Small Cap Value Report (Thu 21 Sep 2017) - BEG, AXS, DRV, QXT, TMMG

Thursday, Sep 21 2017 by

Good morning, it's Paul here!

I'll be updating this article at a leisurely pace throughout this afternoon, so please update this page later for more sections.

Begbies Traynor (LON:BEG)

Share price: 66.1p (up 0.4% today)
No. shares: 137.6m
Market cap: £91.0m

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

AGM trading update - this company is the only UK listed insolvency practitioner. It also has a property services division (e.g. valuation, auctioneers) which now accounts for 30% of revenues and profits.

The next year end is 30 Apr 2018, so today is an update for Q1 (May, Jun & Jul 2017).

Key points;

  • Q1 trading is in line with management expectations
  • Business recovery division is achieving year-on-year growth
  • Property services division - performing in line
  • Government statistics show that insolvencies have risen 2% in H1 of 2017 - the first rise since 2009 
  • Earnings should grow this year
  • Looking for more acquisitions

My opinion - this is a good counter-cyclical share - so it does well in recessions. Although Government policy of ultra-low interest rates has suppressed the number of insolvencies - allowing zombie companies to trade their way out of problems that would normally have resulted in their insolvency. Is this a good or bad thing? You can argue it either way.

 On a forward PER basis, this share is starting to look a bit pricey (see below), on a PER of 17.2. So clearly the market is anticipating that the actual earnings may exceed broker forecasts? With increasingly ominous signs of economic problems ahead, it makes sense that BEG shares will rise to anticipate increased workload & hence profits.


So much retailing is now moving online, that smaller retailers are struggling, and many are likely to go bust. The same is true of estate agents. Therefore capitalism's creative destruction is bound to take its toll in those areas, and others - e.g. hospitality, where there is over-capacity and profit warnings galore (all listed restaurant chains have now warned on profits).

For these reasons, it stands to reason that BEG should have more buoyant trading ahead.

The StockRank is strong, at 80.

Accsys Technologies

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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Accsys Technologies PLC is a chemical technology company. The Company is focused on the development and commercialization of a range of transformational technologies based upon the acetylation of solid wood and wood elements (wood chips, fibers and particles) for use as construction materials. Its segments include Licensing, Management and Business Development; Manufacturing, and Research and Development. It is engaged in the production and sale of Accoya solid wood, and licensing of technology for the production and sale of Accoya wood and Tricoya wood elements through its subsidiaries. The Accoya solid wood and Tricoya wood elements technologies are manufactured through the Company's acetylation wood modification process. Accoya wood is used for windows, external doors, siding, decking, structural and civil engineering projects. Tricoya Wood Elements are used in Facade cladding/siding and other secondary exterior applications; window components, and door skins and wet interiors. more »

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Driver Group Plc (Driver) is a United Kingdom-based company, which provides consultancy services to the engineering and construction industries. The Company conducts its operations through three operating divisions: Europe & Americas (EuAm); APAC, Middle East & Africa (AMEA), and Initiate. The EuAm and AMEA divisions provide various services, such as quantity surveying, litigation support, contract administration, and commercial advice/management. The Initiate division offers development, project and contracting management services to the infrastructure market in the United Kingdom. DIALES is its witness support service provider. Driver Project Management provides the strategic and leadership disciplines necessary to develop and deliver a project. Driver Project Services provides customer-focused project controls solutions across a project lifecycle. Driver Trett provides multi-disciplinary consultancy services to support delivery of its clients' projects. more »

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

26 Comments on this Article show/hide all

danielbird193 21st Sep '17 7 of 26

Re: Accsys Technologies (LON:AXS) and your comment that the chart "does look as if it wants to go higher". I always had you down as a fundamental investor through and through with your diligent analysis of company accounts and sector / industry trends. Do you ever trade on technical indicators or, conversely, choose not to pull the trigger on an investment you would otherwise have made because you don't like the look of the chart? Would be interested to know the extent to which this drives your decision making.



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runthejoules 21st Sep '17 8 of 26

SCISYS (LON:SSY) seconded! Deserves to be more than 2% up I feel. Also I'm wondering why, specifically, Cloudcall (LON:CALL) is up today (was as high as 10.92%, then dropped to 7% on low volume selling). Not complaining though!

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Soundbuy 21st Sep '17 9 of 26

SCISYS (LON:SSY) seconded again - is that thirded?:)

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Tamarix 21st Sep '17 10 of 26

Re Accsys Technologies. This firm has a monopoly on a very desirable product (Accoya rot-proof timber). I have used Accoya for several years and strongly recommend it.
In the past they seemed to be trying to license it to other suppliers, but not a lot has happened there. Currently they seem to be building factories themselves.
In the long run it has to be a winner, but it looks like it is taking quite a while.

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Michael Billingham 21st Sep '17 11 of 26

Good afternoon, Paul.

Does anyone have an opinion as to why Spectra Systems (LON:SPSY), Spectra Systems has fallen this morning, currently down 7%.

I hold but may sell today.


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VegPatch 21st Sep '17 12 of 26

In reply to post #221208

Hi Paul
I would be interested to see if your views on the IG Design acquisition concurred with mine?


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TheWatchmaker 21st Sep '17 13 of 26

Good: Revenues increasing, dividend continues to rise, positive hope for full year figures. FinnCap have put out an update with very moderately raised FY revenue target and restating same price target.
Bad: Adjusted profits down vs last year, and real profits are actually a loss of 4.9p/share. A lot of hope is riding on 2nd half weighting.
Odd: A lot is being made of "exceptional order book" figure of £64M, but £30M of this is not bookable in 2017 so with this stripped out the order book is pretty much the same as last year.
Odder: Scisys took a £2M hit (10% as shares, £1.8M as cash) on ANNOVA acquisition earn-out clause. Payable in September - so why does it appear in 1st half-figures?. Where are the profits from ANNOVA to justify such a pay-out? This year? Next year? No guidance given.
Seems to be a lot of jam tomorrow in todays interim report.

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Paul Scott 21st Sep '17 14 of 26

In reply to post #221238

Hi daniel,

You asked;

Re: Accsys Technologies (LON:AXS) and your comment that the chart "does look as if it wants to go higher". I always had you down as a fundamental investor through and through with your diligent analysis of company accounts and sector / industry trends. Do you ever trade on technical indicators or, conversely, choose not to pull the trigger on an investment you would otherwise have made because you don't like the look of the chart? Would be interested to know the extent to which this drives your decision making.

For me, the fundamentals are much more important than the chart, especially with small caps, where price movements are dictated generally by very small trades. Institutions usually can't sell or buy, even if they want to, as the market is too thin. Hence why so many anomalies can occur with small caps - which creates opportunities for us!

The chart is a gauge of investor sentiment over time, so it's very useful. I look for vertical movements, as that points out some news of major importance, which means I can home in on the RNS on that date, to quickly find the most important announcements. Often good & bad news are followed by post-announcement drift. So I often find that buying after good news, even if it means paying say 20% more for a share, can prove very lucrative in the following months, if some really game-changing news has come out. It often takes time for other investors to cotton on to dramatically good news  - which proved highly lucrative for my family with Gear4Music for example, where we bought heavily after the first really strong trading update a year ago. It's more than 4-bagged since then.

Also, with growth companies, it's usually best to buy into a rising price trend.

With value shares, I often look for a BAD chart, as the bombed out price & poor sentiment is what's creating the opportunity.

Other things to consider:

Richard Crow looks for a "bowl" formation on a chart, which he reckons is a very positive signal.

I like to see value shares form a decent base, e.g. as happened with Trinity Mirror (LON:TNI) when it flat-lined at about 25p for around 6 months. It was a gift at that price, and i put 60% of my (small at the time) portfolio into it, which gave me a terrific return.

Growth companies - Mark Minervini (who I have great respect for) likes to see a stair-step chart at growth companies - big vertical moves up, followed by a flatline period of consolidation, then another vertical move up. So I look for charts like that, combined with repeated broker forecast upgrades, etc.

Overall, as my focus has been mainly on growth companies in the last couple of years, then the chart is more important than it is for value type situations. I recall Lavendon had a terrible chart, yet it kept putting out positive trading updates, so I just kept buying more & more. Then the takeover bid came along, and it was an excellent profit.

The more liquid a share is, then the more important the chart is. With very illiquid shares, the chart is only measuring sentiment of the smallest shareholders, as they're usually the only ones who can trade the share at all!

All interesting stuff, and like everyone, I'm still very much learning as I go along.

Regards, Paul.

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Paul Scott 21st Sep '17 15 of 26

Hi everyone, no more reader requests please, as I'm already overloaded with a list of 5 more companies to do.
Plus I have to attend a share club meeting this evening, and prepare the monthly reports (as I'm the Treasurer), so am struggling to fit in everything!

Thanks, PAul.

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Samsgrandad 21st Sep '17 16 of 26

In reply to post #221288

Thanks for sharing Paul and teaching us all to fish this murky pool.

Regarding Accsys Technologies (LON:AXS) , I remember it floating on OFEX about 15 years ago.  Burned some cash since then, maybe next year :-)

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danielbird193 21st Sep '17 17 of 26

In reply to post #221288

Thanks for the comprehensive answer. Minervini's 'Stock Market Wizards' book has been on my reading list for a while, so I may well order a copy.

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cholertonandrew 21st Sep '17 18 of 26

In reply to post #221243

On the Cloudcall price move, maybe Paul has been buying and moving the market?

I think the shares are just very tightly held and the company is now recording strong growth and close to breakeven. Perhaps the market is now starting to view it as an exciting growth stock whereas before perhaps there was widespread doubt over its prospects.


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cholertonandrew 21st Sep '17 19 of 26

In reply to post #221288

Paul, thanks for sharing this- it's extremely helpful.


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clarea 21st Sep '17 20 of 26

In reply to post #221288

Remember you from the Mike Walters days Paul with the Blash strategy you had back then didn't follow you over to the fool website but remember when you surfaced again on your own blog pre Stocko and you nailed Trinity. You then told the story of the preceding years and how it took about four years from blow up to find the old you again.

I know i sound like a parrot but really hope one day you do right your book such and interesting story to tell and would probably read better as a novel than a how to type book.

Anyway as ever glad your back winning and wiser keep sharing the knowledge.


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barnetpeter 21st Sep '17 21 of 26

Real Food Group rns out last night. Lots of issues in recent past but the management has changed now. I know Paul is not impressed by this business but there is a lot of turnover here and it is now very lowly rated despite big investment funded by a placing at much higher level. Anyone for a yum yum??

The Board is pleased to announce that the first part of the GBP11.0m investment at Haydens (the Yum Yum line) was commissioned on time and the new product manufacturing line has delivered product successfully and also on time last week. One of two new product manufacturing lines at Renshaw is now producing stock for the Christmas period and the new jam line at R&W Scott has started to deliver product to a major retailer. The majority of the remaining investment in new product manufacturing lines at both Renshaw and Haydens is due to be completed by the end of December 2017. These substantial capital expenditure investments are key to the Company's long-term growth plans.

Based on overall trading year to date, the Board now believes that the Company will achieve EBITDA of approximately GBP6.5m in the year to 31 March 2018 (prior to any exceptional costs incurred during the year). The Company looks forward to seeing the full operational and financial benefits of its capital expenditure programme during the financial year commencing 1 April 2018

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Lion Tamer 21st Sep '17 22 of 26

Re Revolution Bars (LON:RBG) there are a coup[le of interesting RNS announcements after hours this evening:
"...the Panel Executive has ruled that, unless the Executive consents otherwise, Ranimul must, by 5.00pm on 10 October 2017, either announce a firm intention to make an offer for Revolution under Rule 2.7 of the Code or announce that it does not intend to make an offer for Revolution."

"Deltic continues to progress its own due diligence on Revolution and this has confirmed Deltic's view that the Stonegate offer undervalues Revolution. In order to put forward its merger proposal and discuss with shareholders, Deltic will in due course publish its own profit forecast and a quantified financial benefits statement in respect of a merger, the timing of which will be dictated by the publication of Revolution's full year results, which are expected on 3rd October, 2017. In parallel it continues to evaluate a possible cash offer for the entire issued and to be issued share capital of Revolution."

So the game is still going on. I'm still holding as down side is limited (and I'll be happy with that profit if it comes to it) but there could be some further upside. It'll be interesting to see how it pans out.

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FREng 21st Sep '17 23 of 26

In reply to post #221268

Spectra Systems (LON:SPSC) hasn't moved, so maybe they are converging.

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Michael Billingham 21st Sep '17 24 of 26

To: FREng re Spectra Systems.

Thank you. That may be the reason, I have seen no other.

I have always found the existence of both confusing.


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andrea34l 22nd Sep '17 25 of 26

In reply to post #221413

I think you'll find SPSY is the ticker for Spectra... and they are down today; trading activity is generally selling

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staverly 22nd Sep '17 26 of 26

The real problem with Accsys is an ineffective, greedy CEO. None other than Nick Clegg's older brother.

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 Are LON:BEG'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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