Limited and Line On-Line Limited. more »

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Midwich Group Plc, formerly Jade 320 Limited, is a holding company. The Company's principal activities are to carry on business as a general commercial company and to carry on the business of an audiovisual (AV) and document solutions distributor to the trade market, with operations in the United Kingdom, Europe and Australia. The Company's segments include UK & Ireland, France, Germany and Australasia. The Company provides a portfolio of audiovisual categories, such as large format displays, projectors, digital signage and printers. The Company's brands include BOSCH, CASIO, CHIEF, SONY, SHARP, NEC, PHILIPS, RICOH, PLANAR, BrightSign, DATAPATH, revolabs, Reserva, Canon, SAMSUNG and Panasonic. The Company serves AV integrators and information technology (IT) resellers in corporate, education, retail, residential and hospitality sectors. more »

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Tristel Plc is a United Kingdom-based manufacturer of infection prevention and contamination control products. The Company's technology is a chlorine dioxide formulation. The Company operates through three segments: Human Healthcare, Animal Healthcare and Contamination Control. The Human Healthcare segment is engaged in the manufacture, development and sale of infection control and hygiene products, which include products that are used primarily for infection control in hospitals. The segments products are marketed under the brand, Tristel. The Animal Healthcare segment relates to manufacture and sale of disinfection and cleaning products into veterinary and animal welfare sectors. The segments products are marketed under the brand, Anistel. The Contamination Control segment addresses the pharmaceutical and personal care product manufacturing industries. The segments products are marketed under the brand, Crystel. Its manufacturing facility is located in Newmarket, Cambridgeshire. more »

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

20 Comments on this Article show/hide all

markb1961 22nd Jul 1 of 20

Good to have you back Paul, hope all is well.

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FREng 22nd Jul 2 of 20

In case you haven't spotted it, Ben thinks you are away and has started another SCVR here:

Edit: Ben has removed the other report now

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Laughton 22nd Jul 3 of 20

Excellent - 2 SCVRs for the price of one.

Hope all is well Paul. Good to see you again.

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MBFP 22nd Jul 4 of 20

Morning Paul,

Learning Technologies:
I went to the AGM at the beginning of June.
Have been a holder for a while now.
Management were highly impressive. Andrew Brode (Chairman) has a track record of building very successful companies.
He and CEO Johnathan Satchell could not have been more bullish. They own 31% of the company between them.
Andrew Brode 'builds best of breed and does not sell shares in companies he owns'.
This is the 3rd company he has built.
I was incredibly impressed.
I added.
There are 3 shorts on LTG as of Friday pm. Will be interesting to see what happens to the SP when they finally realise they got it wrong.
LTG is going far.
Great day for me.
LTG was 10.8% of my portfolio before today.
Go to AGM's!

(Paul - you may remember me as 'Focusrite)

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johnsmith68 22nd Jul 5 of 20

Welcome back Paul. I wondered what you make of the TA from Judges Scientific (LON:JDG) this morning. I was a little spooked by the "small contraction in the second quarter" and the note that some of the performance increase was due to them reducing the order book and significantly due to favourable exchange rates. Although some of the language was positive, there were hints of amber flags there for me especially at the current valuation. I wonder if it might have got ahead of itself of late so with all of the general uncertainty around, I sold out this morning with an eye to getting back on board at a hopefully lower entry point later in the cycle.

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Ben Hobson 22nd Jul 6 of 20

I've spiked the other report - and messaged everyone that commented on it with a copy of their comment. I'm now going for a lie down in a darkened room !

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Redtop 22nd Jul 7 of 20

Hi Paul, would you mind having a look at TUNG? EBITDA positive for first time, improving sales momentum, net cash and will generate cash this year (for the first time). Its been a long time coming but maybe the outlook is getting a bit better. Thanks

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GregM 22nd Jul 8 of 20

Looks like LTG share price is building up for another acquisition?

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Robbie Burns 22nd Jul 9 of 20

I have dedicated a special "cheese" mix for Paul here from 1.38:30

I want him to stop for two minutes, have a boogie, but then he had
better get back to work !

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rmillaree 22nd Jul 10 of 20

Thanks for flagging this one up tomps3 - certainly looks interesting from a numbers point of view - pe of less than 8 (this year) - decent growth in earnings expected this year and next. There is though the standard exeptional items - only a tad over 5% of net profit this period.

Onto the balance sheet - high debtors figure (not another staffline please) - very poor cash conversion (increased sales).

Current assets £295 mill well exceeds current liabilities of £215 mill - so the balance sheet looks reasonably robust but does include £8 mill more borrowings than cash.

Another company where the main risk area would be the receivables total - at £270 mill a 20% w/off would be approximately all the profit made in the last couple of years. I note this sum has nearly doubled from 250 million in 2015 to 270 million now - presumably their focus on "contract" whatever that is.

all does seem pretty appealing though if you believe the company can carry on growing sales and profits - one plus point is that the shares in issue total seems not to have increased so i have to presume that their growth has not bee funded by the issue of new shares - always a plus. Presumably the "recruitment tag" ensures one should not expect premium share price and the poor cash conversion at present (that cant last surely if profits are real!) probably puts some off?

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FREng 22nd Jul 11 of 20

The Idox (LON:IDOX) half year report shows a business that has gone through major transformation and that seems to now be stable and on the path towards recovery. (No position, but watching more closely now).

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clarea 22nd Jul 12 of 20

In reply to post #495206

Any chance we could get you doing a once a month SCVR Robbie as a super sub role.

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Paul Scott 22nd Jul 13 of 20

In reply to post #495171

Sorry Ben, for the inconvenience I've caused you.
Best wishes, Paul.

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stuartb58 22nd Jul 14 of 20

LTG - High level of recurring revenues,in the Software/Platforms division, but lumpier revenues in Content/Services and looks like a good year for this division in 2019. Long term and very happy holder.

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tomps3 22nd Jul 15 of 20

SThree (LON:STHR) H1 results overview video here, by Mark Dorman, CEO & Alex Smith CFO.

Covering financial highlights, focus on contract, non financial KPIs, market drivers and the outlook.

From the RNS here: Adj PTP +18%, 86% fees from int’l business. Strategic focus on Contract reveue, now 74% of Gp net fees. Benefits of Glasgow relocation being realised.

Outlook: "Notwithstanding the macro-economic backdrop in certain regions, the Group remains well positioned as we enter the second half, and the Board's expectations for the full year remain unchanged."

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cholertonandrew 22nd Jul 16 of 20

Hi Paul,

Just wanted to send a quick message of support. I can understand that a few of the comments in response to your ZANE post might have been disheartening. I was interested to read about it and your ideas and I think many others were too judging by the comments and thumbs up. Where some people disagreed it was probably more to do with them preferring to see it in a separate post rather than that they weren’t interested.

Best regards,

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tomps3 22nd Jul 17 of 20

Here's the recording of the SThree (LON:STHR) analyst presentation from this morning (the earlier post was just a short interview).

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Trident 22nd Jul 18 of 20

I think I will have to switch back and forth for a while. I am not an avid mobile user, so I found the new desktop version rather disorientating, and cluttered, a bit like someone had gone into your office and re-arranged everything, and you begrudge the extra effort to find out where the old things are, when the bonus of that re-arrangement isn't that obvious.

Not sure about some of the typefaces used either. Why change those? Sorry this is negative but I didn't go Wow!, I am afraid.

I think the switch mechanism is good, allowing toes to be put in the water

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jonesj 22nd Jul 19 of 20

Thanks for the report Paul. I already had another look at Tristel (LON:TSTL) this morning.

Eventually I concluded it isn't priced attractivly enough to allow me to overlook the management compensation & share option packages discussed by Graham HERE .     

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Aislabie 22nd Jul 20 of 20

Scientific Digital Imaging (LON:SDI) (I hold) has jumped well up today, presumably on the back of the share purchases by three Directors. Sometimes these purchases are indicators of concerns, when a trivial amount is paid amid much hand waving, but this seems to be the good version, with between £15k and £25k coming form each Director.

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 Are LON:LTG's fundamentals sound as an investment? Find out More »

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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