Small Cap Value Report (Mon 6 August 2018) - FA., LOK, SYM, SDL

Monday, Aug 06 2018 by

Good morning!

Today we have:

  • Fireangel Safety Technology (LON:FA.) - profit warning from this accident-prone company (formerly known as Sprue Aegis).
  • Lok'n Store (LON:LOK) - trading update, seems in line with expectations.
  • Symphony Environmental Technologies (LON:SYM) - trading & operations update. In line with expectations. Upbeat.
  • SDL (LON:SDL) - half-year report. "Good start to the year", full-year outlook in line with expectations.
  • Ascent Resources (LON:AST) - CEO moves to part-time basis and other UK staff will move to ad hoc basis. Could run out of money before the end of the year, though a positive outcome from the strategic review is still expected.
  • Omega Diagnostics (LON:ODX) - final results. The first time I've seen a "bread tomorrow" statement. "I do believe that after many years of famine shareholders will see some bread in their basket by this time next year."

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Fireangel Safety Technology (LON:FA.)

  • Share price: 44p (-29%)
  • No. of shares: 46 million
  • Market cap: £20 million

Trading Statement

It has been a stunning fall from grace by this fire safety company.

It has changed name (from Sprue Aegis) and then produced a profit warning less than six weeks later.

If it was trying to appeal to shareholders, it might have changed its name only after all the bad news and accidents were already priced in.

From a customer/marketing perspective, the name change does make good sense as it unifies the company's products under a single brand.

The H1 operating loss of £1.8 million is in line with expectations, but the full-year loss is now expected to be up to £0.5 million, below expectations.

To spin it positively, I suppose this does at least mean that we are forecast to have an operating profit in H2.

The cause of the profit warning:

...a combination of certain short term transitional issues…

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

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21 Comments on this Article show/hide all

jonny71 6th Aug '18 2 of 21

Morning Graham, any chance you can cast eye over Symphony Environmental Technologies (SYM) who have published interim's today. They have been hampered by negative press on their bio degradable plastic, but it appears confusion about the technical spec of the product means that questions about suitability in the EU have been raised and this is in error. Most of the companies growth is outside the EU.

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Graham Neary 6th Aug '18 3 of 21

Morning! Will see what I can do. G

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Phil Dunphy 6th Aug '18 4 of 21

Good morning G, Spire Healthcare (LON:SPI) has had a bad profit warning this morning and down nearly 30 p.p. I don't hold but it was one on the watchlist about a year ago. I don't know if others have it here on Stocko. Other than that looks like a slow news day. Good July numbers from easyJet considering the weather in July and the scaremongering about people not going abroad as often, might be a nice read across the industry perhaps.


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shanklin100 6th Aug '18 5 of 21

Unbelievable that SPRP chose to change its EPIC to FA., especially when it has yet to resolve all its various operational problems. At the very least, make sure you have a smoothly running business and then change the company name/EPIC... ...making sure the EPIC is less symptomatic of management's inability.

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JohnEustace 6th Aug '18 6 of 21

In reply to post #388354

And now Fireangel Safety Technology (LON:FA.) want to sell us connected safety solutions, having realised there's no money in selling their hardware.
They have to try I guess, but if was in the market for a connected system I would go for an established player like Nest and put all my controls on the one app. It would be a case of paying up to do the job properly or not at all for me.

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barnetpeter 6th Aug '18 7 of 21

Shocking German factory this the result of Trump tariffs? If so, there is an argument that stock markets are well overpriced and a big sudden fall is on the way. Care with over gearing as Paul Scott regularly points out.

The drop in German factory orders was much steeper than expected, says Bloomberg:

Orders fell 4 percent from the previous month -- eight times as much as forecast in a Bloomberg survey of economists -- and the 0.8 percent drop from a year ago was the first annual decline since July 2016.

German industrial orders took a severe hit in June, dropping by 4% month-on-month, from [up] 2.6% month-on-month in May. On the year, new orders were down by 0.8%.

Even though new orders data are highly volatile, the June report could be a tentative sign of how trade tensions are hitting the German economy. Foreign orders from outside the eurozone dropped by almost 6% MoM.

At the same time, domestic orders decreased by 2.8% MoM. With the sharpest drop since January 2017, today’s new orders data do not bode well for German industry going into the second half of the year.

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dangersimpson 6th Aug '18 8 of 21

In reply to post #388359

They have to try I guess, but if was in the market for a connected system I would go for an established player like Nest and put all my controls on the one app. It would be a case of paying up to do the job properly or not at all for me.

Although they may sell some connected alarms into the Scottish retail market due to recent regulation this isn't the main market they are going for it's managed multi-dwelling where battery life & reliability matter more than app consistency. Doesn't mean they will manage to sell these to housing associations etc. but it's not really a fair comparison with nest which is addressing a different market.

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JohnEustace 6th Aug '18 9 of 21

In reply to post #388374

That's a fair point that their products are more aimed at the developers, but the margins in that market will be tighter than the consumer market.

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bobo 6th Aug '18 10 of 21

I warned that there were "issues" at fireangel/sprue when you last wrote them up and I was challenged strongly by other readers. It is a shame but the truth comes out in the figures

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rogergreen 6th Aug '18 11 of 21

Symphony has been a 'jam tomorrow' stock for a very long time, IMHO. It was ramping up its D2W products for sale through agents when I held in Nov 2010 (SP 13.25p). I'm rather glad I didn't' sit in there for the long haul, as its has been a very long haul. It doesn't mean it will not find success with new products, but its far from new to this game. Michael Laurier has been with the company since 1995, so must have a good handle on the business by now.

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paraic84 6th Aug '18 12 of 21

In reply to post #388334

I think this fall is probably overdue... not sure why the share price crept up recently given it's been clear for a few months that private income increases were being negated by a fall in NHS business. The rationing of orthopaedic procedures have been well documented in the press so I think shareholders might have been a bit slow to react to this! Worth keeping in mind though that the NHS will get a big cash boost next April and if they want to reduce waiting lists they will have to turn to the private sector for any spare capacity.

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paraic84 6th Aug '18 13 of 21

Graham - what in your opinion is the best way to value a business like Lok'n Store (LON:LOK) ? Traditionally I have tended to focus on NAV per share for property businesses as I feel that's what the market looks at, but I see you also reference earnings (although I am not clear if you're doing this to point out the value ranking in Stockopedia). Thoughts?

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sharw 6th Aug '18 14 of 21

Graham writes: "Symphony is still at an early stage, relative to its ambitions"

I regard Symphony Environmental Technologies (LON:SYM) as something of a perennial 'jam tomorrow' share - the price was around 40p 16 years ago when it announced its breakthrough into supermarkets in  a deal with Somerfield:

I still remember using one of those bags to store some papers. When I tried to get it out of the cupboard a year or so later it had disintegrated into hundreds of fragments that took me a very long time to clear up, not helped by the static!  I wondered then as now whether it would be better not to degrade as microparticles of plastic polluting rivers and seas are even more worrying:

What do we do about plastics? Answers on a postcard please!

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alihaouas 6th Aug '18 15 of 21

hui graham

you never did KWS from friday- any chance still?

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Andrystaro 6th Aug '18 This post has been moderated
Graham Neary 6th Aug '18 17 of 21

In reply to post #388419

Hi paraic, yes I would also use NAV. The StockRanks use earnings so I'm just pointing out why the Value Rank isn't very good. G

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Graham Neary 6th Aug '18 18 of 21

In reply to post #388424

Thanks for the anecdote - that sounds awful! G

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Nanotrader1 6th Aug '18 19 of 21

Paul is quoted in the Evening Standard today!

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jonesj 6th Aug '18 20 of 21

In reply to post #388374

As far as I can see, these smart devices are equivalent to a standard electronic thermostat retail ~£30 plus a wifi transmitter (say £5 retail) plus a slightly more complex processor (£5) and some slightly enhanced software.

The retail price of the device goes from £30 to £199 or more, but the cost increase to the manufacturer must be a tiny percentage of this. I suppose the likes of Nest must make some obscene profit margins once they have achieved enough volume to pay of the R&D.

I would think other companies could enter the market and under cut Nest, which itself is a relatively new and dare I say, unproven brand.    Do their products work reliably for >10 years, without failing or crashing at all?   

Could this be the opportunity for FA ?

Of course, some consumers including myself are very conscious of reliability for home heating control. Who wants it failing whilst away on holiday in the middle of the winter ?
That's one of the reasons why I still have an older style electronic programmable thermostat, from a known brand. 

A perception of very poor value for money for smart devices is the other reason I have not yet upgraded.     Having to save about 4 months gas bill to pay for it probably leaves a very long payback period.

Unfortunately, this probably leaves me with insufficient sector expertise to analyze the opportunities for a new entrant to the market.   

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DJCP 6th Aug '18 21 of 21

In reply to post #388514

I hope it's permissable to quote from an inferior source (Evening Standard, not Paul ! lol):
Paul Scott, an independent investor, has been building up a stake. “They are storming ahead of forecasts. It’s similar to what Asos achieved in the early days, which tells you they’re onto something — they’ve found a niche, they seem to know exactly what their customer wants and it’s starting to take off,” he says.

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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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