Small Cap Value Report (Thu 10 Aug 2017) - SIV, DFS, TCM

10th Aug '17 by Paul Scott

71 comments 18360 reads

Good morning!

I had a discussion with our Graham yesterday. We both agreed that readers clearly want more prompt reports from us. So we're going to experiment with the format, and aim to get our reports up much earlier in the day. So it might take the format of an initial quick review, then some more detailed stuff (which takes longer to research) later, each day.

We've got a bit sloppy, so it's time to pull up our socks! Although I don't really like rushing to get things out, as that increases the likelihood of mistakes slipping through.

In case you missed it, yesterday's completed report included sections on - Telit (TCM), Tasty (TAST), SCS, and Water Intelligence (WATR) - here's the link for that.

So here are today's quick fire comments from me;

ST Ives (LON:SIV)

Probably the most interesting update that I've read so far today. This marketing company updates us today on the year ended 28 Jul 2017. The key bit says;

The board reports that the overall results for the year are expected to be at the top end of the range of current market expectations.

Stockopedia shows consensus of 12.9p EPS. At the time of writing, the ungodly hour of 08:20, the share price is currently up 12.6% to 61.4p. That puts SIV on a PER of only 4.8 - strikingly cheap.

However, bear in mind that this company has a lot of debt, and a pension deficit. Its balance sheet is very weak - as I explained here when reviewing its figures after a profit warning in Jan 2017.

Bear in mind also that forecasts for this year were reduced considerably after that profit warning, so hitting the top end of forecasts is actually still a performance well below recent years' previous results.

Note that there have been some property disposals of £9.9m, to improve the net debt position. Also that agreement has been reached on pension contributions - at £3.8m in the new financial year, and £3.0m p.a. thereafter. That is an increase from £2.4m p.a. previously. So a fairly hefty drain on cashflow, with money that could otherwise have been paid out in divis. This needs to be factored into your valuation of the company, as a negative.

Overall, whilst I don't…

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matylda

10th Aug '17

Well - It's a fair few months since I've seen a sea of red on my portfolio account !!!!!!

And there's Mr. Scott topping up on IQE :)

doublelutz

I too am a subscriber but what I pay for is the statistical information. I wasn't even aware of SCVR when I subscribed. It leads to interesting debate but not, I believe, what Stockopedia is about. It is not a tip sheet and I think it very dangerous to jump in and follow anyone's views including Paul and Graham's without doing much research oneself first.

vik2001

iqe has been one of the few shares that has kept itself pushing up over the last 3 days, and has not been sucked in by the wider news at hand. so far its helped provide some cushioning to my portfolio, although that's not its purpose :)

Indeed! But sadly not mine :( Well done

gsbmba99

Probably the Berenberg note with target price 1300 citing potential for store expansion and returns of capital in addition to current dividend. Not new news as company has been very clear about this for years. They believe they can take store count "well into the 2,000s" and have committed to returning year end cash above £40m if it reaches an increment of £20m (ie £60m year end balance or more).

Wimbledonsprinter

I see no need for an early SCVR, other than I do see the benefit of one being put out as a holding page to allow comments. Earlier this week, I found myself (and others) commenting on a 4 month old SCVR, in order to put comments on a stock which had news that morning (Telit).

Re Telit Communications (LON:TCM), you make the excellent point that a "new" CEO could really kitchen sink the balance. If a new CEO decided to retrospectively write off as expenses all the accumulated intangibles on the balance sheet ( and maybe some of the working capital - assuming the auditors allowed), to build up losses in prior years and then say that the company is only going to report statutory numbers going forward, which might then look respectable. If Mr Cats were forced to resign permanently, would his shares become an overhang on the market?

InvestedGeordie

Hi Paul & Our Graham,

I think an early holding page is a brilliant idea. It will cut down on older reports jumping up as 'new' posts, when people want to comment on results released.

I also really like the idea of sudden impact from results, with the proviso they are returned to to be fleshed out.

I echo some of the other community posters in that we love these reports so dearly because the quality and care is so obvious - not to mention the odd joke! Personally, I wouldn't want to see the style disappear, as actually, the editing is absolutely brilliant.

IG

Michael Mortphew

Ah interesting! Thank you. I saw there was a note from Edison yesterday along the same lines but I had an idea (rightly or wrongly) that they were paid by Greggs - not that that invalidates their judgement.

Thanks for your help

purpleski

I entirely agree. The SCVR should only be available to paying subscribers.

As for timing like most here I don't mind when or how they come out. I just love reading the reports. They are done with such care and give such insight. My personal preference would be for a report that came out after market close around 18:00 GMT/BST but I trade infrequently and hold for ages so am happy to read whenever!

Anyway thank you so much Paul and Graham.

ed_miller

11th Aug '17

"what were the auditors doing for their fees?"

It's a good question, and one that is just as valid for GLOBO, Quindell and other frauds, not that I'd place Telit in the same category - there is evidence of genuine, and even good businesses in the group. The accounting is a shocker mind, and anyone putting their faith in auditors' signatures and NOMADS as protection against malpractice in AIM shares needs to develop much more reliable and effective measures, and learn to read between the lines in financial statements. Auditors, NOMADS and so-called 'AIM Regulation' do not care about you if you're a private investor: they think it's your fault, if you get stung, for messing around with something you don't understand - it's hardly a sympathetic, caring attitude and reflects the selfish, grasping behaviour that gives the City such a bad reputation amongst outsiders. Empathy for self-taught private investors is all too rare amongst City professionals - if it were not, then PIs would surely receive better treatment. Thankfully that's only a generalisation and there are some who are a credit to their profession, but you won't find many of those amongst the regulators, else fraudsters wouldn't be tolerated on AIM nor get away with fraud with impunity when exposed, as happens apparently ever time.

nanguyen

betjeman

12th Aug '17

I completely agree with the sentiments of most on here....the reports are very well done as is and add real value....the timing is not a real issue for me...... I would much prefer the same level if care and consideration in a report later in the day than putting both you guys under unnecessary pressure to produce something earlier in the day

kalkanite

13th Aug '17

An excellent report from Share Prophets looks ominous for Telit Communications (LON:TCM) ....

https://www.shareprophets.com/views/30917/kerboom-the-full-shocking-dossier-new-fraud-revealed-this-is-why-telit-is-globo-mk2-and-why-it-is-going-to-0p

Tomorrow could be devastating for holders of this share.

bestace

And a follow up article on some of the allegedly "bogus distributors":

https://www.shareprophets.com/...

I had a look into a handful of the distributor websites TW focused on:

Melchioni (Italy) - the website does actually exist, Telit are mentioned as one of their partners here:
http://melchioni.it/divisioni/...

Eastronics (Israel) - the website does exit, Telit are mentioned here:
http://www.easx.co.il/template...

Itech (Brazil) - As TW says the website currently generates a 403 forbidden error, but the wayback machine shows a website has existed in the past with Telit mentioned here:
https://web.archive.org/web/20...

Everest Sales & Solutions (Mexico) - TW is correct that Telit are not currently listed as a supplier, but they have been in the past:
https://web.archive.org/web/20...

I have no position in Telit Communications (LON:TCM), it's a bargepole as far as I'm concerned whether or not it's a fraud, but I would suggest people need to do their own research, or at least verify other people's research.

Bestace

I am neither long or short Telit Communications (LON:TCM) and therefore have no interest in unnecessary in depth research. I am however concerned when investors are being ripped off in company's that are no more than a scam. That is not to say that Telit Communications (LON:TCM) are not genuine, they may be a genuinely good company, I don't know. However there are many red flags and for me personally I wouldn't possibly invest in Telit Communications (LON:TCM).

If we were all required to do thorough research and verify facts and figures before making comments either good or bad then there would be very little discussion on this board. I highlighted the post as it raises sufficient concerns (which you have not proved otherwise). It is for investors in this company to decide on its merit and investigate further.

Sorry if I came across as aggressive towards you, that wasn't my intention. I was more making a comment about TW's approach rather than responding to your comment.

He may have some valid points but I don't think he's at all balanced about it.

Another example - he claims their Asia Pacific revenue is essentially all Korean based on a comment on receivables in the accounts, but that ignores another comment in the accounts where they said they generated most of their APAC growth from Japan, where they set up a subsidiary in 2015. He hasn't attempted to dig into the accounts for the Japanese subsidiary which may explain some of the discrepancy he highlights.

Ah, then I misunderstood your comment, thank you for your clarification and my apologies for the confusion.

TW is a bit of a bull in a china shop so to speak but he does come out with some good articles from time to time. To be fair I haven't read any of his stuff for quite some time but an article caught my attention recently and I have had notification emails sent to my account as a result of login in. The Telit one being topical and controversial piqued my interest and thought it worthy of wider interest for those invested..

hayashi22

14th Aug '17

Whatever your views on TW it's worth reading the RNS from Telit this morning, He 's doing rather more than writing 'good articles'.

dulciemo

31st Aug '17

I now subscribe to Stockopedia but it was only by being able to read SCVR that I decided to subscribe. Maybe they use this as a "loss leader" to bring people in. It certainly worked with me.

Small Cap Value Report (Thu 10 Aug 2017) - SIV, DFS, TCM

ST Ives (LON:SIV)

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Paul Scott

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