Small Cap Value Report (Thu 25 Jan 2018) - RTN, LAM, MYSL, VANL, TMMG, VTU, HYNS

Wednesday, Jan 24 2018 by

Good morning, it's Paul here.

Please see the article header for the trading updates & results that I shall be covering today. It's very busy for updates today, so I'll be writing all afternoon (I've come down with a cold, so this morning was a wash-out).


I mention forex occasionally when there have been big changes, because these changes in exchange rates have a big effect on some companies' earnings, and growth. My worry is that the benefit of cheaper sterling might now drop out of results, or even go into reverse in some cases. Cheaper sterling has boosted earnings at groups with overseas subsidiaries, and for UK exporters. It's hurt UK importers, e.g. retailers. However, those are one-off impacts on growth. So we need to be careful about over-estimating future growth at companies that had previously seen profits grow a lot from overseas earnings translation into weak sterling.

Amazingly, sterling against the US dollar is now back to the same sort of level it was just before the Brexit vote;


(chart courtesy of IG Index)

However, this seems to be more about dollar weakness, than sterling strength. Against the Euro, sterling has not risen very much at all, nothing like the move against the dollar anyway.

Stronger sterling against the dollar should start to help retailers, once their forex hedges are used up, which could be 6 months to 2 years, depending on their hedging strategy (which can be checked, as it's often mentioned in the Annual Report - just open it online, then use CTRL+F to search for specific terms (e.g. "hedge" or "hedges").

Inflation in the UK should also gradually reduce, as the one-off impact of sterling devaluation unwinds. For that reason, I'm more relaxed about the likely direction of consumer spending, and hence am more bullish on (carefully selected) consumer shares than other commentators seem to be. There could be some bargains around now, if as I expect, the consumer is likely to be more confident & spending more later in 2018.

As an aside, I think a couple of readers got the wrong end of the stick last time I mentioned forex. I'm not interested in trying to predict what exchange rates will do. However, we do need to watch, and be aware of the impact on company earnings/growth from forex movements…

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The Restaurant Group plc is a United Kingdom-based company, which operates multi-brand casual dining restaurants, pubs and Concessions business. The Company operates over 500 restaurants and pub restaurants. The Company's principal trading brands include Frankie & Benny's, Chiquito, Coast to Coast, Brunning and Price, TRG Concessions, Firejakcs, Garfunkel’s, Joe’ Kitchen and Wagamama. The Company's Frankie & Benny's brand offers classic American and Italian style food and drinks. The Chiquito menu offers a range of authentic Mexican and Tex-Mex dishes. The Coast to Coast offers classic American food, such as double burgers, stone-baked calzones, distinctive steaks, amazing seafood dishes and South-West American specials. The Company also operates a concessions business, which trades principally at the United Kingdom airports. more »

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MySale Group plc is engaged in operating online shopping outlets for consumer goods, such as women, men and children's fashion clothing, accessories, beauty and homeware items. The Company's segments include Australia and New Zealand, South-East Asia and Rest of the world. It operates with flash sales Websites in Australia and New Zealand (ANZ), South-East Asia (SEA) and the United Kingdom. Its Websites host time limited flash sales in each of its territories. These flash sales are focused on fashion, apparel, health, beauty and homeware categories and are undertaken on a consignment inventory basis. Its retail Websites also focuses on these product categories using drop-shipped inventory. Its flash sales brands include OzSale and BuyInvite in Australia, NzSale in New Zealand, SingSale in Singapore, and MySale in Australia, New Zealand, Malaysia, Thailand, the Philippines, the United Kingdom and Hong Kong. more »

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Van Elle Holdings plc is a geotechnical engineering contracting company. The Company offers end-to-end solutions, including site investigation, driven, bored, drilled and augered piling, and ground stabilization services. It also develops, manufactures and installs precast concrete products for use in specialist foundation applications. It operates through four segments: General Piling, which is involved in open piling on brown and green field sites, particularly on new housing and new development sites; Specialist Piling, which is involved in installing piles where access to the area is restricted or specialist techniques are required; Ground Engineering Services, which is involved in providing site investigation, soil sampling drilling, grouting and soil nailing techniques to consolidate ground conditions, and Ground Engineering Products, which manufactures and installs modular precast concrete beams, primarily to the new housing market. more »

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68 Comments on this Article show/hide all

InvestedGeordie 25th Jan '18 49 of 68

In reply to post #304528

FWIW I work for a very, very big IT Services provider. We had a team from Poland come over to Demo Blue Prism and I was blown away. Very very cool, and, if I'm honest, a bit frightening!

It's literally replacing people in the workplace, already. I hope it doesn't get too smart, as it might replace me!

We're running a Bionics initiative at the moment, and are buying a few licences. I think they're $10k each! Not cheap, but they can work 27/7, never get sick and don't need a pension!

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RichardK 25th Jan '18 50 of 68

To confirm Paul's point about the difficulty of selling Mission Marketing (LON:TMMG), I sold 31,000 almost exactly a year ago. The spread was bad ( I don't remember exactly), but I had to sell in 4 tranches between 39 and 41p, and a lot of patience needed.

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GBGMC0 25th Jan '18 51 of 68

In reply to post #304673


Can I ask what the product did that blue you away. ( Please be specific about what tasks it did in your answer. )

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abtan 26th Jan '18 52 of 68

In reply to post #304188

Hi Gajri

Mind if I ask where you read about Bango looking to put themselves up for sale, and the April sale date?

This is the first I've heard of it.


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Paul Scott 26th Jan '18 53 of 68

In reply to post #304178

Hi Mike,

You asked;

Redstoneconnect (LON:REDS) have given an in-line trading update this morning, flagging strong contract momentum and the launch of a modular version of the One Space product. Management are straightforward and approachable and I'm also persuaded by Kevin Ashton's assessment (Cantor are the house broker). I'm long. Would be interested in others opinions and especially yours Paul.

I met up with the (relatively new) management of REDS at a site visit a while back, and was moderately impressed. They seem to be doing quite good things, but I did wonder if there was much scalability in their products? Most of their business seems to be providing contract IT staff to companies.

Have had a quick look at their last interims, and it's good to see that more capital has been raised. Also some quite good sounding contract wins.

It might be worth a punt, it operates in quite an interesting space. I'll check out the full year numbers here when they come out in the spring.

Regards, Paul.

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Paul Scott 26th Jan '18 54 of 68

In reply to post #304183


I share your confusion as to why the market attributes such a stratospheric rating to ASOS (LON:ASC) despite not particularly amazing growth now, yet it de-rates Boohoo.Com (LON:BOO) despite absolutely stellar growth, and much better operating margin than Asos.

It doesn't make sense to me either, so I remain short Asos, and long BooHoo. I reckon BOO is likely to catch up & overtake Asos on both profits and revenues in a few years. They're much better rag traders than Asos.

Regards, Paul.

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matylda 26th Jan '18 55 of 68

Thank you all for your feedback on Vertu Motors (LON:VTU) and Paul for the coverage.

I deduct it's a no brainer in that the downside is limited but on the other hand I also deduct the upside is limited.

For now, I will remain Neutral.

Thanks again all, really appreciate being able to have a willing invaluable resource to call upon now and again.

Blog: Briefed Up
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Ramridge 26th Jan '18 56 of 68

Re Blue Prism (LON:PRSM)

This looks like a classic marmite stock. The reaction is, either the company's products are cr*p or people are 'blown away'.

As i said in my previous post, I was skeptical last year but now believe there is substance and the company has a great future. My view is based on doing further research.

Forrester Reseach is a well-known respectable IT research organisation. Although they were commissioned by Blue Prism to write the following report, I know of them to be professional and not to be swayed by who pays them.

Here is the link to the research report

In particular, have a look at the detailed CBA at the back end of the study.

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InvestedGeordie 26th Jan '18 57 of 68

In reply to post #304703

My answer to that would probably not help you discover what it is you want to know. I would suggest:

- See Blue Prism in action
-Understand Bionics / Robotics / Automation within the workplace, and what that means
- Speak with Blue Prism / potentially have a demo / trial and see for yourself

Disclosure: I have no long or short position in £PRSM

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GBGMC0 26th Jan '18 58 of 68

In reply to post #304848

"See Blue Prism in action"

I have seen it in action. I thought it was laughable.

"Understand Bionics / Robotics / Automation "

I work in corporate IT and understand this very well. The blue prism product is not a Robot despite the claim. It is not intelligent and doens't learn in any way. For example if you want it to open an Excel spreadsheet , you have to specify exactly what the data structure is to the BP product. If the sheet changes the BP process breaks. Laugable. If you want to do back office stuff like this, eg manipulate excel spreadsheets, there are far better tools for doing this sort of back end stuff

"Speak with Blue Prism / potentially have a demo / trial and "

We tried to use the Blue Prism product for a Blue chip client. We could not find ANY use cases for it. When we finally found something of potential there were far better ways to do the same thing with other tools at no licensing cost.

Disclosure : i dont have a long-short either. Right now there is a ton of dumb money supporting this stock. So now is not the time to short it.

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InvestedGeordie 26th Jan '18 59 of 68

In reply to post #304903

So, this is why I didn't spend an age replying (I didn't recognise your username). You have your mind made up - which is absolutely fine, but don't try and bait people into wasting their time merely to satisfy your own pre-existing assumptions, it's silly, and counterproductive.

"We tried to use the Blue Prism product for a Blue chip client. We could not find ANY use cases for it." - This would suggest you are solving problems in the wrong way. We would never take a product and try and find somewhere to use it. Rather, we would look at the problem trying to be solved, and find the best solution.

We've already both disclosed we neither hold positions (long or short) so why the argument?

This isn't ADVFN

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GBGMC0 26th Jan '18 60 of 68

In reply to post #304918


I asked you to provide something specific that impressed you about the product, because I was genuinely interested. And by doing so you I was hoping you could challenge my opinion of the product.

You haven't been able to do that. And instead it seems to me that it is you, who is sticking to an entrenched point of view.

I have been very specific about why i hold my opinion. I am waiting for justify your opinion.

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InvestedGeordie 26th Jan '18 61 of 68

In reply to post #304923

I liked the product, absolutely, I was very impressed. It's use is clear to enable automation of clearly defined, mapped processes. This would work well particularly for a client like DWP, perhaps, where they may have claims checking, for instance. The demo showed this off, very well.

The key, for now at least, is that if a process journey can be mapped out, then Blue Prism can complete that itself, with no input. Now I have seen it used in a few different ways. Either Prism can do the lot, or, in many cases it does the 'donkey work' and the process is completed by a human.

Clearly I don't have a long position and neither do you have a short position, so I'm not entirely sure we're convinced either way, are we?

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drvodkaquickstep 26th Jan '18 62 of 68

Thanks for your views on Haynes Publishing (LON:HYNS) Paul - much appreciated and your comments on the pension scheme deficit are valid with respect to investors doing their due diligence.

When I have raised it with management on a couple of occasions its not been something they have been notably concerned about (noting it as being manageable) although clearly its a big deficit.

I believe they are currently underway on their triennial valuation and consultation which I understand will conclude towards the end of their financial year. I have been liaising with ShareSoc to arrange for management to present to investors after their full year results are out in September (hence around October time). They will then be able to provide greater clarity on the pension scheme.

Otherwise the turnaround has been very well executed with ongoing strong growth from HaynesPro that I expect to see really ramp up now that OATS and E3 Technical are bedded in.

 Its an asset light digital content business now and investors can look forward to further (one off) income when they sell their Sparkford HQ site which is currently being redesigned to change the mix of resi / commercial / industrial (they already have OPP for the scheme) - I have a valuation of circa £4m approx. for this site.

My previous write ups here:

Good weekend all!

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Reacher 26th Jan '18 63 of 68

In reply to post #304723

I’m really sorry: typo. I meant £MMX

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BlueFrew 26th Jan '18 64 of 68

In reply to post #304923


Blue Prism (LON:PRSM) - Count me as somebody who is also interested in specific things which are impressive about the product.

In particular I'd like to know if there was more to it than your comment that, "For example if you want it to open an Excel spreadsheet , you have to specify exactly what the data structure is to the BP product. If the sheet changes the BP process breaks."

Because I can think of a couple of people in my current company, neither of whom are would describe themselves as software engineers, who I'd feel pretty confident could knock something up in VB or C# which could manipulate an Excel spreadsheet.

Anybody who has any kind of interest in short selling will have their antennae tingling here. An £870m odd market cap, revenues of about £25m and loss making where senior people have taken a significant amount of cash off the table. There has to be something extra special to justify that sort of faith. But I too am struggling to understand what that is.

I think you are right about short timing. As I've found out, to my cost, it's not the time to be shorting highly valued stocks with strong momentum. But there may come a time soon and this looks a prime candidate once the market turns.

No position at the moment.

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GBGMC0 26th Jan '18 65 of 68

In reply to post #304933

Geordie, thanks, I am genuinely interested in what impressed you.

You cited ""clearly defined mapped processes", Could I point out there is nothing "robotic" about this. You are just describing a bog standard corporate workflow. We have been able to create "clearly defined mapped processes" and then run them as "automatons" automatically in the background for decades in software now. That is just bog standard corporate IT work. And there are tons of tools which can do this much better than Blue Prism, which are definitely cheaper and sometimes even for no licensing cost.

Anyway good luck if do choose to invest in Blue Prism. The valuation on this company is remarkable and what got me interested in researching it in the first place. I am fascinated to see where it will go.

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mojomogoz 26th Jan '18 66 of 68

In reply to post #304748

Isn't ASOS more a pure form comparison to Next Directory than rag trader or brand?

I ask as I have been looking at the trio to understand more what the form of the opportunity is and how it is being (mis)priced. Haven't look too much at ASOS yet so my question above may be off beam. I will catch up on all your historic comments too (haven't done so yet but no need to rehash here).

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GBGMC0 26th Jan '18 67 of 68

In reply to post #304968


Regarding the timing of a short yes my thoughts exactly.

Regarding Excel, to be more more specific with an example. If you have some date in Sheet 3, R4C3 that you want inserted into a db as part of your back office process. Then guess what ? you have to spend considerable time configuring BluePrism that the data is in Sheet 3, R4C3 and then what to do with it. If someone makes a mistake and saves the data in R5C3 then the BluePrism process ... breaks... ha ha.

That is because it is just a standard structured program that is running. There is no secret sauce or robot working things out and performing AI. It simply does what it is programmed to do.

And once you realise that , you also realise that there are much more fully featured tools that can do theses job much better. Or even as you say getting your local dev to do in with an Excel Macro.

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Funderstruck 27th Jan '18 68 of 68

Paul , MELLO 2018;

I cannot unfortunately make this special event but would like to attend the Monthly meetings in Beckenham; as I have some way to travel can you possibly recommend rear by Hotel accommodation. Many thanks.

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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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