Small Cap Value Report (Mon 29 Jan 2018) - STHR, UTW, CVR, FISH, SPE, CLLN, ANP, YU., ITM

Monday, Jan 29 2018 by

Good morning! 

Thank you for suggestions, which I will prioritise for coverage.

There are a lot of updates today, so I may need to be selective.




  • Share price: 368p (-1%)
  • No. of shares: 132 million
  • Market cap: £485 million

Final Results for the Year ended 30 November 2018

Mentioning this international STEM recruiter only briefly, for two reasons.

1) It doesn't get requested very much, and 2) its market cap is now pushing the limits of what we tend to cover here, after a strong share price performance over the past year.

I covered SThree a few times last year, and my overall stance on it hasn't changed. I think it's a very well-run international business with attractive geographical diversification and an excellent track record of profitable performance.

Today's results show further progress in the strategy to limit Permanent hiring activities, while expanding the more reliable Contract-based activities.

It's more and more international, as 81% of gross profits are now derived from outside the UK.

Some people might be reluctant to invest in this sector due to low margins and its hyper-competitive nature, and I can understand that position. But for an investor who does want to get involved in recruitment, I think this should be one of the first stocks they look at.

The algorithms are impressed too, giving it a StockRank of 97.


Utilitywise (LON:UTW)

  • Share price: 41p (suspended)
  • No. of shares: 78.5 million
  • Market cap: £32 million

Temporary suspension of share trading

I haven't studied this utilities consultant in any detail before, as my modus operandi is to find things that I might like to buy shares in, and there were more than enough red flags to keep me away from this.

On Jan 17th, Paul highlighted (actually he put it in bold) the risk of the company failing to get its July 2017 accounts published in time to avoid suspension. It was an important warning for anyone holding these shares, as that is indeed what has happened.

Prior to suspension, Utilitywise was trading on an official PE ratio of 5x, but it was no bargain. The algorithms on this website had correctly, I think, identified it as a Value Trap.

The big accounting problem…

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

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SThree plc is an international staffing company, which provides specialist recruitment services in the science, technology, engineering and mathematics (STEM) industries. The Company provides permanent and contract staff to sectors, including information and communication technology (ICT), banking and finance, life sciences, engineering and energy. The Company's segments include the United Kingdom & Ireland (UK&I), Continental Europe, the USA, and Asia Pacific & Middle East (APAC & ME). The Company's recruitment brands include Computer Futures, Progressive Recruitment, Huxley and Real Staffing. The Company's other brands include Global Enterprise Partners, Hyden, JP Gray, Madison Black, Newington International and Orgtel. The Company delivers contract, permanent, projects, retained and executive search recruitment solutions. Its support and mobility services offer contracting, relocation and relevant visa support. It provides resources to support its brands with contractor services. more »

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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 »

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Conviviality Plc is a United Kingdom-based distributor of drinks and impulse products serving consumers through its franchised retail outlets or through hospitality and food service. The Company's activities consist of the wholesale and retail distribution of beers, wines, spirits, tobacco, grocery and confectionery within the United Kingdom to the on-trade and off-trade market. Its Conviviality Direct is an independent wholesaler to the on-trade, serving over 23,000 outlets from hotel chains to food-led pubs. Its Conviviality Direct brand includes Walker & Wodehouse, Catalyst PLB, Peppermint Events and Elastic. Walker & Wodehouse focuses on supplying wine merchants and regional wholesalers with products and producers as part of wine portfolio. Catalyst PLB brand is the agency brand and supply solutions division. Peppermint Events delivers event concepts and bars at outdoor events. Elastic is a brand activation agency that provides support and insight to the Company's supply base. more »

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

61 Comments on this Article show/hide all

MrContrarian 29th Jan '18 2 of 61

My morning smallcap tweet:

Sopheon (LON:SPE), Immedia (LON:IME), Colefax (LON:CFX), Nasstar (LON:NASA), Yu (LON:YU.), Seeing Machines (LON:SEE), Utilitywise (LON:UTW)

Sopheon (SPE) guides FY rev over $28m ($23m), comfortably ahead of market expectations. Also EBITDA and pre-tax significantly ahead of current market expectations.
Immedia Group (IME) FY trading - order delays and slower than anticipated financial performance of AVC Immedia causes increased loss before tax. Guides -£600k (-£184k).
Colefax Group (CFX) H1 pretax up up 35%. Expects the Decorating Division to exceed its original expectations for FY, but it is only contributing 12% of group profits.
Nasstar (NASA) guides FY adj EBITDA slightly ahead of management expectation.
Yu Group (YU.) guides FY rev significantly ahead of current market forecasts. "The Group has elected to make additional investment in headcount and fixed costs. However, the Board is confident that the Group will report operating profits ahead of current market expectations."
Seeing Machines (SEE) CEO resigns, immed effect (I think). SEE wishes him well so not sacked?
Utilitywise (UTW) suspended - FY accounts not ready "due to the volume of work still required to be completed by the Company and its auditor to cater for the proposed change in the Company's revenue recognition policy...delay is not related to the Company's banking arrangements, nor the trading, cash flows or other underlying economic position of Utilitywise in either FY17 or the current financial year."

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phoenixnight 29th Jan '18 3 of 61

Hi Graham

There is a certain irony in that on the day that Inspired Energy (LON:INSE) announces a positive set of numbers and confident outlook for 2018, Utilitywise (LON:UTW) has requested the suspension of its shares whilst it sorts out it revenue recognition policy. 2 companies doing broadly similar work but with historically vastly differing approaches to revenue recognition. The former always recognised the contract over the life of the contract (typically 2-3 years), and thus whilst the sector may not appeal to all, it had excellent earnings visibility. Contract this with Utilitywise (LON:UTW), who used to account for the majority of the revenue on day 1 based on an expectation of future usage.

It feels like a modern day hare and tortoise. I’ve held Inspired Energy (LON:INSE) for a few years and they have performed steadily, though not spectacularly. The revenue recognition at Utilitywise (LON:UTW) always put me off, even when the share was flying.

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Camtab 29th Jan '18 4 of 61

I know it is a bit bluesky but I would be interested in your thoughts on ITM Graham. I happen to think the hydrogen economy is the way to go and they have been working away for a while to establish a position with some success although not necessarily pounds, shillings and pence!! Best wishes

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FREng 29th Jan '18 5 of 61

Defenx (LON:DFX) profit warning has led to a savage market reaction despite it being partly a repeat of an earlier warning. Trouble collecting debtors may be the reason. I'd welcome Graham's views .

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runthejoules 29th Jan '18 6 of 61

A look at Seeing Machines (LON:SEE) would be ovely please Graham, also WANdisco (LON:WAND) - neither are trading updates but of interest, a new sales partner deal which makes me wish I hadn't stopped out of 2/3 of my holding last week! :-(

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keithpleasant 29th Jan '18 7 of 61

Conviviality marked down on what looked to be reasonable results. Any views please Graham?

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ted1809 29th Jan '18 8 of 61

Would appreciate your views on Anpario (LON:ANP) Graham. Has delivered an inline update this morning, but SP has taken a hit. Seems a bit harsh to me, given its high Stockrank and performance over last two years. Thanks

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Julianh 29th Jan '18 9 of 61

In reply to post #305933

Good morning Ted
Re. Anpario (LON:ANP)
Today's drop in the share price doesn't look like a big deal. Even after this drop the shares are up 17% year to date. This looks like a standard case of "Buy the rumour, sell the news". The market had already marked the shares up in expectation of (or rumour of) excellent results and now that the results are out there is no more short term upside to be expected. So they take their profits and move on. I don't hold but will look again after these results.

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mikelevie 29th Jan '18 10 of 61

Yu (LON:YU.) trading update please Graham

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ppdrs 29th Jan '18 11 of 61

RNS from Altitude (LON:ALT) today with AIMPro on-boarding update. Any comments from Graham would be appreciated!

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Reacher 29th Jan '18 12 of 61

In reply to post #305908

Hi Camtab - I agree that ITM Power (LON:ITM) appears to be doing interesting stuff. But it appears to be static in terms of delivery over the past few years. There is talk in the outlook section of today's 1H results about being busier than ever and hopefully it translates into revenue. However, I would point out that trade & other receivables of £12.8m (which according to the FY2017 financial statements relate to prepayments and accrued income) dwarf the £1.7m of revenue generated in 1H.

Furthermore, there is a table showing cash burn to be £5m in 1H. If this is indicative of average cash burn, then it should have funds in place to operate for 2.5 years which should give it enough time to turn profitable.

Anyhow, I would be interested to know whether it has some unique product and there are high barriers to entry for the competition.

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Ck1987 29th Jan '18 13 of 61

Hey Graham. Would love your views on Yu (LON:YU.) Very bullish trading update today. Thanks!

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Graham Neary 29th Jan '18 14 of 61

In reply to post #305873

Hi phoenixnight, thanks for the comment. Bit of a horror show at Utilitywise (LON:UTW), indeed. G

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vik2001 29th Jan '18 15 of 61

Yu (LON:YU.) please Graham
The company provides gas and electricity to small and medium-sized businesses throughout the UK, and has gone up over 200% over the last year. Positive trading update this morning “substantially ahead” of previous expectations. The company announced that operating profits will be ahead of market expectations too, despite increased investments in headcount and fixed costs.
analysts currently forecast revenue growth of around 50% for 2018, with the top line expected to hit £60.2m. Earnings are also expected to rise. But the stock isn't cheap, is it worth paying more for this?

Stockopedia sees it as a momentum trap however.

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Redrichmond 29th Jan '18 16 of 61

STREE - HI Graham, you say 81% of the profits are based outside the UK , however in 2016 it fell off a cliff (down from 350 to 175 ish) when the IR35 law for the public sector was introduced by the UK government. With the same law now in Consultation for the private sector it will be interesting. Can you find out in 2016 what percentage of the business profits was UK based?

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Camtab 29th Jan '18 17 of 61

In reply to post #305963

Thanks for your response gajri. I think we are in agreement. They didn't seem to have any problems with the recent cash raise so even with the 2 plus year cash supply I would be surprised if their existence came under pressure given the promise of the sector. However if technology improves upon what they offer there lies the real threat I would have thought. That said I do like their deal with Shell enabling them to use Shell forecourts. When there is a suitable network I believe people will buy hydrogen cars which are already being made and that distribution network should offer some barrier to entry. All the best.

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Graham Neary 29th Jan '18 18 of 61

In reply to post #305928

Hi keith, I'm a long-term bear on Conviviality (LON:CVR) and have updated my views on it here now. Just my $0.02. Cheers.

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Laughton 29th Jan '18 19 of 61

In reply to post #306013

RE ITM Power (LON:ITM) - Sorry for being so stupid but I'm still trying to work out where they make their money. I can see the big advantage of hydrogen over all electric (fill up in 3 minutes vs recharge in 1 hour but there needs to be a lot more outlets across the country so that car buyers feel confidenmt they will be able to fill up wherever they are. Can someone tell me how their deal with Shell works? Do they simply sell their units to Shell and then maintain them or do they rent/lease space on Shell forecourts, install their plants and then make money dependent on how much hydrogen is sold?

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Cockerhoop 29th Jan '18 20 of 61

Sorry entered in Error

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Paul Scott 29th Jan '18 21 of 61

Hi Graham,

I completely agree with you re taking a negative view of Conviviality (LON:CVR) . My view is that the company is a good example of "busy fools" - i.e. huge turnover, but little profit. The interim figures today look unimpressive to me.

It's the balance sheet that really concerns me though. NTAV is negative, at a whopping -£81.1m! So the whole business is financed by the drinks suppliers & the bank. What happens if either or both lose confidence in CVR? It could easily go bust in an economic downturn, in my view, with it current, precarious, financial structure. Remember that credit gets withdrawn in a downturn. It's madness to be paying out generous divis, in my view. CVR should stop paying divis, and concentrate on debt reduction, in my view.

What about bad debts? The casual dining sector is under severe stress at the moment, and I'm guessing that CVR must be a supplier via its wholesale division, to many restaurants that could go bust. So there's balance sheet risk within that enormous £242m debtor book. I wonder if CVR insures the debtor book? If it does, then fine. If it doesn't then it could prove to be exposed to bad debt risk in the future.

I see today's 15% share price fall will have knocked about £100m off its market cap, but at the resulting c.£550m market cap it still looks far from good value to me. It's just a distribution business, being squeezed from both suppliers & customers, and with no doubt rising costs. There's no attraction to this share at all, in my view. One of my least favourite companies.

Regards, Paul.

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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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