Small Cap Value Report (Thu 27 Oct 2022) - PURP, FOXT, CCR, SEE, SPEC, PCIP

27th Oct '22 by Paul Scott

54 comments 7387 reads

Good morning from Paul & Graham!

Bonds podcast - I'm hoping to speak to Paul Hawkins, a very experienced professional in corporate bonds, later today. So that should be published on my website and on my podcast channel at about 15:00 today. Bonds are, for the first time since zero interest rates, starting to look an interesting alternative to equities, hence why it's cropped up on mine, and many other people's radars. I'm only a generalist, so I'm looking forward to talking to an expert in the field! Essential first listening is this superb interview with Tamzin at PIWorld from June 2020. I'm going to try to avoid replicating that interview, so will cover different aspects of corporate bonds in my interview, as much as possible, and current themes now that interest rates are rising. Should be interesting! My podcast is now live here. Let me know what you think!

Also, our Graham, did a cracking podcast this week about bonds, where Graham has had experience handling bonds, from his fund management days. That's well worth a listen too, I enjoyed it.

Agenda

Paul's Section:

Purplebricks (LON:PURP) [no section below] - brings in a new CFO, to join the newish (April 2022) CEO. As mentioned before here, this share is now a special situation, with a decent cash pile and well-known brand name (from large advertising spend in the past) being good assets, but poor performance, heavy losses, and multiple operational problems & legal issues presenting the downside case. There has been Director buying, and cost-cutting, so maybe some hope of a turnaround? Although I think there are better opportunities amongst conventional estate agents with big lettings income (stable), such as Foxtons (LON:FOXT) (more on that later today) or Belvoir (LON:BLV) [no section below]

Made.Com (LON:MADE) [no section below] - another update this morning, says that the Formal Sales Process (under the Takeover Code) has ended. No big surprise there, as it had already informed the market that nothing was forthcoming from the interested parties. As I've previously mentioned, I suspect interested parties probably wanted to go through the figures, and then wait to buy assets (such as the brand name, website, inventories) on the cheap from an administrator. Today it repeated this line -

The Board of MADE…

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mojomogoz

27th Oct '22

Occasionally Bidstack (LON:BIDS) has been discussed in here. I was a shareholder. Very high risk and high uncertainty so low position and an acceptance by me it may not work out. I believed they'd operationally turned the corner and have a shot at a large virgin market.

Anyway, I sold all today (I had partially sold some a while back too at higher price). I think the CEO has acted illegally. Below is an email he sent to a group of private investors (I believe to be private investors that took part in the recent placing)

"PRIVATE EMAIL TO INVESTORS

Azerion and Bidstack MSA discussion

From the Investor Presentation of Sept 2022, you will be aware of the existence of the Azerion Partnership, which is based around a contract which commenced on 1 March of this year (the “MSA”).

Following announcement of the placing, Bidstack received an email from Azerion requesting information under the MSA and reserving Azerion’s rights under the MSA, including taking steps to end the MSA.

Bidstack's response and legal position

Due to the timing of this email and the nature of the Group’s ongoing strong commercial relationship with Azerion, the Directors regard this email as a speculative and opportunistic attempt by Azerion to exploit a perceived weakness in Bidstack in an attempt to acquire Bidstack at a significant undervalue as part of Azerion’s buy and build strategy.

Bidstack has responded to Azerion with detailed information demonstrating compliance with all areas identified by Azerion and disputing the rights reserved by Azerion. Bidstack has taken appropriate external legal advice and has concluded that Azerion has no present entitlement to end the MSA.

Consistent with its strategy to review and improve demand side agreements, Bidstack will pursue discussions with Azerion in relation to the MSA, which may yet change in focus, scope or detail, and it is anticipated that these discussions may be on-going for some time.

The contract continues to be operated on a business as usual basis by both parties, with October already the highest grossing month, and with November and December anticipated to grow further month on month.

Forecast and outlook

Bidstack remains inline with 2022 and 2023 market expectations.

Bidstack notes that Azerion is primarily a European entity, with its sales-reach limited to these territories. The Company has invested in an experienced sales team with a proven track record in North America, as covered in the presentation, which has a robust pipeline for FY23.

Our Group Chief Revenue Officer is in active discussions on a number of significant global revenue opportunities, including additional resellers, licensors and media agreements, with anticipated contracts in FY23.

Kind regards,
James"

This very material information as Azerion are their visible revenue source through reseller agreements.

I believe this private email went out yesterday around the same time that this RNS was made public:

https://www.investegate.co.uk/...

Note that the last couple of days are also when recent placing shares come on to the market and I think the private email was sent to these placing participants.

I've contacted Bidstack's nomad and submit a complaint with the FCA. I think this is such flagrant abuse that it requires action.

TBH I did a lot of fundamental digging around BIDS and I have a positive outlook (always a bit sceptical of the Azerion deal achieving target tho)...but what just happened is just too murky for me. If you hold then you have your own view to make

Ciao

Epitychia

The spreads seem enormous.

wolfspirit

Wow - that is quite a different tone!

That would have worked well at Kape Technologies (LON:KAPE) when directors sold at £4 in Jan - now ca £2.50

Yep - but once known the title could be updated or it could be added to an index?

MichaelFBS

Sharepad 561 corporate bonds (obviously for subscribers only). This is a screen shot of part of the default screen. I have no idea whether this is what you are after.

Regards

Michael.

john2

Boonboon

£SEE

Hi Paul,

I am going to disagree with a lot of what you said regarding seeing machines.

First with regards to the bonds. The yield is not 8% per annum it's 8% all in including fees. I think that works out to less than 2% per annum. Whilst potential dilution isn't great the conversion price is at a significant premium to the current share price. The deal also included $17.5 million in a license fee so all in all a fantastic deal in the current climate. Their main competitor Smarteye has less than 3 months of cash left and not sure what they're going to do.

Whils profits have been hard to come by their investment and currently won contracts put them in good stead as does the regulatory environment which mandates their technology in new car models from 2024 in Europe and in all European cars by 2026. It is also expected that USA will mandate it by 2026. That means that car makers have to make decisions on contracts that will last 6 years plus within the next year. I firmly believe as does the company they will win a significant portion of the pipeline. Their fleet (aftermarket) division is now profitable and there are significant tailwinds coming here, again mainly due to the fact the technology is being mandated by the EU.

The company recently did a meeting which explained the Magna deal and their general position in the market. You can watch it here. https://stream.brrmedia.co.uk/...

Paul Scott

Hi ridavies,

but sometimes I am truly puzzled by your choice of companies for review - the ones in and the others left out.

It's very difficult to choose, and I think most days we get it right.

However, I accept your point that it would have been better for us to look at Franchise Brands (LON:FRAN) instead of Seeing Machines (LON:SEE) - I don't know why Graham decided to look at SEE. Also, I ran out of time, because I had to prepare for my corporate bonds interview this afternoon.

This was our agenda today, as you can see, there are 3 backlog items I wanted to look at too. It's a permanent source of frustration to me too, as we can't cover everything we'd like to cover.

It doesn't really matter if we don't cover in line updates, as there's nothing price sensitive in them. But we do try to cover ahead, or behind statements, so it was a pity we didn't get round to FRAN. So I'll take that criticism on the chin - our apologies to you.

Regards, Paul.

Harry Hindsight

C&C (LON:CCR) - really the future is rubbish cider. Do feel for the brewers with rise in hops, energy etc. Tough times. We need to support their SP outside of our PL accounts.

Although viewed as some as low market J D Wetherspoon (LON:JDW) will be the nail in the coffin of trad pubs if we let it go. Sorry for the Bournemouth elites.

The FCA a bastion of our financial world. Nickel market, pensions market - sorry obvs work in progress.

SDI (LON:SDI) - sorry boring chartist input influenced by the discussion.

155 - support. 183 - take a position (Mr Scotts 30% or your risk level).

In the coffee can.

Seeing machines has recently announced a deal and fundraising that was in effect a 100% premium to the share price at the time. That's exceptional in these market conditions. Magna who made the investment are one of the biggest suppliers to the automotive industry and will have visibility of what's coming in the way of contracts. Seeing machines has been in the investment phase for over 20 years, but it is now finally entering the growth phase as their technology is being mandated across the world. In fact seeing machines were instrumental in the wording and requirements for the EU regulations and as such have a real edge over their limited competition. They are also heavily involved with the transport authorities in the USA.

Their fleet division is profitable and on the cusp of massive growth as well. Close to 40,000 units installed and a further 10.000 ordered but not yet installed. That's 20% growth already this financial year. They're also seeing big demand from autonomous fleet companies who need a back up monitor and for truck and coach companies who have to provide DMS in every vehicle by 2024. You're talking about tens of thousands of units for each contract and in most cases they're the only ones bidding as they're the only ones with the technology.

The Boon Fund

28th Oct '22

Also Purplebricks (LON:PURP) investment in Homeday might be trending to zero...

I note that Homeday, after aggressively hiring over 2020, 2021, and H1 2022... has now done a second round of layoffs (the first being this summer). As far as I can infer, they are were still loss-making and cash burning earlier this year, and will be in an even worse position now.

Most likely outcome is that they need extra cash; and only Axel Springer will be in a position to fund, and likely means PurpleBricks stake in the JV is probably close to zero.

ridavies

Thank you very much for the response, Paul. As I indicated, it must be difficult early in the morning to make the choices Sincerely ridavies

Re Seeing Machines (LON:SEE) and your comments Boonboon, thank you for your in depth information. I have been following these for so long and faced disappointment after disappointment. I am delighted to hear they may be 'at a point of inflexion' and will arise from my stupor and watch with renewed vigour once again!

Thanks Ridavies,

I've been in these 10+ years myself and share your frustration at the time it's taken to get anywhere near profitability. Which should now be from FY2024.

However they're now facing the perfect storm. The technology is mandated but most oems seem to have left it really late to make a decision. That leaves the Rearview Mirror as the cheapest and easiest solution to facilitate this.

SEE are the only provider that has the technology and ip for this. They're also the only ones with the relevant technology for trucks and buses.

They are certainly getting more bullish themselves. They've always said their target was 30% of 70% of the market (they weren't bidding in China)

They're now targeting at least 50% of the total market as they're now bidding in China through partners.

rreally expect this to take off as the market catches on. From next month they will be doing quarterly updates on kpis including vehicles on road and fleet connections. Once the market sees the growth hopefully it will take off.

Graham Neary

31st Oct '22

Hi boonboon, thanks very much for the comment. I'm struggling to find evidence that the 8% all-in yield equates to 2% per annum. Can you please help?

Graham

Following up on this comment which Paul has already replied to.

It's always a judgement call re: which stocks to cover, and sometimes I get it wrong.

The primary reason I went for SEE is that it had issued its finals. When deciding between two companies, if one of them has issued results and the other has "only" issued a trading update, I prefer to attack the one with results, because the results are where you get the most information and the most complete picture of the company. I would expect us to cover FRAN when it issues its results.

Of course there are many other factors and reader interest is one of them. If there are three times as many readers interested in Stock A as Stock B, then I should probably cover Stock A! There does appear to be some reader interest in SEE (e.g. Boonboon's comment).

I hope this helps to explain,

Regards. G

Small Cap Value Report (Thu 27 Oct 2022) - PURP, FOXT, CCR, SEE, SPEC, PCIP

Agenda

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Paul Scott

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