Small Cap Value Report (Mon 27 Feb 2023) - BKS, BEG, ARC, SNR, QTX

27th Feb '23 by Paul Scott

60 comments 8358 reads

Good morning from Paul & Graham! Here we go again.

Normal service resumed over the weekend with my summary podcast here. Hopefully the SSL certificate works now. Let me know in the comments below if you're still having any technical problems. Or it's available on the main podcast platforms.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Here's our to-do list for today - sorry we didn't finish all the items on the list, got a bit bogged down in the others.

Paul’s Section:

Quartix Technologies (LON:QTX)

288p (down c.1% at 14:26)

Market cap £141m

Final Results

Quartix Technologies plc (AIM:QTX), a leading supplier of subscription-based vehicle tracking systems, analytical software and services, is pleased to announce its audited results for the year ended 31 December 2022.

Revenue up 8% to £27.5m

Statutory profit before tax (PBT) was £5.5m, up slightly on 2021’s £5.4m

It’s confusing as to which numbers are which, adjusted or unadjusted. The way they’re presented, looks the wrong way around to me. It would be clearer if they had called the columns "Statutory results" and “underlying results” rather than “adjusted”, perhaps?

EPS is either 10.9p or 10.4p, two measures are provided, giving a PER of about 27x, which as I’ve mentioned before, just looks much too high to me, given this track record & forecasts of slowly declining profitability,…

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Equity Development

27th Feb '23

LON:BEG to add further colour to Graham's review of Begbies ' Q3 update , Equity Dev have published this pm. Unchanged forecasts and Fair Value of 175p / share. Note and audio summary here: https://www.equitydevelopment....

jimrog64

Thanks for the update from the company. I think DividendMax was just a forecast

Andrew Hanson

Thank you

Aislabie

I am a holder of CentralNic (LON:CNIC) and an impressed one. The charges levelled here on the commentary can I believe be dealt with without concern, but the tone of the negative comments ("EPS is a smoke and mirrors act) suggests a lack of credibility that I see as entirely unjustified. These accounts are reasonably complex but this is entirely in line with accounting rules for a business going through the swift change of a number of large acquisitions. I think that todays IMC webinar did not leave any of the questions glossed over or unanswered. There are legitimate concerns over whether current accounting rules deal correctly with asset light businesses. Instead of understanding that Intangible Assets are ASSETS there is a tendency to sneer at them because of their "Intangible" label. There is no damn need for CNIC to go out and buy an office and I will be very concerned if they do.

More generally, I am concerned that shareholders and the City in the UK just do not have the cojones to imagine that a business can aspire to be world class and size. CNIC has spent the last few years ambitiously acquiring businesses to establish an expandable beachhead in world markets. Yes they have added stock and borrowed money, and yes they have not paid dividends, but these, in my view, laudable ventures, have panicked investors in a way that would be unthinkable in silicon valley.

Our economy has suffered from the lack people of energy and ambition to start building the world class companies that we need in our economy to replace the ones that have been broken up or sold off cheap before their potential is realised. So if I have a worry it is that the animal spirits in CNIC have been captured and neutered for a 1p dividend.

Technology is not a place to run a safe unadventurous company because their is no such thing. Holders of GBG, sitting on a p/e of twice that of CNIC, can look over a stolidly run business that in the blazing hot world of cybersecurity has not managed to quite double its revenue in four years and halved their share price, but hey! - they pay a dividend.

Lord Gnome

Thanks for the heads up Forsby. I had KMR on my short list but wasn't aware of BSE. I'm now taking a good look at it.

I liked what I saw. I think I've just moved the market!

truegent

I think the reply from the FD below shows my above post was correct ?

I think its because different companies do some things differently...

Paul Scott

I've made a note to come back to look at Elixirr International (LON:ELIX) when time permits. Sorry we didn't get round to it today.

I wouldn't get excited about Kestrel being involved in anything. They're over-sure of their strategy & ability to pick winners, in my experience. I'd be interested to see what their funds performance has been like. I recall them being absolutely certain that some dodgy dating website was completely kosher, and it turned out not to be.

Hi TJ,

Many thanks for the feedback!

Regards, Paul.

AnonymousUser1822519

DavidMcCabe

Hi Paul,

According to this article https://citywire.com/selector/..., Their performance is quite good. 7/56 over three years in UK smaller companies sector. Not that this means they are right about @cnic of course.

David

Haggis58

I agree with both your points mevans6890. It's true that the reported eps is (slightly) negative in FY22 (though going positive next year onwards), BUT the business is hugely cash generative. Contrast this with the companies that manage to boost their reported eps with various (legal) accounting strategies yet do not produce high FCF - that would be more of a concern.

The Boon Fund

The glass half full might be coming for Begbies Traynor (LON:BEG) , courtesy of this FT article recently with many opinions from the restructuring industry: https://www.ft.com/content/237...

Select quotes:

There is definitely a pick-up in activity,” says Sam Whittaker, managing director for the investment bank Lazard’s restructuring business. “We would expect this to continue through 2023, and into 2024 and 2025.
We’re starting to see distress coming through a bit more,” agrees Issy Gross, director of turnaround, financial and operational restructuring at PwC in the UK. While this is not yet widespread, as most companies still have access to cash and debt, she is concerned about what will happen when interest rate hedges drop away and companies need to refinance at higher levels
PwC found there were 474 winding up petitions made last November — about four times as many as November 2021, when there were only 120. In the first 11 months of 2022 there were 2,990 — over three times more than in the same period in 2021. These formal applications from creditors to shut down companies are a leading indicator of future distress and creditor sentiment, PwC says.

Of course, the glass has been half full for a while with Begbies...

(I hold in the Boon Fund)

Breakout Trader

Perhaps the worst is yet to come, unfortunately, as the effects of interest rate rises will take time to fully manifest.

Bankruptcies are still on a steep upward gradient as shown here:

28th Feb '23

6m interims trend for revenues, op. profit and EPS

raggedtp

Thanks for the link. Great way to follow his holdings!

5th Mar '23

Thanks David, that's interesting about Kestrel's performance being better than I expected. I should have checked before commenting. Regards, Paul.

Lucky dip

5th Apr '23

Thank you Breakout Trader for telling me about this video which analysed the company well. I am not the buyer now but hold for the time being.

Small Cap Value Report (Mon 27 Feb 2023) - BKS, BEG, ARC, SNR, QTX

Paul’s Section:

Quartix Technologies (LON:QTX)

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Paul Scott

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