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

23rd Apr '18 by Graham Neary

33 comments 15693 reads

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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MrContrarian

23rd Apr '18

My morning smallcap tweet: Paragon pedestrian progress professing pisspoor past performance.

Safestyle UK (LON:SFE), £D4T4, Paragon Entertainment (LON:PEL)

Safestyle UK (SFE) warns again 4 weeks after last one. New competitor really hurtng them now. Guides FY rev and underlying pretax significantly below current market expectations. Has cancelled propoese final div of 7.5p. Chmn resigns.
D4T4 Solutions (D4T4) FY trading: rev c.£20m with adj. profits slightly exceeding management expectations. Which are what?
Paragon Entertainmnt (PEL) warns on FY nearly 4 months after FY end! "As the work on the results for the year to 31 December 2017 moves to completion..." Busy watching box sets are you? Guides rev broadly in line but EBITDA only £200k due to major cost overruns in the design, manufacture and delivery on two large projects delivered during Q4. Will slash costs by £400k PA. Uninvestable.

LeoInvestorUK

Boohoo.Com (LON:BOO) has been tipped in the Telegraph:
https://www.telegraph.co.uk/business/2018/04/21/questor-buy-boohoo-shake-months-fast-fashion-group-back-trend/
They quote Barclays saying that on an EV / Sales basis they are at a 20% premium to ASOS (LON:ASC) but EV / Earnings they are a 30% discount, and that their base case for margin[1] is 7% over the next few years. I think it is possible "base case" is a typo for "bear case" as this would be a big fall from 9.5%.

Both share prices have been volatile and it doesn't say which day's valuation was used, only that it was "this month". They make no mention of reducing margins being a deliberate policy to increase sales (though they are mentioned in the same breath) and say that they raised revenue growth from 60% to 80% missing the fact it was subsequently raised to 90%.

Newspaper tips don't have a good track record but often cause a jump in share prices of smaller companies on the day they are published. They then tend to use the share price before the tip which exaggerates their claimed performance. Therefore in my opinion these tips are best used to help time sales. Boohoo is relatively large, but there still may be some reaction this morning.

Boohoo.Com (LON:BOO) FY results are due Wednesday this week (25/4/2018).

[1] From the context I take this to be the adjusted EBITDA margin as quoted by Boohoo in various updates.

Wol

Good morning Graham
You're up nice and early this morning. If you have any time I'd be interested in your thoughts on Tristel (LON:TSTL) .
They have just announced the first US regulatory approval for their chlorine based disinfectant, used to disinfect medical equipment. They are strong market leaders in the UK and will now be able to start selling one of their products in the US, hopefully with more to follow now that the first permissions have been granted. If successful this would significantly increase the size of the business. Having said this, the share price probably already discounted at least some US growth. And US sales will not have a meaningful impact until y/e June 2019. It's still early in the morning for me (why do these financial services types insist on starting work so early?) so I haven't had a chance to investigate the likely market for this particular disinfection product. Presumably, the signs are good for US regulatory approval for all their products now that the first one has been granted.
Wishing all in Stockoland a good and fruitful week. Maybe see some of you at Mello Derby on Thursday and Friday.

zeibots

Yes newspaper tipsters or pumpers and dumpers are always under orders from the editor to fill their particular slot. Some people think of them as exspurts or drips under pressure.

Also looking forward to your thoughts on Zoo Digital (LON:ZOO). The market seems to have reacted badly to an in-line update. The very high p/e suggests that people were looking for more. Revenue growth looks very promising The squeeze on margins from the growth of the lower margin dubbing service and the additional costs incurred while the new service is bedded in have been well flagged in previous updates.
Disclosure - I hold

And I'm very much looking forward to your Live! Small Cap Value reports at Mello on Thursday and Friday. Would it be okay to attend in pyjamas? 9:00am is a bit masochistic for me.

tony777x

Good Morning Graham, FairFX (LON:FFX) looks interesting from loss to profit making

andrea34

You seem to have a lot on your plate Graham, but what about this update from SysGroup (LON:SYS) :

The Group is pleased to report that revenue and adjusted EBITDA from continuing operations will be in line with market expectations having grown by 46% and 63% respectively since FY17. The results will also provide further evidence that the Group is firmly established as a trusted provider of Managed IT Services, where recurring revenue represents over 71% of the Group's total.

Rockford IT, which was acquired in November 2017, is performing in line with management's expectations and the successful integration of the business is largely complete with the deferred consideration of £1.0m paid in full following achievement of the integration milestones.

During the second half of the year, the Group invested more in direct marketing, developing in-house expertise rather than relying on external agencies, and the results have been compelling as evidenced by the recent contract win of T.J. Morris Limited and growing order inflows.

The Board, therefore has taken the decision to further increase its investment in the Group's new business capability in FY19 to capitalise on the market opportunity to drive organic growth whilst also continuing to seek acquisitions of other complementary businesses like Rockford IT

MiserableJacktPotato

Let's not forget this classic from "Questor"
2nd March 2018 - Buy Conviviality.

Graham Neary

Thanks for insights on Zoo Digital (LON:ZOO), Julian.

You'll have to ask the conference centre!

Lloyd Garvey

Interested on thoughts on the steep decline in £K3C (K3 Capital) over the last few days. I can't see any announcements, positive or negative. (unless I missed something)
Hopefully just got ahead of itself and this is a correction.

Lloyd

sharw

With regard to the latest (5th?) profit warning from Safestyle UK (LON:SFE) Paul was right last time when he said:

"Alternatively, if competition continues to erode SFE's profits, then we could see another profit warning later in 2018".

https://www.stockopedia.com/co...

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

Zoo Digital (LON:ZOO)

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Graham Neary

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