Small Cap Value Report (Part 2 - 24 Jan 2017) - XLM, LAKE, MUR, KLBT, AVO, PRSM

Tuesday, Jan 24 2017 by

Good evening!

Many thanks to Graham for publishing excellent reports today & yesterday. I took a long weekend break to visit friends & extended family in Warsaw. Unfortunately my flight back yesterday was cancelled, so we had an extra day there. No hardship though, I love visiting Warsaw at any time of year - it's a really up & coming city. Also they extend Christmas until the end of January, so all the decorations are still up, and there's skating & mulled wine in the (rebuilt) old town square. Better still, it only cost £173 per person, for BA flights & a 5-star hotel. Service is a little morose, but that's just their way.

I've just got time to briefly report on a few more small caps that Graham didn't get time to cover today.


Share price: 110.5p (down 1.8% today)
No. shares: 200.4m
Market cap: £221.4m

Trading update - for the financial year ended 31 Dec 2016.

The key bit says;

XLMedia continued its strong performance in 2016, with revenues up 15% to $103 million (2015: $89.2 million) and adjusted EBITDA1 up 21% to at least $34.5 million (2015: $28.4 million).

The company doesn't say whether this is above, in line, or below expectations, which is a little unhelpful. From the upbeat tone of the commentary though, it sounds as if the company is pleased with its performance.

Outlook - Directorspeak sounds positive;

The Board believes that the Group is well positioned for further growth and the current financial year has started positively. The Board looks forward to continuing to execute on its strategic plan and looks to the future with confidence.

The Company expects to announce full year results for the year ended 31 December 2016 in March.

Ory Weihs, Chief Executive Officer, commented: "During 2016 we made significant progress having now established ourselves as a dominant player in the performance marketing arena. We continue to execute our strategic plan whilst implementing our know-how, expertise and technology in new business verticals and key end markets. We are very proud to have delivered another record year of performance in 2016 and look forward to reporting our full year results in March."

My opinion - this is a tricky one, as based on the figures alone, everything looks fantastic.

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XLMedia PLC is the United Kingdom-based online performance marketing company. The Company focuses on paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers. The Company's segments include Publishing, Media and Partners Network. The Company owns over 2,000 informational Websites in approximately 20 languages. Its Media division acquires online and mobile advertising targeted at online traffic with the objective of directing it to its customers. It buys advertising space on search engines, Websites, mobile and social networks and places advertisement referring users to its customers Websites or to its own Websites. It manages marketing partners, whose role is to direct online traffic to its customers. Its partner program enables affiliates to have a single point of contact for directing traffic. more »

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Sureserve Group PLC, formerly Lakehouse plc, is an asset and energy support services company. The Company is engaged in the construction, improvement, maintenance and provision of services to homes, schools, and public and commercial buildings. Its segments include Compliance, Energy Services, Property Services and Construction. Its Compliance segment delivers a range of services to local authority and housing association customers, and it is focused on gas, fire, electrics, and lift compliance activities. Its Energy Services segment, via its subsidiary Everwarm Ltd., provides domestic insulation, energy products and advice for social housing landlords and the Scottish Government. Its Property Services segment provides planned refurbishment, repair and maintenance, and responsive maintenance for social housing providers. Its Construction segment delivers extension, refurbishment, rationalization and new build works in the education market, particularly schools. more »

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Murgitroyd Group PLC is a United Kingdom-based company, which is engaged in providing a range of intellectual property (IP) advisory services through its trading subsidiaries, Murgitroyd & Company Limited, Murgitroyd SARL and Murgitroyd LLC, which are European patent and trade mark attorneys. The Company offers a range of services, such as patents, trademarks, designs, utility models, global IP filing, renewals, searching, oppositions and appeals, copyright, domain names, European patent validations, translation, licensing, monetization, IP audits, litigation support, due diligence, patent drawings, the United Kingdom patent box and Italian patent box. The Company caters to a range of sectors, such as high-tech and software; life science, chemistry and pharmaceuticals; engineering; energy; consumer goods; business and financial services, and creative industries. It has approximately 10 offices across Europe, in the United Kingdom, Finland, France, Germany, Ireland and Switzerland. more »

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

44 Comments on this Article show/hide all

tomstone80 25th Jan '17 25 of 44

In reply to post #168601

It was mentioned in SEP, read the analyst reports,they mentioned specifically that the partner network revenue that was cut was an intentional move by them cutting very low margins REV that does not effect the operation to focus on the serious money makers.
Regarding the utilities sector, it was a small one, again with lower margins. The CORE high margin business is growing which I'm sure will be emphasized in March.
Having said that, Mr. Scott's comments are quite outrageous, claiming a company is breaking the law because he doesn't understand their model (he never spoke to them) or finds it out to believe is quite slanderous.

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Steve Hill 25th Jan '17 26 of 44

In reply to post #168607

Re XLMedia
The September RNS did not lead me to believe that revenue growth was going to fall from 39% to -2% or that EBITDA growth was going to fall from 37% to 9.8%.
Having said that I'm sure we all have our own investing rules & that huge fall in revenue & profit growth, together with the fact that it was not even mentioned in Tuesdays TU & the CFO's share sale was enough for me to decide to sell, however they are still massively profitable & on a low PE so I can see how others could come to an alternative decision.

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bobo 25th Jan '17 27 of 44

XLM I'm invested here but with a snap stop loss. I understand how they make their money, I just don't like companies who base themselves to avoid tax and then keep moving.

Lake, well barge poled. They need to show more turn-around and imporved strategic thinking before I go in.

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djack 25th Jan '17 28 of 44

In reply to post #168583

I agree with your comments here and am a bit confused by the sceptics.

The key factors which stood out for me with Blue Prism are: its partner and client base, its business model and how deeply its RPA software integrates into clients' existing systems. Plus if anyone is wondering where the excitement is coming from with the tech, I note that the processes it can implement include the recognition of content on documents. In my mind, if you want to save money on staff then software that can take 'read' information from documents and input it into an existing system would certainly appeal.

That's not to say not investing is a bad decision. As others have said already, it is loss making and the PE is high. But then a similar situation existed with ARM for a long time too. I've invested but am keeping an eye on price movements.

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cg78riverside 25th Jan '17 29 of 44

In reply to post #168574

I've topped up. This will 10 bag in due course. Exponential growth in an exponentially growing sector. Online performance marketing is huge and will only get bigger. Billions of people on the planet still without access to the Internet. Think about it. On top of that XLM also have in house tech that can increase profitability of existing websites. That's valuable tech. Now employ 50 staff in R&D dept alone to maintain their technical competitive edge. CEO is a genius in this field which also helps.

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cg78riverside 25th Jan '17 30 of 44

Amazed at the lack of knowledge on here about what the company does. Please have a read through the latest company presentation before passing comment.

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peterclothier 25th Jan '17 31 of 44

Re PRSM, a holder at the moment from 320.

Re information on it, here are two pieces, one a detailed piece of research done by the LSE on RPA  with PRSM  at Telefonica 02

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tomstone80 25th Jan '17 32 of 44

In reply to post #168499

Connor, my tip to you is contact the CEO directly, I have been speaking to him as well to IR@ many times.

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Carey Blunt 25th Jan '17 33 of 44

In reply to post #168550

I work for one of the afore mentioned channel partners and based on personal experience I would not invest in Blue Prism (LON:PRSM) .
The software is clever enough but to my mind it's software looking for a use case not A use case looking for software.
Any time someone brings me a use case for RPA I work out that I could achieve the same result for a fracton of the cost with a SOAP or RESTful API integration between the two systems in question.
In other words its integration software for people who don't know better. It's the technical equivalent of getting a robot to write and post a letter for you when actually the right answer is to send an email instead.
It may well be the next big hyped thing in the short term and people could make money trading the share but I can't see it being the next big long term thing that makes it worth investing in.
It's absolutely not Salesforce, invest in £NOW instead I would say.

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mkbrazier 26th Jan '17 34 of 44

In reply to post #168745

Yes as I said before direct integration is a better solution but this often isn't as cost effective as you say. I do agree there are question marks about the longevity of this technology which is why I sold when the price started to factor in too much of the future. There are potentially interesting applications for using RPA as a platform for AI.

"However many companies, especially within financial services, have legacy systems (mainframe/green screen or custom built) in which these interfaces don’t exist. Building APIs into existing software can be costly, time consuming and can require a high level of expertise around the underlying system."

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Carey Blunt 26th Jan '17 35 of 44

In reply to post #168748

Potentially interesting but in reality too few and far between in reality to justify the current SP. feels more like a short than something I would go long on.
Even in a legacy situation a modern IT department is just using something like this as a stop gap while they pursue a legacy modernisation strategy. Its short termism encapsulated in software.

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mkbrazier 26th Jan '17 36 of 44

In reply to post #168751

Yes it probably is a stop gap. It works well as such because of ease and speed of deployment and it sits over the top rather than being deeply embedded so can be easily removed when it is no longer needed.

However, it is very flexible and I am not convinced that all the potential uses for RPA will get solved with better solutions any time soon, if ever. Ultimately I simply see it as a tool that is available to an organisation looking for a quick fix and there is always a demand for these.

I agree that it is a mistake to think this is deeply embedded mission critical software say like Craneware makes. In contrast, RPA is easy to switch on and off and so revenues are probably not so sticky.

I also worry that the big tech companies will shortly launch enterprise level AI products that incorporate RPA into a more complete offering.

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mkbrazier 26th Jan '17 37 of 44

In reply to post #168751

The other think to consider is that even though there might be relatively few of these legacy systems, they are concentrated in the largest organisations. These organisations currently employ a lot of people to operate them. My impression is Blue Prism is charged on a per seat basis so the number of legacy systems is not important in terms of the size of the market opportunity, rather the number of people required for them to function.

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mkbrazier 26th Jan '17 38 of 44

In reply to post #168760

Also it shouldn't be underestimated how hard it is to upgrade these systems so a "stop gap" can be many years. For example where I live in Australia, there are government organisations that rely on software built decades ago and such systems are at the core of what they do. The fact they haven't yet got round to modernising these tells you something about how hard this is to do. RPA would be an attractive option in these settings and why wouldn't it last for a similar duration?

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back2value 26th Jan '17 39 of 44

In reply to post #168595

cg78riverside, what's "out of order" about what Paul said? He simply said he would need to know more and understand the how the company makes money before he would invest. That sounds perfectly reasonable to me.


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crazycoops 26th Jan '17 40 of 44

In reply to post #168595

"Your comments are so out of order Paul that I've lost all respect for you"

Over the years, Paul has had an opposing view from me on a variety of shares. More often than not, he has been right and I have been wrong, although occasionally the opposite is true. His ability to forensically analyse value across a broad range of sectors is incredible and he often spots red flags that I have missed. That's not to say he is always right of course but you would do well to receive his analysis in good faith and use it as an opportunity to review your own position as it is easy to only see the bull case when you own a share.

I have no position in XLMedia (LON:XLM) but I do have a lot of respect for Paul, even though he might be wrong on occasion.

Blog: Share Knowledge
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tomstone80 26th Jan '17 41 of 44

In reply to post #168766

he also said they must be breaking the law, just edited now :)

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cg78riverside 26th Jan '17 42 of 44

In reply to post #168769

Ok to clarify.... Paul's exact comments I am referring to were as follows...

"The 80% operating margin at XLM is absurd. Anyone with a basic grasp of capitalism knows that an 80% margin attracts competition. So a small overseas company listed on AIM making an 80% margin is obviously breaking the law" I mean FFS, does anyone really need that explaining to them???

These comments were in this comments section. I have since pulled Paul up about them hence the reason they have been deleted. He responded to me "Ahh i see.what u mean, yes that is a bitt OTT, i will edit them now."

Happy he deleted them but should never have been written in the first place. Disgraceful comment and I expect better from him. As we all know too well, flippant slanderous comments like this can sometimes cause huge damage and are more attune with the likes of Winnifrith at Share prophets and not up to the standard I've come to expect from Stockopedia.

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Mikkiggy1 28th Jan '17 43 of 44

Long term holder of XLM. enjoyed serious capital growth and dividends. In this technical age, it is hard for the layman to understand how companies make their profits. Therefore I welcome the comment, both for and agin. However, XLM seem to have the knack of producing exceptional results, after exceptional results, and like cg78riverside,I do expect this to be a 10 bagger.

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bobo 31st Jan '17 44 of 44

XLM does have a fair bunch of competitors and you can even find them on Stockopedia

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 Are LON:XLM's fundamentals sound as an investment? Find out More »

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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