Small Cap Value Report (Mon 4 Mar 2019) - RBG,

Monday, Mar 04 2019 by

Good morning! It's Paul here.

I'm back from a fascinating trip to Zimbabwe, as a guest of a small, humanitarian aid charity, called ZANE. The purpose of my trip was to see their activities on the ground for myself. I'll tell you more about that later.

You didn't look after the market very well while I was away! The internet in Zimbabwe is surprisingly good, apart from when the Govt turns it off for political reasons (e.g. during the fuel riots earlier this year). However, my schedule in Zimbabwe was so busy, that I barely had time to stop & think, let alone look at the UK stock market.

It was actually very worthwhile, to almost completely tune out from the stock market, for the first time in many years. I've not even read the interim results from Revolution Bars (LON:RBG) yet, but have just realised that I have a meeting scheduled with the company at noon today. Please forgive me, as I'll need to prepare for that now. The share price has already indicated that people are not happy with the company's lack of progress, so I'll be asking some tough questions at the meeting today, and will have to read the interim results on the tube.

Most of today's report is necessarily going to have to be written later today, once I get back from my meeting in the City.

Tracsis (LON:TRCS)

Trading update

Looks fine - trading in line with expectations.

Group trading for the first half of the year has been in line with management expectations.  Group revenues are expected to be ahead of the previous year at c. £19m (2018: £18.1m).  EBITDA and Adjusted Profit are also expected to be ahead of the previous year (2018: EBITDA £4.3m, 2018: Adjusted Profit £3.9m).

Cash position is strong, which historically has funded lots of smallish acquisitions;

At 31 January 2019, Group cash balances remained strong at £18.7m (31 July 2018: £22.3m, 31 January 2018: £18.5m), which reflects continued excellent cash generation.  This is after the cash outflow in respect of acquisitions made and the final contingent consideration in respect of the Ontrac acquisition from 2016.

The rest of the narrative today sounds encouraging.

Stockopedia shows a forward PER of 22.8, which looks about right to me, as it would come down to something like 19-20 once you…

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Tracsis plc is a holding company. The Company is engaged in the business of software development and consultancy for the rail industry. Its segments include Rail Technology and Services, and Traffic & Data Services. The Rail Technology and Services segment includes its Software, Consultancy and Remote Condition Monitoring Technology, and also includes Ontrac Limited and Ontrac Technology Limited (together being Ontrac). The Traffic & Data Services segment includes data capture, analysis and interpretation of traffic and pedestrian data to aid with the planning, investment and ultimate operations of a transport environment and it also includes SEP Limited (SEP). It provides software products, consultancy services and delivers customized projects to solve a range of problems within the transport and traffic sector. It specializes in solving a range of data capture, reporting and resource optimization problems along with the provision of a range of associated professional services. more »

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45 Comments on this Article show/hide all

iwright7 4th Mar 6 of 45

In reply to post #454248

Yes Ramsdens Holdings (LON:RFX) £1.5M acquisition looks interesting and it needed a catalyst to lift the price. Q score of 98 and SR of 91 makes it very attractive, but it lacks momentum. Was a 2019 ST Bargain share last month and is likely to be re-tipped, so I brought an initial holding @ 169p this morning.

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doug2500 4th Mar 7 of 45

An in line TU from Tracsis (LON:TRCS) this morning.

Nothing wrong in the update but I'm surprised to see the price up modestly this morning. It's a reasonably lofty valuation and in the present climate I would half expect a modest drop from this price for 'in line'

More importantly, the business seems to be growing steadily and there's no nasty surprises.

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grumpy5 4th Mar 8 of 45

Paul, Still be interested in your views on the RBG statement last week. Thanks.

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Andrew Mitchell 4th Mar 9 of 45

Hi Paul and welcome back. Very much looking forward to hearing about the trip to Zimbabwe. I've met quite a few people from there over the years and it is incredibly sad to see what is happening to that country. If I may I'd like to second a call for views on Revolution Bars (LON:RBG)


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DJCP 4th Mar 10 of 45

Welcome back Paul. Graham's done an admirable job whilst you've been otherwise engaged :o) ... and also had time to do an excellent podcast with Duke Royalty (LON:DUKE)

For those who don't read the previous SCVRs, there's an interesting comment on Saturday by Luthrin (#65) about a fund possibly selling off due to potential administration. Many of their shares are not within the SCVR criteria, but there are some that have been mentioned here.

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Camtab 4th Mar 11 of 45

Paul Zim must be an eye opener! My parents lived in Kenya late 50s and 60s, so over the years met a lot of people from what was Rhodesia under Ian Smith and also South Africa more recently. I have heard so much about Zim over the years that I feel i know it although I have never been. It was referred to as the Garden of Africa at one time and it is heart breaking that we read so much has been destroyed there by incompetence and corruption. If only we could solve corruption we could solve poverty. Anyway what lies in mans heart.... To investment a number of your companies have taken a bit of a hit this year ( no this is not a knock Paul session), largely because you have done extremely well previously and investment performance can be played with to tell any story you wish (as many investment managers well know). However my theory is following the 2007 debacle from 2009 March on shares had a tremendous run. We know things became expensive and we know why, primarily low interest rates forced asset prices up across classes. I also recall you saying many times it was hard to find cheap stocks. I think you have ended up with a portfolio of weaker companies in your search for returns. By weaker not your normal ideal investment, my reading of your approach is balance sheet is very important and yet e.g. Intercede is weak. The one thing all your stocks have is a story and I would rate BKS, IGP, BoTB, SOS all growth stories which have taken a beating this year. Equally your sector retail has been in the wars FCCN you called exactly right but clearly Marks is having problems persuading others of its value in a difficult environment ( I might be wrong). And sure things like Mysale you just got wrong which is investment. Anyway I have been giving some thought to your stocks because whilst I dmor I also find your dummy portfolio interesting as a basis to do my own thing and I just wanted to say thank you for that.

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JamesS 4th Mar 12 of 45

Hi Paul,
I hope you enjoyed your trip to Zimbabwe and welcome back to the UK.
Id like to add a +1 to the calls for Revolution Bars (LON:RBG) even though it is from last week.
The "research" I did on Friday night would indicate demand is still strong

KR James

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Pennyledges 4th Mar 13 of 45

Good to have you back Paul.....will be interested on your Reabold view and Premier oil which posts results later this week......My 1st post here :)

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DarwenLad 4th Mar 14 of 45

Paul, fascinated to know how you came across Zane. It is a fantastic charity. I have never met Tom Benyon, who runs it, but am really impressed by his long distance walks across England, with wife Jane and Moses the dog, raising funds for Zane. A friend passed on a copy of 'Out in the Midday Sun', Tom's commentary on his walk from Bournemouth to Oxford last Summer, A very good read.

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hayashi22 4th Mar 15 of 45

Would it be heresy to say that Zimbabwe was a more prosperous country and its citizens more contented when it was called Rhodesia. I have a good friend who lives there and he tells me that corruption is endemic.

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Andrew niven 4th Mar 16 of 45

Welcome back paul
Andrew ( barbados)

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apa apa 4th Mar 17 of 45

Slightly out of the small-cap range, but would be great to hear your views on Keller (LON:KLR) , up 15% today

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Ben Adkin 4th Mar 18 of 45

I would've thought a few of us have Keller (LON:KLR) in our portfolios due to the fact it used to have a very high stockrank so could be a good one to look at Paul.

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cholertonandrew 4th Mar 19 of 45

Revolution Bars

HI Paul, if you see this ahead of your meeting I’d be interested to know if management’s decision to halt the new opening programme has significant costs attached to it- I was thinking if they had signed any contracts or made any pre-agreements that they had to extricate themselves from.

Glad you enjoyed your trip. Interested to hear more.

Best wishes
Andrew Cholerton

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davidjhill 4th Mar 20 of 45

In reply to post #454313


Just FYI - If you are wondering why there are little red thumbs down on your 1st post it is because neither Paul nor Graham look at any resource stocks. This discussion board is a resources company free zone.

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hawkipa 4th Mar 21 of 45

In reply to post #454253

I might be out of step with the current views on Ramsdens Holdings (LON:RFX) but I don't really see why this is a good transaction. 26% of the price was goodwill and there will be necessary conversion costs to come. Surely, at the moment new sites could be let from desperate landlords. I heard recently that lease free periods were incredible and it was now common to get conversion costs included. So, the cost of opening a new store is now negligible for those willing to take on leases of a certain length. On that basis, why not do it themselves?
The cost per store works out at £83.3k of which goodwill is £22.2k, so it doesn't seem likely that they are purchasing freeholds at that price, making me further wonder what assets they are getting. Furthermore, they state refit, rebranding and IT integration costs are all to follow, which implies to me that profitability for FY 20 is taken up by that number.
On that basis, why not start with new sites from scratch as a better way to deploy the £1.5m, as I can't believe The Money Shop customer base really has that much brand loyalty.
As an existing underwater holder this makes me further question management's mindset after last years botched share sales by management.
Appreciate I might be seeing this from the angle, so I would welcome the bull case for this transaction.

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tomps3 4th Mar 22 of 45

Welcome back Paul, what a great philanthropic adventure, most impressive.

Last Wednesday, you missed Beeks Financial Cloud (LON:BKS) H1 results. We recorded a results presentation with Gordon McArthur (CEO) and Fraser McDonald (CFO) last week, so you can catch up on it here:

They're very excited about breaking into larger, Tier 1 clients, even if they take a bit longer to sell into than their traditional client base. Now, they have one reference-able client, which will really help. No doubt about Gordon's ambition!

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V4Value 4th Mar 23 of 45

In reply to post #454468

Good work, will look forward to watching that later!

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sharw 4th Mar 24 of 45

Another sign of stress in the restaurant sector (with implications for the food offering of Revolution Bars (LON:RBG) ) - Boparan is looking to a CVA involving closing about 40% of its Giraffe and Ed's Diner outlets with rent reductions needed to save some of the others:

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FREng 4th Mar 25 of 45

In reply to post #454458


Ramsdens Holdings (LON:RFX) acquire the MoneyShop loans book, so there will be some custome loyalty from that alone. They also get the staff, which will save on recruitment, and eliminate competition that would have been there if they had bought new leaseholds. Their RNS asserts that the purchase will be profit enhancing and it was paid from cash.

It looks like a reasonable deal to me, so I bought a few.

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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