Small Cap Value Report (Mon 5 Aug 2019) - DIA, BLV, EZH, RTC, PHO

Monday, Aug 05 2019 by

Morning, it's Paul here for the whole week!

Dialight (LON:DIA)

Share price: 361p (down 7.4% today, at 10:29)
No. shares: 32.5m
Market cap: £117.3m

Half year results

Dialight plc (LSE: DIA.L), the global leader in sustainable LED lighting for industrial applications, announces its half year results (unaudited) for the six months ended 30 June 2019.

I last looked at Dialight here on 2 July, when it put out a profit warning, and fell sharply.

As you can see from today's H1 financial highlights, underlying profitability has almost evaporated. On a statutory basis, it made a pre-tax loss of £2.1m (due to non-underlying expenses of £2.7m);


There seems to be an H2-weighting to profits, judging from last year's results.

Guidance - the last update on 2 July, told us that full year underlying profitability is expected to be £10-13m. Given that H1 has delivered only £0.9m, that leaves a lot of catching up to do in H2.

Today the company says;

Full year guidance for 2019

We expect some gross margin recovery in H2 2019 as we return to more normal levels of service. We continue to expect our capital expenditure for the second half of the year to be in the region of c£2m together with c£4m of capitalised development costs. The tax rate for the year is expected to be c26%, and we are expecting inventory levels to reduce by year end but it will take us to the end of Q1 2020 to fully unwind the excess inventory build up.

The Board's expectations for the year ending 31 December 2019 remain for underlying operating profit within the range of £10-13m, which is before incurring c£4m of non-underlying costs.

This assumes a pickup in orders and sales activity in H2, in part due to new product launches. As in previous years, Q4 is expected to be an especially important period of activity.

It's difficult to interpret these things, but it sounds a bit wobbly to me. Therefore my hunch is that there seems an above average risk of another profit warning to come in H2. Maybe. I don't know, it's difficult trying to predict the future.

Outlook comments - are…

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Dialight plc is a holding company. The Company manufactures and sells lighting products in the industrial market. It operates through two segments: Lighting, and Signals and Components. Its Lighting segment develops, manufactures and supplies light emitting diode (LED) lighting solutions for hazardous and industrial applications, and includes anti-collision obstruction lighting. Its Signals and Components segment develops, manufactures and supplies status indication components for electronics original equipment manufacturers, together with industrial and automotive electronic components and LED signaling solutions for the traffic and signals markets. Its LED lighting solutions include Vigilant Industrial Solutions, DuroSite Industrial Solutions and StreetSense Infrastructure Solutions. Its LED signaling solutions include transportation signals, obstruction signals and SafeSite hazardous area signals. Its indication solutions include Circuit Board Indicators and Panel Mount Indicators. more »

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Belvoir Group PLC, formerly Belvoir Lettings PLC is a United Kingdom-based company engaged in selling, supporting and training residential lettings franchises. The Company operates a nationwide property franchise group with four brands that offer a range of services in property rental, property management, residential lettings, buy to let and property sales. Its property franchise group manages approximately 58,000 properties in Grantham, Lincolnshire. more »

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easyHotel PLC is a United Kingdom-based owner, developer, operator and franchisor of branded hotels. The Company operates through two segments: Owned properties and Franchising. The Owned properties segment is involved in hotel operations carried out in the Company's owned hotels and properties. The Franchising segment includes its franchise hotel operations in connection with the license of the Company's brand name. The Company has a portfolio of 11 owned hotels comprising of 1,216 rooms, and it has a further 25 franchised hotels with 2,139 rooms. The Company's owned hotels include Old Street (London), Glasgow and Croydon. Its franchise locations include Bulgaria (Sofia), Czech Republic (Prague), Germany (Berlin, Frankfurt), Hungary (Budapest), the Netherlands (Amsterdam, Rotterdam and The Hague), Switzerland (Basel, Zurich), the United Arab Emirates (Dubai) and the United Kingdom (Edinburgh, London Central and Heathrow, and Luton). The Company's subsidiary is easyHotel UK Limited. more »

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22 Comments on this Article show/hide all

CheshireUK 5th Aug 3 of 22

Morning Paul, Take a look at TERN. It was one of the biggest risers on AIM last year. Investors got over excited at one point when it rose to 47p (from 3p) in just a few months. The TERN board issued an RNS that killed the SP, and we dropped back to around 8p. But the key companies that comprise the TERN portfolio have been announcing some very significant partnerships , with some very big players. Those that have followed the share for years are now expecting a divestment by TERN which is expected to result in a re-rating of the SP.

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jonno 5th Aug 4 of 22

Positive trading statement from £BLV, Paul, if you have time to review.

All the best and thank you for your industry and expert eye that you provide to Stocko members.

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Snoo 5th Aug 5 of 22

Seems like a volatile few days out there, FTSE down almost 2%.
Hopefully we may see some bargains emerge.

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jwebster 5th Aug 6 of 22

Bit of a 'risk off' day with Trump's trade war escalating but more importantly China's Renminbi rate fell below 7 to the Dollar. Basically, lobbing one right back at Trump which invites a response.

Most of my UK small caps sold off this morning, interestingly balanced by a good increase in my Silver holdings (via an EFT). All luck, but some points for diversification.

My very fuzzy and completely inaccurate plastic crystal ball says the scale back of business investment in the UK has yet to fully appear in reporting results (because of the lagged effects). Small caps maybe catch a bid after the trade war is settled next year before the USA elections and also the UK gets an early general election out of the way. In the meantime, I suspect more pessimism and cheaper prices yet. Maybe the run since January needs to be sold off first.

But a few game firms will pick over the bones for takeovers. Any good tech firms in growth mode could be bought. PE firms are awash with cash and need to do deals. Personally, I think they will like firms in growth mode with low debt, as they can load up the gearing.

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sharw 5th Aug 7 of 22

In reply to post #500351

CheshireUK - I see that you have recently subscribed so welcome to these boards. With a very few exceptions chosen by Paul or Graham the SCVR deals with companies with a significant RNS on that day so you may find it best to wait for such a day before a request to look at Tern (LON:TERN)

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Paul Scott 5th Aug 8 of 22

In reply to post #500346

Hi anothersaxman58,

Good point, thanks for the prompt.

I'll try to remember to sign off properly, so you know the reports are finished.

The only reason that doesn't always happen, is because I want to write more, so take a break, but end up being too tired to do any more some time later. Or, on other days, I get a second burst of energy, and write more sections in the evening. I know it's all a bit haywire, but  being a professional investor there are always lots of other things going on too.

Regards, Paul.

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simoan 5th Aug 9 of 22

RE: Dialight

It's not a company I follow but the 1 year chart at the bottom of the article has just made me really laugh - not easy on a Monday. Anyone  investing in it (short or long) is really just playing a big game of snakes and ladders, aren't they? I'm sure there are clever types who can time it so they just go up the ladders and avoid the snakes, but most people without this great foresight are just completely wasting their time with this company...

All the best, Si

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andrewdb 5th Aug 10 of 22

In reply to post #500406

Of course just my opinion, but, i think things are complicated.

Some importing companies may have bought a load of stock up front, others wont. Some may have hedged currency, others not.
The same applies to companies that export

We will not know until the next results.

My only useful opinion is that companies that import or export or have significant overseas earnings will be a bit more volatile than usual.

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CheshireUK 5th Aug 11 of 22

In reply to post #500411

sharw - thanks for the heads-up, still learning how to get the best out of stockopedia

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Paul Scott 5th Aug 12 of 22

In reply to post #500456

Hi CheshireUK,

Classy response, well done  :-)

Oh, and welcome to Stockopedia!

Best wishes, Paul.

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crazycoops 5th Aug 13 of 22

Re: Belvoir (LON:BLV) there was a 5 minute video interview with the CEO published earlier today

My takeaway was that they are growing market share in a flat overall market environment. The real benefits of this will be seen when market conditions improve, in my opinion. Also, I note Paul’s concern about the balance sheet strength and level of dividend payment. So far, they are demonstrating an ability to pay down debt and grow while paying a healthy dividend and therefore, further acquisitions notwithstanding, I am comfortable with the balance management have struck. It is something to be reviewed each results cycle though and will be interesting to see the level of debt reduction when the interims are published early September.


Blog: Share Knowledge
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simoan 5th Aug 14 of 22


NTAV was negative, at £-7.56m as at 31 Dec 2018. I feel that the group has been paying excessive dividends, at the same time as making acquisitions, which has left its balance sheet looking stretched. 

Wouldn't you expect what is largely a franchise business to have very few tangible assets though? I agree about the debt but I understand this was taken on to acquire financial services companies to mitigate the effect of the impending tenancy fee ban. 

The free cashflow conversion and operating margins are a thing of beauty as with most franchise type businesses, so my interest was piqued enough to have had a quick skim through the last annual report and this is what they say about the introduction of tenancy fees:

As a business we have diversified our offering even further to include more of a focus on financial services and property sales to spread our risk and reduce the potential impact of the tenant fee ban.

Whilst we are confident in our own ability to mitigate the impact of the tenant fee ban, we predict that the ban will have a much greater effect on the landscape of lettings agents as a whole. We have previously predicted a 20% reduction in the number of lettings agents in the UK as smaller independent agents, who rely on tenant fees as a significant element of their income and have no external support, will struggle to remain profitable. This was increasingly apparent by the number, and indeed the size, of agencies being offered for sale in 2018 with many citing that their decision was driven by the impending changes in the sector. Our franchisees are already feeling the benefit of this change with 26 acquiring a local competitor in 2018, with the average size of the business acquired up 85% to£266,000 (2017: £144,000) which reflects a contraction of the number of agents in the sector not only amongst the smaller but also many of the larger independent agents

All the best, Si

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dmjram 5th Aug 15 of 22

"To my mind, the surge in takeover bids from overseas is telling me that at least some UK stocks are cheap"

They're certainly cheap if you're buying with euros or dollars.

Nothing like as attractive if you're starting off in sterling.

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maxwright 5th Aug 16 of 22

Hi Paul
Not sure if you can help me on this one but I have a short position on Peel Hotels s o a decent gain so far today.
However what happens to a sort with a delisting?
Should I hold or exit now?

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Gromley 5th Aug 17 of 22

Peel Hotels (LON:PHO)

Reading Paul's write up above, made me think there was probably a warning sign that could have allowed investors the opportunity to exit once it became clear that the accounting deadline would be missed.

However looking at the string of events - after the Interims were announced last October there were no announcements until after market close on Friday 26th that  "the Company will not be able to publish its annual audited accounts for the year end 27 January 2019 (the "Accounts") by 27 July 2019 as required" and hence the shares would be suspended from the following Monday.

Very bad form imho not to even flag the risk that the deadline would be missed.

Perhaps the lesson then is that as investors we need to keep a careful eye on the reporting deadlines and enquire of the company perhaps a week before the deadline (or just sell anyway).

That all sounds like putting too much onus on shareholders to me, rather in fact I think I would tend to steer clear of companies that have a track record of meeting reporting deadlines by the skin of their teeth. (It looks to me like Peel Hotels (LON:PHO) had form in this respect)

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Paul Scott 5th Aug 18 of 22

In reply to post #500536

Hi maxwright,

You would need to discuss the situation with your broker that has facilitated your short position.

As far as I'm aware, short positions would have to be closed before a stock de-lists, but you would need to confirm that with your broker.


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maxwright 5th Aug 19 of 22

In reply to post #500556

Thanks Paul, will do.

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andyfwwrench 5th Aug 20 of 22

In reply to post #500546

£PHO A tiny company should near enough have its accounts complete within a week or two of the year's close as they will closely mirror the cash account. Once the 3 month mark has passed it is bad news for certain and thus qualitatively it makes little difference whether the announcement is 1 day before the deadline or one day after. I would go further Gromley and make tardy result reporting a no-invest rule. Similar to no foreign listed AIM, the hit rate of such a rule will be 99% and thus more than make up for the small handful of successful investments forgone.

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Paul Scott 6th Aug 21 of 22

In reply to post #500556

Actually, thinking about it overnight, short positions do sometimes exist in companies that have de-listed. I remember situations where listed companies have gone bust (i.e. been placed into administration) and had their shares suspended, and short positions remain open until the dust has settled.

There can often then be a long wait, until the spread bet and CFD brokers agree that the shares are of no value. Then the short position is paid out in full. That's what happened with Globo a few years ago. I was a long-time bear on it, having written 29 articles here demonstrating how the accounts looked dodgy, with numerous red flags. However, frauds can take years to unravel, as was the case with Globo.

Thankfully, my good friend WShak, who is a genius with distressed bonds and shorting, messaged me to say that it looked like Globo was about to go pop. So I managed to get a £10k short onto it, and it indeed was suspended within days, after the CEO admitted to having fabricated the saleds figures. The short position was then frozen (at IG) and I think they might have even moved it to 100% margin, but that might have been something else. Anyway, nothing happened for something like 3-6 months, then they paid out in full, once it had become clear that the company was bust, with no assets.

With Peel Hotels (LON:PHO) the situation is different, as the company has decided to de-list, but is still solvent (at the moment). It has given the date of when the shares are going to de-list, if shareholders agree at an EGM. Therefore this is an orderly de-listing. In such a case, I'm pretty sure that shorts would be forced to close out, because you can't have a short position in a private company.

I've asked my broker to find out, and will edit this reply when he does, as it's an interesting point.

Regards, Paul.

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maxwright 6th Aug 22 of 22

In reply to post #500816

Hi Paul

Many thanks for your update, I hope to hear more from you on this.

Regards Max

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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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