Small Cap Value Report (Mon 9 Dec 2019) - FA., ANG, AMO, HDD, TRAK

9th Dec '19 by Paul Scott

29 comments 6609 reads

Hi, it's Paul here, I'm on duty this week.

Estimated timings - I intend starting fairly early, and finish time will depend on how much news there is to report on. Update at 11:21 - OK that didn't work out as planned. I'm on the case now, please see the list of shares I'll be reporting on in the title above. Estimated completion time: 3pm. Update at 15:07 - I'm still plugging away, most of the report is now done, but I'll add a bit more. So probably finishing about 15:30. Update at 15:19 - today's report is now finished.

Fireangel Safety Technology (LON:FA.)

Share price: 9.75p (down 24% today, at 11:26)
No. shares: 75.9m
Market cap: £7.4m

Trading update (profit warning)

FireAngel (AIM: FA.), one of Europe's leading developers and suppliers of home safety products, announces an update on trading for the year ending 31 December 2019.

This company makes smoke alarms. It has been incredibly accident-prone in recent years, with multiple seemingly self-inflicted wounds.

Revised guidance for 2019 is given today by the company;

Revenue for the year ending 31 December 2019 is now expected to be below previous market expectations in the range £44.5 million to £45.0 million and the Company's underlying operating result, before the impact of the change to straight line amortisation previously described in the Company's interim results announcement released on 24 September 2019, is expected to be a loss in the range £2.6 million to £2.9 million. This is based on exchange rates as at the date of this announcement.

I can't find any recent broker notes. However the consensus forecast shown on Stockopedia is negative, at -£2.74m (this is after tax). Not dissimilar from the revised figure quoted by the company today.

What's gone wrong? - rather lame excuses in some cases, but at least plenty of detail is given;

Sales growth of c.20% has "stressed the company's processes from production right through to customer fulfilment" - does that sound like a well-managed company? No.
Repeatedly losing small amounts of revenue & margin
Sales mix in Q4 worse than expected
Additional costs to re-work some stock lines
Costly air freight charges to meet deliveries
Strengthening sterling

Outlook - significant opportunity to increase its gross margin higher.

2020 profit guidance reduced to £0.5m, or £4.4m EBITDA (a meaningless figure, due…

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Zipmanpeter

9th Dec '19

Amigo Holdings (LON:AMGO) announce major set of Board change following a disasterous period post IPO. IPO'd in June 18 at 275p valuing it at $1300Mn; now down to 61p and 288p.

Amigo has been hammered by an investigation by FCA into its sole product Guarantor Lending (which had an 88% mkt share) amid complaints about its sharp elbowed commercial practices and a general market dislike of high interest non-standard lenders as well as a slow tone in segment growth from >30% pa to >15%.

Founder James Benamor returns to the business, having partly cashing out through IPO and then stepping back in Sept 2018. He is appointed as "a non-independent, non-executive director with effect from 9 December 2019" - one of 2 NEDs allowed his Richmond Group (which owns >60% shares) under the terms of a Relationship agreement signed last year. The 2nd will join when another independent Director is appointed. Current Chairman, CEO going and Chair Remuneration Committee announce they are resigning or going to resign.

So post changes, Board will once again be directly dominated by Benamor who has proven his ability to make money in the sector. Likely to be positive for shareprice in medium term.

Disc. I hold Non-standard Finance (LON:NSF), the no 2 in Guarantor Lending who have been picking up market share from Amigo (but who have suffered their own rapid shareprice decline, mostly for different reasons).

rmillaree

Trakm8 Holdings (LON:TRAK)
brucepackard
I need to decide to either cut losses or average down, so interested in thoughts of others.

Here are my thoughts for what its worth.
Seems reasonably clear to me this company has been a binary bet for some time - possibly with some scope for them being bought out which could i guess could partially save the day if things don't go right (i am not even convinced i believe that has much hope based on current market cap with debt company has). This being the case anyone doubling down should be prepared to lose the entire amount invested on top of their original stake. This being the case i would say any investment here should only be made if one is happy to lose ones shirt on this gamble.

The main issue with this company that i think nearly everyone would agree is that it has pretty much always produced worse actual numbers than had been predicted at the start of any period - so even though it looks like the turnaround potential looking forward is in full swing this is not a company a would invest a penny in with current management in charge - simply due to the fact management have been so incompetent at predicting how poorly the company would do and therefore providing what has turned out to be a completely misleading picture of company prospects . I would say in hindsight though that's often how things do go with "early stage/fastly changing marketplace " ventures like this - very hard to predict the future.

sherpa

Why? There is no RNS news today from either company that I can see?

Gostevie

Yet another profits warning from Fireangel Safety Technology (LON:FA.) :

https://www.investegate.co.uk/fireangel-safetytech--fa--/rns/trading-update/201912090700061085W/

I'm a bit surprised that the share price is only down by about 25% at the time of writing.

brucepackard

Nothing there that I disagree with. Except it did go through a very positive phase, consistently beating expectations , share price going up to 350p...can't help wondering why mgt didn't issue some paper up there in the stratosphere, because if they'd done that in Dec 2015 their balance sheet would now look at a lot healthier today.

FREng

Positive comments about the interim results from Panoply Holdings (LON:TPX) in TechMarketView today led me to look at TPX for the first time. It's a buy-and-build technology company that seems to be attracting loyal customers, to have become profitable, and to have cash.

Paul, might this be worth your attention?

mojomogoz

IMO the pick up in profitable new business required to transform Trakm8 Holdings (LON:TRAK) is quite high. Add in that that they have high ongoing R&D and benefit from c.£1m tax credit and the hurdle looks higher. X years ago (don't know exactly when) they could be viewed as cutting edge product but I would fear it is now quite commoditised and so pricing power weak.

They provide the tech plug-in for AA (LON:AA.) car genie product. It seems probable to me that the AA will own more valuable and commercially useable data as a result of this with the brand and budget to apply it. Maybe the commercials gives TRAK some low repeat revenue connected to that?

The AA example is also interesting from the point of view that the AA effectively outsourced R&D to TRAK only on the promise that they might take a lot of products off them...and then the AA have been very slow to build their order.

Looking thro is hard for TRAK. If I wanted to acquire it then, given its debt level, I'd fancy getting the equity for free.

davidjhill

Slightly off topic but something I noticed today that has wider implications for the market.

Premier Oil (LON:PMO) have apparently had a 17% short stake amassed by an Asian hedge fund over 2 years without any previous disclosure to the market! Now obviously that breaches reporting obligations for the short seller but it got me thinking about how easy it is for someone to take a short sale without disclosure for a long period of time and therefore how many other instances there may be out there. As investors we need to be able to rely on short disclosure tables for them to have any relevance so the ease of this oversight is concerning.

For Premier Oil (LON:PMO) the share price fell on the news. Ironically I think it should have the opposite effect. The hedge fund is only short as it is apparently hedging against the debt it holds. Premier Oil (LON:PMO) is rapidly repaying debt so it seems this could quickly become an expensive hedge. In that case the fund will need to repurchase 17% in the market, which could well lead to a serious short squeeze. In fact now that long holders know that they are lending stock to a 17% short they could easily decide to pull borrowing rights and recall the stock. Interesting situation developing for the share price potentially.

WDWombat

Premier Oil look at this

https://shorttracker.co.uk/man...

It implies they have been disclosing since November 18 based on entries posted on Short Tracker website. I seem to remember there was a big convertible bond at Premier Oil but that was mandatorily redeemed/converted last year. Interesting if this should be against a debt position though I would have guessed that is a pretty inefficient hedge? Always used to look at the retail bond with interest - it currently yields just over 5%. Always put off, as with Enquest, by the massive debt position. Also interested to see, for the record, that Baillie Gifford hold 14%. They often know what they are doing.

So do I. The stock looks very cheap if forward earnings estimates can be attained.

Trident

Premier Oil (LON:PMO)

They have closed their data room for the sale of their Zama (Mexico oil field) interests, so this is going to result in at least an offer, for an amount as yet unknown. Its certain that this will be used to pay down some of debt pile of the Company, as it is a target of the CEO.

It could help get the debt down to rather a rather more respectful ratio. That should help bond holders and shareholders feel a little safer.

yes but the short position dates back to 2017 so they should have been disclosing for 2 years and didn't!! Was flagged by main press this weekend hence the fall. At a general level worries me that it is so easy for us not to have correct information in this day and age. Surely there must be an electronic way of ensuring short positions are at least broadly accurate!!

On a company level I actually quite like Premier Oil (LON:PMO) - they are paying off debt at significant chunks. Below $2bn now and should come down at over $300m next year plus a further $400m+ from the sale of Zama.

The risk at the moment seems to be that creditors want them to raise equity and the company don't want to. That means they have 18 months to negotiate a new debt package. Mind, if in that time they knock it down to circa $1.1bn which seems perfectly feasible it shouldn't be that hard given cash generation.

nicobos

Premier Oil (LON:PMO) isn’t this just a massive bet on the oil price? If it rises they pay off debt quicker and shareholders equity increases. If not, and it falls, either an expensive equity raising or total wipeout as the bond holders / lenders take control ?

I like Premier Oil (LON:PMO) type plays as an “option” type bet when the oil price is at a crazy low but would rather be in the debt instead as a safer option.

Maybe take a look at some bonds ? I believe EnQuest (LON:ENQ) (another debt laden oil producer) have some retail bonds yielding 10-15% to maturity. Not a bad return with less capital at risk:

'But ARCM, which invests in distressed assets, did not disclose the bet to the watchdog until Friday last week – when it belatedly revealed that it had built up an enormous 17 per cent short position worth £132million.' (Mail on Sunday Dec 7th)

Assuming both you good self and the Mail are correct this is pretty scandalous and I stand corrected. Amazing that an overseas investor can get way with this merely, I suppose, by not being resident here...

I don't think any more than any other oil company. The debt was built up as CAPEX predicated on a big ramp up in production, which has happened, so that risk is now negated. It is massively cash generative around $60 and actively forward hedges, thus less at risk of short term oil fluctuations. OPEX is low, less than $15

I suspect there is more value in the equity with Premier Oil (LON:PMO) at least (haven't looked at Enquest (LON:ENQ)). I think they will knock out $1bn of debt in next 12-18 months just from sale of Zama and operating cashflow. At that point the equity is worth a lot more. If you take the view that OPEC are happy with $60-80 then Premier Oil (LON:PMO) has a sweet spot.

As you say Bonds may be good too but in Premiers case at least I think the value is in the equity as I also expect the bonds to be retired quickly limiting annuity effect.

It's an interesting one, especially now with the 17% short (hedge) position. I think there may be a big short squeeze at some point but let's see.

fred9566

I have been in and out of Amino for a number of years now . The acquisition of 24i in July made me rethink so I dipped my toe in once again. This an extract from the RNS and the sentence in bold is what really caught my eye - they are at the forefront of the technology that is changing the broadcast industry - the additional RNS published today is an example of how the combined technologies of Amino and 24i are showing signs of success

"Background to and rationale for the Acquisition

24i shares Amino's vision of where the modern TV industry is heading and, like Amino, recognises that the industry is at the beginning of the curve of disruption. This is a fundamental shift from broadcast and hardware to streaming and hosting video platforms in the cloud. Like Amino, 24i has an agile culture of innovation and is focused on capturing this market opportunity.

The Acquisition will enable Amino to deliver full 'end-to-end' and on-demand personalised content solutions to its customer base. It will also build momentum in Amino's software and services revenues, as well as its recurring revenues."

As usual there is a risk that their vision may not materialise but they do have record of generating lots of free cash flow - they have averaged 13.7 cents per share over the last 7 years which equates to aprox $10.1 million per annum so they have consistently covered the dividend . Their balance sheet is strong and I came to the conclusion that this was worth investing in .It could be a multi bagger!!!! Hope this helps you understand the company a little more .

ricardow

Hi WDWombat and Nicobos,

I also like the Enquest (LON:ENQ) bonds (ENQ1) which I have held since buying at 52p. 3 reasons:

(1) If they cannot pay the interest, you get more bonds at 7% yield);

(2) They have recently bought Sulham Voe oil terminal which is cash flow and profits positive (so the debt position is in fact improving) and

(3) the Chief Exec is buying around £100,000 worth of shares per month (so far as I can tell) which suggests to me it ain’t going bust any time soon,

Ricardo

Indeed WDWombat - if that is indeed correct one wonders how many other shares are similarly having short interests mis-reported. If you can get away for so long without 17% becoming apparent........

Paul Scott

10th Dec '19

It's very helpful when people mention the company name. Thanks.

Zytronic (LON:ZYT) results in the morning.

Small Cap Value Report (Mon 9 Dec 2019) - FA., ANG, AMO, HDD, TRAK

Fireangel Safety Technology (LON:FA.)

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Paul Scott

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