Small Cap Value Report (Mon 28 Jan 2019) - UTW, MMX, PRV, FLYB, LDSG, PCIP

Monday, Jan 28 2019 by
72

Good morning!

It feels like the mad January rush of updates has come to an end. Well done to Paul for his coverage of so many updates last week - a well deserved break for him now!

This list is final:



Utilitywise (LON:UTW)

  • Share price: 2.15p (-60%)
  • No. of shares: 78.5 million
  • Market cap: £2 million

Strategic Review and Formal Sale Process

The warnings from the bears were sufficient to keep me away from this over the past few years.

It confirms today that it has been unable to attract enough interest in an equity raise to convince its lending bank to extend its facility. So it is putting itself up for sale. The equity appears worthless.

I've just realised the similarities between this business and Yu (LON:YU.), another utility supplier for small businesses which has turned out to be a disaster for investors. It had massively overstated its profitability (it's been making losses, not profits).

Perhaps this is a sector (energy supply for businesses) which is just best avoided?

Opus Energy (a private company) was bought by Drax (LON:DRX) for £340 million, but it has a niche in sustainable energy which may help it to stand out from the crowd. Simply assisting businesses in sourcing and managing their energy doesn't seem to make for a great investment opportunity.




Minds Machines (LON:MMX)

  • Share price: 5.9p (+3.5%)
  • No. of shares: 925 million
  • Market cap: £55 million

Trading Update

This is one of the few "Sucker Stocks" that I find interesting. It helps that I know a little bit about alternative top level domains or TLDs (e.g. .vip or .investments).

This Wikipedia article includes references to Minds + Machines, so you can see which TLDs it owns. The company also presents the list on its own website.

It's easy to imagine that some of the TLDs in MMX's portfolio would be…

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Disclaimer:  

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

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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
1.9p
Change
 
Mkt Cap (£m)
1.5
P/E (fwd)
0.5
Yield (fwd)
n/a

Minds + Machines Group Limited and its subsidiaries own and operate a portfolio of generic top-level domain assets (gTLDs). The Company operates in the domain name industry and provides end-to-end domain services. Its segments include Registry ownership (Registry), including applicant of top level domain name from Internet Corporation for Assigned Names and Numbers (ICANN) and wholesaler of domain names of those top level domain names; Registry service provider (RSP) and consulting services (segment B), which includes back end service provider for a registry, and Registrar (Registrar), which includes retailer of domain names. Its portfolio is focused around geographic domains, such as .london, .boston, .miami and .bayern; professional occupations, such as .law, .abogado and .dds; consumer interests, including .fashion, .wedding and .vip; lifestyle, including .fit, .surf and .yoga; outdoor activities, such as .fishing, .garden and .horse, and generic names, such as .work and .casa. more »

LSE Price
5.55p
Change
 
Mkt Cap (£m)
51.3
P/E (fwd)
15.0
Yield (fwd)
n/a

Porvair plc is a specialist filtration and environmental technology company engaged in the development, design and manufacture of filtration and separation equipment. The Company's operating divisions include Metals Filtration and Microfiltration. The Metals Filtration Division designs and manufactures porous ceramic filters for the filtration of molten metals, principally aluminum. The Microfiltration Division designs and manufactures a range of filtration equipment for application in aerospace, energy, bioscience, water and industrial applications. It is developing a range of products, including the products for the manufacture of turbine blades, solar panel manufacture and energy storage. It operates Microfiltration division through its subsidiaries, Porvair Filtration Group, Seal Analytical and Porvair Sciences. It operates Metals Filtration Division through its subsidiary, Selee Corporation. It has plants located in the United States, the United Kingdom, Germany and China. more »

LSE Price
485p
Change
1.0%
Mkt Cap (£m)
222.3
P/E (fwd)
19.9
Yield (fwd)
1.0



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


44 Comments on this Article show/hide all

Chris Britton 28th Jan 25 of 44
5

In reply to post #441148

Ah yes but people hardly ever type domain names - they follow links from search results or bookmarks. And hopefully not from dodgy emails.

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insy09 28th Jan 26 of 44
2

Thanks Paul and Graham for your excellent commentary! (LON:UTW) came up on some of my screens some time ago but after reading through your old articles i decided to leave it alone. 

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samholloway 28th Jan 27 of 44

Have to say I agree with the above comment on Minds Machines (LON:MMX) - surely everyone just Googles or asks Alexa to find a site now, they never actually enter the URL? So the value of those bespoke TLDs seems very short term to me. (I think some of the short ones - and the clever re-uses of original two-letter country TLDs - will still command a premium.)

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Snoo 28th Jan 28 of 44
2

Sounds like Paul was having a good time off judging by his Twitter account!

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Mark Carter 28th Jan 29 of 44
2

In reply to post #441188

IMO, TLDs are a concept that need to die, not expand. It was a good idea for its day, but that day has passed.

Businesses in particular have to register multiple domains just so that others don't nick their names. The new TLDs will only make matters worse.

A cynic would say that this is all a racket run by ICANN to increase its revenues. I tend to agree. Anyone who has seriously considered the issue must have come to the conclusion that even more TLDs are not the answer. It's fixing a sympton, not the cause.

ICANN oversee the whole TLDs.

What's the alternative? Like you say, Google is the first port-of-call for most purposes. Maybe we should scrap domain names altogether, and revert to IP numbers, as in the telephone book. Or maybe orgainisations would be in charge of letters rather than TLDs. So, someone gets the domains beginning with a's, another one for b's, and so on.

This is not going to happen, of course, because commercial forces are pushing towards everything being more complicated.

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FREng 28th Jan 30 of 44
6

In reply to post #441148

It's a lot faster to type daves.yoga than it is to type daves-yoga.com!


Surely people who do yoga type very slowly and mindfully - so a longer URL would be a benefit.


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Zoiberg 28th Jan 31 of 44

From PCIP's website "Our core solution, Agent Assist, utilises DTMF (Dual Tone Multi Frequency) masking technology to provide companies with a secure way of handling payments by phone without bringing their environments in scope of PCI DSS."
A quick google appears to show that DTMF is a standard technology that has been around for many years. Are there any experts out there who could explain why this might be a game changer? I'm afraid that I'm none the wiser.

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Nick Ray 28th Jan 32 of 44
2

In reply to post #441213

You missed out the next paragraph:

We integrate with the call flow and at the point of payment, intercept any tones as they are entered by the customer on their telephone keypad. This way the agent doesn’t hear or see the card data, all they see are asterisks on the screen. The customer and the agent can still speak throughout the entire process but the sensitive card data, the PAN and the CSV, are prevented from reaching the agent or the client’s environment.

So what they are doing is detecting the tones when you type your card number in on the phone. They then process the card number (using their own secure system presumably), while the agent in the call centre never sees the card number or even hears the tones being sent. So they do not need to be checked out for trustworthiness or whatever PCI DSS would require.

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Glorenfeld 28th Jan 33 of 44
1

In reply to post #441223

DTMF masking has also been around for quite a long time (around a decade) and there are quite a few multinational competitors in the space. Here are there other companies that do the same thing:
https://www.eckoh.com/
https://www.keyivr.com/guides/what-is-dtmf-masking/
https://semafone.com/gb/blog-gb/dtmf-masking-used-payment-processing/

I haven't looked into what sets PCI-PAL or their technology apart from the others.

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Glorenfeld 28th Jan 34 of 44

In reply to post #441233

Had a quick look into it in more detail and it seems that PCI-PAL is a payment provider that the IVR companies I linked to would feed into. So the IVR company would do the DTMF masking for the agent, allowing the actual DTMF tones to be provided to PCI-PAL.

Still not sure what PCI-PAL's secret sauce is meant to be.

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Gromley 28th Jan 35 of 44
2

I haven't really looked at PCI- PAL (LON:PCIP) before, but I would be really surprised "agent assist" offers much of a real USP or moat.

The capture of DTMF to transfer information during a call is at least 30 years old - I even have somewhere in a drawer some 30YO DTMF generators (anyone that had and old 'rotary' phone that produced clicks rather than tones, could hold the device to the phone mouthpiece to send DTMF) which were distributed free by a service provider looking to accelerate take up of their service.

Mostly though this service has been used as part of automated call handling, so perhaps it is the use of this in "person to person" calls that is (somewhat) novel.

I'm not convinced simply of that basis that there is much of a long term stand alone business in this (unless there is much more too their offerings) but I suppose one of the clearance services co.s might think it makes sense to buy rather than build.

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Graham Neary 28th Jan 36 of 44

In reply to post #441163

Carcosa, re: Flybe (LON:FLYB), I don’t know - on what grounds?

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doublelutz 28th Jan 37 of 44

In reply to post #441203

Mark, I would suggest that Amazon probably know what they are doing as so far they have been quite successful and innovative. If they use dot Amazon gTLD's rather than Amazon.com it will certainly attract attention.



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Graham Neary 28th Jan 38 of 44
1

In reply to post #441168

Hi Gromley, thanks very much for the background on Leeds. I forgot that PG is involved. Strange that he and other shareholders are allowing it to drift in this way. G

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jonthetourist 28th Jan 39 of 44
4

Graham

Thanks for the report, as ever. A bit of background on one of your subjects that I follow.

PCIP is a race against time to hit profitability before the money runs out. They are funded by the sale of a legacy call centre business, and a very unpopular placing when PIs ran the price up early last year. My interest stems from them originally selling a profitable business to roll the dice on this one service. Last of the payments have now been received.

Their pitch is not about the technology. It is the ability to take payments quickly and efficiently, without the payment data ever entering the company network. So compliance and data security ceases to be an issue for the client, and PCIP do the necessary with minimal disruption to the client.

Originally they went direct to market, but they have switched to going through resellers. It looks a rational decision, as PCIP becomes a service which IT suppliers can pitch to clients and bolt on seamlessly. Meanwhile the company has been working on being able to deliver quickly and efficiently using Amazon Web Services, so they can increase the pace of rollouts.

They look credible. Not many microcaps can claim joint authorship with Verizon - market cap >$200Billion
https://www.pcipal.com/en/knowledge-centre/press/pci-pal-and-verizon-white-paper-examines-pci-security-compliance-in-contact-centre-environments/

So they are interesting, but I repeat, a race against time.

Jon

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Ben1 28th Jan 40 of 44
1

In reply to post #441248

Until about 5 years ago I worked as a consultant getting companies compliant to PCI-DSS (the data security standard) that a company has to comply to if the credit card companies are to allow them to take card payments.

I can confirm as others have said that the technology to use the phone tones so operators don't take down the number has been around for years. I used to be that when the call centre operator asked the buyer to use their phone to enter the security code they switched that functionality on, and turned it off when the system told them the number had been accepted. If all PCIP are doing is automatically detecting the tones, then I can't see it is huge step forward.

As I say I have been out of that for a few years now, so can't comment on how it is done now, and if there is anymore to this that the auto tone detection. But I'm not convinced enough to invest in it.

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DJCP 28th Jan 41 of 44

In reply to post #441118

To update on the Duke Royalty (LON:DUKE) comments here.

@sharmvr (#15) - The dividend/strategy inconsistency concern was covered in Graham's podcast - My take is that DUKE knew they wouldn't get (as much, or as good quality) insitutional backing without offering something (i.e. the divis). IIRC, they are forecasting 80% of net profit to be paid in divis.

I was surprised that:
1) Divis paid in excess of their quarterly income in a few periods, although this now seems to have stopped.
2) They doubled shares in issue in Aug 18 (£42m raising) and still paid the same 0.7p/share divi in October as they had before the placing.

@Graham Neary (#19)
"And I'm glad you liked the podcast! I'm still learning how to make them properly, it's early days!"
I'm a reader, not a listener (Simon and Garfunkel-ish for the oldies ! lol) - I think I've listened to about 3 or 4 audio 'presentations' ever, with 2 of those being yours ! - Keep going as you are, and you'll gradually tailor/improve as you progress (if needed) - same as your share selections/portfolio have done, and should do over the years, I presume.

Simplistically, I'm of the view that if Duke Royalty (LON:DUKE) at 40p, pay 7% divi (2.8p) then any price above 37.2p is a bonus, and any below is a buying opportunitity - Not an idealistic investing strategy but I'm more thinking along the lines of having somewhere a bit speculative to put spare cash :o)
I have also been looking at the DRIP plan through AJ Bell, which with DUKE's quarterly divi, could/should compound quite nicely.

@Carcosa (#23)
"Spot the mistake on page 12 of the presentation; BHG has investment is £7.5m, not £6.5m "
The additional £1m BHG investment took place in December, so perhaps too late for this presentation. I'm sure if using this presentation, they would mentioned this post-slide-12 investment increase.

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JohnEustace 28th Jan 42 of 44
3

Re £PCI-PAL, I just used a service like theirs. There's no way for me to know which one, but the thing that interested me was that the operator I was talking to said that because our call was being recorded, data protection rules meant that I couldn't read out my long card number to her and had to use a different system, either the tone reconition option or by clicking on a link sent by SMS or e-mail.
So there does seem to be some regulatory reason for companies to use the service.

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jonthetourist 28th Jan 43 of 44
3

I think the "Technology has been around for ages" argument is a red herring. PCIP don't pitch to the CTO, they pitch to the CEO/CFO and say "Pay us this much and the compliance issue goes away, without any negative impact on sales performance. We make it happen". Which is a message those people will often be receptive to, imho.

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timarr 29th Jan 44 of 44
1

In reply to post #441303

Technically this is known as "DTMF Masking". There a lot of suppliers of technology around as a brief Google will reveal. GDPR pushes call centres in this direction, but there are other things they can do. For instance they've been manually or automatically stopping voice recording during card number presentation for years.

In essence DTMF masking is one of a range of technologies that any supplier of secure services to call centres should have, and it isn't any kind of competitive advantage. What would be interesting is if someone came up with a secure method of authenticating the cardholder as the forthcoming PSD2 2-factor authentication rules on internet payments will probably drive a lot of fraud towards call centres.

timarr

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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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