Small Cap Value Report (Mon 23 Apr 2018) - ZOO, FFX, UTW, SFE, LOK, D4T4

Monday, Apr 23 2018 by
79

Good morning! Some updates which have caught my eye:

  • Zoo Digital (LON:ZOO) - Trading update. "Confirms guidance for the full year results".
  • FairFX (LON:FFX) - Full year results for 2017. New year off to a good start, outlook for 2018 in line with expectations.
  • Utilitywise (LON:UTW) - Interim results. "Overall performance" in line with expectations. Anticipates softer H2 in the Enterprise Division thanks to 72% employee attrition rate.
  • Safestyle UK (LON:SFE) - Trading update. Competitor activity has intensified. 2018 revenues and underlying PBT to be "significantly below market expectations". Strategic review. Cancels the dividend.
  • Lok'n Store (LON:LOK) - Interim results. "Profits and margins continue to grow rapidly." Confident outlook.
  • £D4T4 - Year end trading update. Adjusted profit to be slightly ahead of expectations. Confident that it can achieve expectations in the new financial year.


I'm writing this from a hotel room in Central London. The UK Investor Show was good fun on Saturday - congrats to Ed for his talks and to the entire team for a very impressive exhibit!

The value of these conferences is mostly in the networking, I find. But if you do want to investigate a particular company in more detail, it can be helpful to meet or at least to see the management.

For example, I enjoyed listening to the Sosandar (LON:SOS) presentation, which gave me a little bit more insight into their plans and the personalities of their co-CEOs. It's not a share I'll be buying personally in the near-term, but I'm glad to have seen them in person.

The talks are also worth mentioning. If you've been listening to someone online for a while, it's reassuring to confirm that they have a corporeal form, rather than merely existing on the internet.



Zoo Digital (LON:ZOO)

  • Share price: 99p (-3%)
  • No. of shares: 74 million
  • Market cap: £73 million

Year End Trading Update

In general, I try to focus more on results rather than in-line trading updates.

This update confirms guidance, but has been treated as a mini-profit warning by investors.

The company also announced today that it has commissioned some research analysis from Progressive,…

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Disclaimer:  

All my own views. I am not regulated by the FSA. No advice.

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ZOO Digital Group plc is a holding company. The Company's principal activities include provision of a range of services to allow television and movie content to be subtitled in any language and prepared for sale with online retailers, and research and development of productivity software in those areas. The Company operates through two segments: Software solutions, which includes development, consultancy and software sales, and Media production, which includes localization and design. The Company offers services, including subtitling, captioning, dubbing and digital distribution. The Company offers services through its cloud computing platforms, including ZOOsubs, which offers subtitling and captioning services; ZOOcore, which is a workflow management platform; ZOOstudio, which is a self-service distribution platform for ordering, tracking and delivering digital content packages, and ZOOdubs, which is a dubbing process management platform. more »

LSE Price
134p
Change
1.9%
Mkt Cap (£m)
97.8
P/E (fwd)
72.6
Yield (fwd)
n/a

FairFX Group Plc is a provider of foreign exchange (FX) payment services to both private clients and corporations through prepaid currency cards, travel cash and international money transfers. The Company's segments include Currency cards, FairPay, Dealing and Central. It sells foreign currency through technology platforms offered on the Internet. It has a cloud-based peer-to-peer payments platform that enables personal and business customers to make multi-currency payments in a range of currencies and countries, and across a range of FX products through an integrated system. It offers prepaid currency cards, including Euro Card and US Dollar Card. Its travel cash service offers delivery of banknotes directly to customer using Royal Mail. Its international payments service includes FairPay, which offers a solution for payment of property maintenance and mortgages; payment of expenses abroad; buying goods or services, and sending money to family and friends, among others. more »

LSE Price
132p
Change
0.8%
Mkt Cap (£m)
203.5
P/E (fwd)
17.3
Yield (fwd)
n/a

Utilitywise plc is a United Kingdom-based business energy and water consultancy. The principal activity of the Company is of an intermediary for energy supplies to the commercial market. Its operating segments include Enterprise and Corporate. The Enterprise segment is engaged in energy procurement by negotiating rates with energy suppliers for small and medium-sized business customers throughout the United Kingdom, the Republic of Ireland and certain European markets. The Corporate segment is engaged in energy procurement of larger industrial and commercial customers, often providing an account care service and offering a range of utility management products and services designed to help customers manage their energy consumption. It provides energy management services, including procurement, energy reduction and audit, carbon offsetting, smart metering, water brokerage, design, manufacture and supply of timers, controllers and building management systems, and the Internet of Things. more »

LSE Price
27.67p
Change
-1.0%
Mkt Cap (£m)
21.9
P/E (fwd)
6.2
Yield (fwd)
n/a



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


33 Comments on this Article show/hide all

ricky65 23rd Apr 14 of 33

In reply to post #356043

Personally, I sold out at 316p this morning when I didn't like the negative price action at the open. Looks like whoever was selling big on Thursday and Friday is still selling.

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Graham Neary 23rd Apr 15 of 33
1

In reply to post #355978

Hi Tony, I agree that FairFX (LON:FFX) is interesting. Will need to find a few more hours to investigate it.

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mrosbiston 23rd Apr 16 of 33
2

In reply to post #356043

might be to do with the Record (LON:REC) results from last week? I will look for a bit of stabilisation in the share price and then take a position - K3C is still a terrific company, just got a bit carried away in the valuation.

I don't think the volume is anything to be concerned about, its above average but doesn't suggest a stampede to the exits.

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matylda 23rd Apr 17 of 33
1

In reply to post #356063

Graham,

Re: FairFX (LON:FFX) - I had an eye on it a while and bought in this morning.

I like to see a "kicker" (something that can potentially see growth accelerate or at least continue somewhat) and for me in this instance it was twofold...

"self-issuance of Mastercard branded cards and launching a commercial finance capability to its business banking customers" copy and paste from a Hybridan update on Research Tree - I believe the latter is being built off the back of a recent acquisitions (City Forex) offering.

Cheers!

Blog: Briefed Up
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SundayTrader 23rd Apr 18 of 33
1

In reply to post #355953

I don't think the Tristel (LON:TSTL) announcement adds much, we knew this was going to happen anyway. The valuation already assumes that they will be entering the US market. The question is the price to put on tomorrow's jam. I would be more interested in thoughts from either Paul or Graham when the half year results come out.

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cholertonandrew 23rd Apr 19 of 33
3

Hi Graham,

If you have any time I’d be interested to hear more about your impressions of Sosandar management and their broad plans for the business- whether you thought management were capable, sensible, that sort of thing.

I have a very small holding. I appreciate the risk given revenues are very low and the consequent uncertainties around what cash calls will be required and at what price.

Thanks,
Andrew

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davidjhill 23rd Apr 20 of 33

Thoughts on £D4T4 anyone? Didn't think there was anything in the results that warranted a drop especially as trading update results flagged just 10 days or so ago. Seems they are very cheap compared to peers with a well regarded product.

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daveinthelakes 23rd Apr 21 of 33
8

If you Hold Character (LON:CCT) then you need to see this-

Hasbro today reported financial results Q1 2018. Net rev -16% to $716.3M. The decrease is result of the liquidation of Toys“R”Us in the U.S. and U.K., along with uncertainty in other operations + inventory overhang, primarily in Europe.

I consider Hasbro the best listed toy company and held but sold last year. I also sold CCT in 2017 and holding off reinvesting in both beause of concern over ToysRus and with the sector in general.

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Jimmac 23rd Apr 22 of 33

Film about Zoo Digital below. Comment on todays trading update at 3 minutes.

https://fmp-tv.co.uk/2018/04/23/zoo-digital-expect-significant-revenue-bottom-line-growth/

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barnetpeter 23rd Apr 23 of 33
1

Real Food Group RGD.....announced today nearly 2 million in cash disposal of a subsid. This has been a dawg and I sold out previously at 26p for a small profit. Now 14p and looking to restructure. Very risky but big supporters with deep pockets and the company has lots of assets. If you like dangerous recovery stocks at low valuations .....

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sbotting 23rd Apr 24 of 33

In reply to post #356083

I'd also be really interested in Graham's impressions on Sosandar (LON:SOS), management and plans. Likewise I have a small holding

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Graham Neary 23rd Apr 25 of 33
2

In reply to post #356083

Hi Andrew, thanks for the Sosandar (LON:SOS) suggestion, I'm unfortunately not going to get around to it today with all the results etc. but I will certainly be covering the stock again. Paul was sitting only a few rows ahead of me at the presentation and you might be able to prod him into talking about it tomorrow morning! Best, G.

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matylda 23rd Apr 26 of 33
2

Love the Lok'n Store (LON:LOK) update - Thanks Graham

Blog: Briefed Up
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cholertonandrew 23rd Apr 27 of 33
1

In reply to post #356133

Hi Graham, thanks for the reply. That’s fine, I understand.

Best wishes,
Andrew

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alterego 23rd Apr 28 of 33

Safestyle UK (LON:SFE)
Hi Graham, you said "an unnamed new entrant...."
The word on the street is that it's Safeglaze who were named by the Yorkshire Post back in Feb https://www.yorkshirepost.co.uk/news/safestyle-hit-by-falling-consumer-confidence-1-9040391

They only started up last August and have rapidly become a significant competitor. Apparently Safeglaze was set up by SFE's founder according to https://www.whichwindows.co.uk/niamac-developments-ltd-safeglaze-uk-www-safeglazeuk-com-reviews/
I used to hold SFE but sold out over a year ago when things started to look iffy. Not inclined to revisit any time soon.

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Wimbledonsprinter 23rd Apr 29 of 33
1

In reply to post #356163

I have held Epwin (LON:EPWN) for a while. I sold out of my remaining holding today - the Safestyle UK (LON:SFE) news is not a great read across (although not direct competitors). Also Eurocell (LON:ECEL) (maybe a better peer) has also not been performing the best. The latest results from Epwin (LON:EPWN) were resilient, given the tough markets but with the cut to the dividend, the risks look on the downsidw to me.

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Julianh 23rd Apr 30 of 33

Re: Zoo Digital (LON:ZOO)
The argument for such a high valuation is that their new cloud systems enable them to deliver subtitle and dubbing services faster, cheaper and to better quality standards than their competitors and that their systems would be very difficult for competitors to replicate. I.e. they are building a strong economic moat. If, as they suggest, this turns into a long standing competitive advantage, that could make sense of the high P/E ratio. I can’t myself assess these claims. They are well explained in the ZOO presentation on a PI World video at
http://www.piworld.co.uk/2017/11/27/zoo-digital-zoo-investor-presentation-h1-results-november-2017/.
My guess is that they have got something special (hence the sharp increase in revenues) and that margins will start to pick up over the next year or two. And I have definitely enjoyed the share price growth (up 230% since my first purchase). Having said which, Graham is definitely right that this is a very labour intensive business and that necessarily reduces the quality of the operation (from an investment point of view).
Disclosure - I am long £ZOO

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dahokolomoki 24th Apr 31 of 33

In reply to post #356178

Struggling to see if Eurocell (LON:ECEL) products are much different from Safestyle UK (LON:SFE) and whether they're also affected by the new entrant.

Looks like Eurocell (LON:ECEL) is more direct-to-consumer, so maybe not the B2B market that Safestyle UK (LON:SFE) is in?

Website: Best Commands
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jonesj 24th Apr 32 of 33

Sosandar management certainly came across well.

However, I note the Alexa site rank has fallen by 212,000 over the last three months. Presumably they will need considerable expenditure on advertising to get some scale into this business.

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Wimbledonsprinter 25th Apr 33 of 33
1

In reply to post #356883

Eurocell (LON:ECEL) , Safestyle UK (LON:SFE) and Epwin (LON:EPWN) are all selling products related to the UK home repair, maintenance and improvement (RMI) market - although at least EPWN and ECEL also sell into the new build market - I believe this to be limited. Therefore I think the final driver for all the stocks is similar. The product mix is slightly different between windows and roofline products and the amounts that are manufactured and fabricated are different.

Dahokolomoki, you raise a good point about the different routes to market. Epwin sells through intermediaries and it had highlighted problems last year with the bankruptcy of Entu and the change of ownership of SIG (each accounting for approx. 5% of sales). Eurocell states that its customers are "mainly installers, small builders, contractors and independent stockists". I would consider that Safestyle has more sales direct to consumers - and therefore is most directly affected by the activities of Safeglaze (as its shareprice and comments show.)

However, all these shares (and others like Topps Tiles (LON:TPT) ) are driven by the RMI market - which seems very much to be in the doldrums at present (poor consumer sentiment) - as opposed to the private new build market, which still is growing and has a lot of government attention. Social housing has also been in the doldrums - but this could be an interesting area - depending on political developments.

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About Graham Neary

Graham Neary

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »

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