Small Cap Value Report (Mon 27 Nov 2017) - CER, RFX, TRAK, CAKE, ZOO, BKS

27th Nov '17 by Graham Neary

43 comments 20010 reads

Good morning!

Thanks for the early comments.

I'm planning to cover Cerillion (LON:CER), Ramsdens Holdings (LON:RFX), Zoo Digital (LON:ZOO) and Patisserie Holdings (LON:CAKE), and will then see what I have time for after that.

Regards,

Graham

Cerillion (LON:CER)

Share price: 124.5p (+4%)
No. of shares: 29.5 million
Market cap: £37 million

Final Results

I've just finished an interview with the CEO & CFO of this company, which I hope to publish in the next day or so.

It provides charging, billing and customer relationship management software, historically to the telco space but now to a range of other industries as well.

These are nice results, which are in line with expectations: revenues are up 8% to £16 million, although the large majority of revenue comes from abroad so I expect there were some currency tailwinds. Recurring revenue and the back order book both increased materially and without any acquisitions having taken place.

The company has net cash and is run by a heavily-invested management team who have been with Cerillion for many years. It was spun out from Logica in 1999.

According to Stockopedia metrics, it qualifies for the Neglected Firms screen. Digging into that screen, it means the company doesn't have much broker coverage, and hasn't seen much EPS growth (at least not until today), but does also satisfy a wide range of attractive criteria.

For example, to qualify for the "Neglected Firms" screen, you need a PE ratio less than the industry median, and net margin greater than the industry median. Cerillion's PE ratio is c. 14x - 15x, depending on when you measure it, while the operating profit margin in 2017 was c. 16%. Both pretty reasonable!

The shares are up about 50% since the March 2016 IPO, though they have been drifting lower this year.

Outlook for the future remains "very positive" as the company pursues a "strong pipeline" of prospective international customers.

My opinion

Overall, I think this deserves a bit more attention from investors than it has received so far. As is always the case with contract-driven, B2B work, there is that element of risk from the…

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Graham Neary

27th Nov '17

Thank you, I'll add Trakm8 Holdings (LON:TRAK) to the list.

sharw

Graham - the graphs of revenue and net profit at the end of your Cerillion (LON:CER) article give a wrong impression because when I looked for the cause of last year's slump it is because they are half year figures. I find from last November's prelims:

"Cerillion plc acquired Cerillion Technologies Limited on 18 March 2016 in conjunction with the completion of its IPO on AIM. The table below shows the highlights for Cerillion plc, reflecting trading from 18 March 2016 to 30 September 2016. Prior to 18 March 2016, Cerillion plc had no trading activity".

When the figures released today are fed into the computer that will produce some falsely flattering ratios - beware!

mcfly46

is Ramsdens Holdings (LON:RFX) spread always big or is it just due to results? cheers

LittonOwl

Its possible to buy well within the quoted spread of 185-190. At the moment buys going through at 187.4 and sells 185.5p, so real spread more like 1%.

doublelutz

With reference to Paul's comment (no 13), Vianet is one of John Lee's holdings in his incredible ISA portfolio. It is the type of share I look for with Stockopedia showing a yield of 4.58%, prospects of some growth and good director buys and no sales.

melody9999

re FTSE 100 & 250 promotions/relegations - this is an interesting link - looks accurate although only updated quarterly

http://www.stockchallenge.co.uk/ftse.php

gus 1065

This may be a dumb thing to say, but I wonder if Cerillion (LON:CER) falls off many investors’ radar screens due to the simple fact that its name is very similar to the basket case that is Carillion (LON:CLLN) ? I’ve seen the company mentioned in the press a couple of times recently and passed it by without reading further.

Gus.

daveinthelakes

Thanks Melody9999. This is where I first came across the promotion/relegations idea and I think it is updated monthly.

I use this as a base to find stocks that may be promoted. I then consider if they are likely to continue their growth trajectory. The only one I have invested in so far is DS Smith (LON:SMDS) which is up 9% since I bought it 4 weeks ago but that may be pure coincidence! I would not buy just because of an anticipated promotion but it forms a good starting point.

Dave

FREng

Graham

You reported (13/14 Nov SVCR) on the intended IPO of Beeks Financial Cloud Group. They joined AIM today with the ticker £BKS though Stockopedia hasn't caught up yet.

gsbmba99

I was trying to find a paper I thought I had remembered reading that said that companies outperform before entering the index and underperform afterwards but I wasn't able to find it. I did however find this paper - Effects of Changes in Stock Index Compositions: A Literature Survey (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2995839). It is due to be published in International Review of Financial Analysis.

sharw, re: Cerillion (LON:CER):

You're totally correct about that. One of the quirks of dealing with IPOs is that the numbers are often a bit strange at the start.

Going to the source material today, you can find proforma, annualised numbers which are appropriate for comparison purposes.

Hi Jamie, I covered Trakm8 Holdings (LON:TRAK), cheers.

Hi Damien, good call, I have now covered Patisserie Holdings (LON:CAKE). Cheers.

Great comment on Patisserie Holdings (LON:CAKE) there, Graham F. Cheers!

Thanks gsbmba99.

After a quick peruse paras 3.1 and 3.2 tend to suggest increased volumes and institutional holding following an elevation to an index. Whereas para 3.8 implies tracker funds have improved their performance somewhat by purchasing stock in anticipation of inclusion. This may account for some of the movement in DS Smith over the last few weeks.

I had followed the company since before it's near incluion on the previous quarterly index review. I did not buy principaly because it was to be included but in anticipation of further growth. However I admit I did buy in 4 weeks ago thinking that the price may move as others anticipated it's inclusion.

Thanks again, Dave

jamiemp

Thanks. I don't disagree with anything you say but I do think the value here would be unlocked via a takeover. Something management and analysts have referenced a few times too. The sector is allegedly consolidating.

I can't see a competitor worrying too much about cashflow when they could strip out millions of senior management, business development etc. overhead. As long as the products are worth it, which they seem to be given growth. I suppose the underlying numbers in individual contracts could be unnattractive but even then, this sector is driven by boasting the highest number of devices.

I am long (obviously!).

actsofvolition

I was just thinking that! Glad to see I wasn't the only one.

Edinburgh Investor

Regarding Versarien (LON:VRS) staying along for the ride for now, listened to a couple of interviews with the CEO recently where it sounded quite possible another deal could land prior to the new year. Certainly expecting choppy waters, tempted to top slice.

geoff1309

28th Nov '17

Wish people would do what Paul say;s and put the ticker or name of share they are commenting about!!

TamzinPiworld

Graham thanks so much for covering the Zoo Digital (LON:ZOO) piworld presentation, really appreciated - and for linking it with your earlier write up, which is a very helpful overview of the latest results. They both go very well together.

More broadly thank you to both you and Paul for your relentless insights to the accounts of so many companies. It is such a great education and learning.

Small Cap Value Report (Mon 27 Nov 2017) - CER, RFX, TRAK, CAKE, ZOO, BKS

Cerillion (LON:CER)

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Graham Neary

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