Small Cap Value Report (Thu 15 Feb 2018) - CNCT, SDM, BOTB, SND, LID, TRI | Paul Scott

14th Feb '18 by Paul Scott

33 comments 15374 reads

Hi, this is Paul,

Thanks for your requests - I've got enough to be going on with now.

Please try to limit requests to small caps (under c.£400m market cap, and above c.£10m), and only in sectors that I cover (so no resources, property, financials, or pharmas/biotech). Also, please limit requests to companies which are reporting trading updates or results, as that's what drives these reports. Thanks!

Yesterday's report was extended to cover 2 more companies, so here's the link for that.

On to today's news

Connect (LON:CNCT)

Share price: 66.5p (up 2% today, at 09:29)

No. shares: 247.66m
Market cap: £164.7m

(at the time of writing, I hold a long position in this share)

Disposal of books division - This has been a rather strange turn of events. The buyer backed out, and it looked like a legal battle would ensue. We're informed today that the deal has now been done, at a reduced price - £6m cash received, instead of the previously agreed £10.6m plus £1m deferred. I can't shake off a feeling that we've perhaps not been told the full picture? Maybe the buyer found something during due diligence that they didn't like?

I'm not really sure if this is good, or bad news? Anyway, it's a done deal now, and not material to the market cap of £161m. The disposal is useful in reducing debt a bit, so on balance it's probably a good thing to have jettisoned a small division which might have been a distraction for management.

I've recently topped up my holding here a little, as I think the market possibly over-reacted to the recent profit warning. It wasn't a big miss, yet the share price almost halved. The forecast dividend yield is 15%, which is the market clearly telling us that the divis are likely to be cut, or passed altogether.

Maybe I made a mistake, recently averaging down on this one? I might go through the figures again over the weekend, to decide whether to ditch them, or buy more. It's not a big holding for me, as I don't usually like to put too much money into wobbly situations.

Graham sounded unimpressed when he reviewed the profit warning here on 22 Jan 2018. So this looks a polarised situation, where some…

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gus 1065

15th Feb '18

Announcement this morning from Connect (LON:CNCT) that the books division has now been sold (past tense, done deal) to Aurelius for £6m rather than mooted £12m at the time the transaction was first proposed.

https://www.investegate.co.uk/connect-group-plc--cnct-/rns/disposal-of-books-division-to-aurelius/201802150700049364E/

Less cash than expected (in the context of a £161m market cap) but draws a line and avoids protracted and potentially expensive litigation. May have already been leaked given share price tick up yesterday.

Gus.

MrContrarian

My morning smallcap tweet:

Laura Ashley Holdings (LON:ALY), Oxford BioMedica (LON:OXB), Stadium (LON:SDM)

Laura Ashley (ALY) H1 LFL -0.5%. Pretax £4.3m (£7.8m). Div passed. Guides FY pre-tax below market expectations. "I remain confident that Laura Ashley will continue its progress." Progess? What progress?
Oxford Biomedica (OXB) "A a major new collaboration & licence agreement with Bioverativ Inc. for the development and manufacturing of lentiviral vectors to treat haemophilia." May get milestone payments, potentially worth in excess of $100 million, and undisclosed royalties on net sales of Bioverativ's lentiviral vector haemophilia products. $5m upfront payment. Bioverativ will also fund process development and scale-up activities.
Stadium Group (SDM) Recommended offer 120p plus special dividend of 2.1p. A 44% premium.

Tortoise investor

Would love to hear your views of the numbers at Innovaderma (LON:IDP) - share price looks about right, if expensive, to me. (I don't hold currently)

andyi

A request for Sanderson (LON:SND) please, in line and with a high SR
thanks
Andyi

willhampson

A request for Jarvis Securities (LON:JIM), if you have time today please. Impressive results, but very dreary forward looking statement; mainly due to additional costs imposed by MIFID. Current holder, but may well now exit.

runthejoules

Seconding Connect (LON:CNCT) & Innovaderma (LON:IDP) - jam tomorrow, but with losses lessening the jam does look more sticky, and it also cures baldness, cellulite, too-dark skin, and too-light skin. Stupidly or patiently, I still hold.

Also in the news (but a microcap so not a request) underperforming Winnifrith fave Concepta (LON:CPT) , 'developer of a proprietary product targeted at the mobile health market with a primary focus on women's fertility, is pleased to announce that it has signed a marketing agreement with Wei Yi Bei Lian (Shanghai) Information Technology Co... offers free WiFi to waiting rooms in 1,500 maternity hospitals across China. Concepta has developed a landing page that will be displayed when patients connect to this WiFi service.' Could hormone wee-test tech help them make more little Emperors?

I also thought Paul might be interested in Ten Lifestyle (LON:TENG) - 'has won a new, additional contract with Visa International ("Visa") to provide concierge services to its high and ultra-high-net-worth clients as part of its Visa Infinite and Visa Signature affluent card concierge programme...Ten will provide members with a digitally-enabled, premium travel and lifestyle concierge service, including access to unique offers, benefits, and localised events among other services.' Even if he doesn't invest in this loss-maker, perhaps he is successful enough now to require a Jeeves? ;-)

lemonjar

I'd be interested in thoughts on TT electronics (LON:TTG) 's bid for Stadium (LON:SDM) - thanks!

The Phoenix

Jarvis Securities (LON:JIM) request again Paul interesting to see if you think mifid 2 causing problems for them might be read across to other brokers like Numis and Cenkos.

Paul Scott

Hi Will,

Re. Jarvis Securities (LON:JIM) - sorry I don't usually cover the financials sector. Graham does - so maybe you could ask him to have a look at it tomorrow?

Regards, Paul.

Good morning,

Thanks for your requests, most of which I can accommodate. This is my list of today's updates which I shall be writing about;

Connect (LON:CNCT) - (I am long) update on sale of books division
Stadium (LON:SDM) - takeover bid
Best Of The Best (LON:BOTB) - (I am long) comment on buybacks
Innovaderma (LON:IDP) - interim results
Sanderson (LON:SND)- (I am long) trading udpate
Lidco (LON:LID) - update
Trifast (LON:TRI) - update
Laura Ashley Holdings (LON:ALY) - interim results

Regards, Paul.

janebolacha

Re Laura Ashley Holdings (LON:ALY) , I had jotted down a couple of days ago a few points that seemed positive signs of change in this wasted and wasting opportunity of a stock.

These were:

1. Hope that Tan Sri Dr Khoo may finally be handing over the reins to someone else, namely his son, named to the BOD a few months ago, who would perhaps bring some dynamism to this disaster.
2. The new appointees to the BOD as NED's. including a corporate lawyer from Singapore and a real design professional from London.
3. The moving of the design team from Singapore to London.
4. The ending of the failed distributorship for Japan, Taiwan and Hong Kong.
5. The promotion of the new FD.
6. The stabilisation of property values in Singapore, making further property write-downs unlikely.
7. The prospect of a sale of or rental income from the S'pore property.

However, these results are as turgid as ever.

International operations still contribute only 6.7% of revenues.

Words, words, words! But no action, no results.

Time to be wasted on licensing the name for hotels internationally? Oh, for pity's sake!

There is one real unexploded bomb in the accounts, imo. This is the tremendously high inventories, equivalent to about four months cost of sales, obviously far too high for a business that is subject to changes in trends and fashion. I would expect there to be the need for very substantial write-downs of inventories in the second half-year.

Just as they disregarded the need for writing down the value of the Singapore property until they really could not get away from the blindingly obvious any longer, so it will be (imo) with the inventories.

Very, very long bargepole.
Only hope is a trade sale of the brand to some luxury goods group who can see the value in the name.

Boon

On Laura Ashley Holdings (LON:ALY), most likely, as with many shares with a huge controlling shareholder that is overseas, we will see them do a delisting with no respect to minority shareholders.

Then the controlling shareholders will strip the company bare, and a few years down the road, will quietly file for administration and sell on the brand assets, with pennies on the pound returned to ordinary shareholders.

The fact is that the "shabby chic" home furnishing style is now completely out of fashion, but Laura Ashley has not moved on.

JohnEustace

Careful dahokolomoki, that might be some people's home decor you're trashing there!

Jane is as ever thorough but I can't see any reason to spend time looking at Laura Ashley Holdings (LON:ALY) other than to warn off people tempted to get involved by some residual nostalgia for their glory days.

Small Cap Value Report (Thu 15 Feb 2018) - CNCT, SDM, BOTB, SND, LID, TRI

Connect (LON:CNCT)

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Paul Scott

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