Small Cap Value Report (Thu 7 Feb 2019) - FDEV, IRV, ACSO, DPP, SDRY, GATC, OTB

Thursday, Feb 07 2019 by

Good afternoon, it's Paul here. I'm running late today, apologies. This article should be complete by tea time. See the header for the companies I'll be reviewing.

To start with, here are some comments on a company which reported interim results yesterday.

Frontier Developments (LON:FDEV)

Share price: 1000p (up 12.4% yesterday, at market close)
No. shares: 38.7m
Market cap: £387m

Interim results

Frontier Developments plc (AIM: FDEV, "Frontier", the "Company"), a leading developer and publisher of video games based in Cambridge, UK has published its interim results for the 6 months to 30 November 2018.

Clearly the market likes this announcement, as the share price has risen 12%.

I don't know where to start with this company, so am really just flagging what seem to be a fantastic set of results, and then readers can research more if it looks of interest to you.

Revenue growth of 240% - wow!

Revenue increased by 240% to £64.7 million for H1 FY19 (the 6 months ended 30 November 2018) compared to £19.0 million for H1 FY18.  The significant growth reflects the success of Jurassic World Evolution together with the ongoing performance of Elite Dangerous and Planet Coaster, in line with the Company's strategy.

From what I can gather, games have a short burst of high sales after launch, but the best games become "franchises" - with repeated releases of updated versions, giving multiple bites of the same cake.

Operating profit has gone through the roof;

Operating profit of £17.2 million at a margin of 27% (H1 FY18: £3.0 million, 16%), with the growth in the percentage margin reflecting the substantial growth in revenue, albeit at lower gross profit margins.

Current Trading and Outlook

All three game franchises continue to perform well, following good trading performance during the competitive Holiday period incorporating Black Friday and Christmas price promotions.  The Board is comfortable with analysts' revenue projections of £79 million to £88 million for the current financial year (FY19, the year ending 31 May 2019).
Frontier's strategy of continuing to grow its portfolio whilst supporting existing game franchises is delivering well. The development of Frontier's fourth game franchise, based on the Company's own un-announced IP, is on track, with release planned for later in calendar year 2019.

Balance sheet - no issues here, it…

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Frontier Developments plc is engaged in developing non-game applications and video games for the entertainment sector. The Company's segments include self-published and external publishers. The self-published segment is engaged in sales of the game and digital in-game. The Company has completed work for external publishers, including Screamride and Tales from Deep Space. Its games are developed using its COBRA cross-platform technology, allowing code and resources developed on personal computer (PC) to be compiled and run on XBox360, PS3, iPhone operating system (iOS) and Nintendo WiiU. The Company offers Elite Dangerous game on PC, Mac and Xbox One. The Company is engaged in developing games of the strategy/simulation genre, including RollerCoaster Tycoon 3 for PC and Zoo Tycoon for Xbox. The Company also offers Planet Coaster, its self-published franchise. more »

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Interserve Plc is a United Kingdom-based support services and construction company that offers advice, design, construction, equipment, facilities management and frontline public services. The Company provides a range of integrated services in the outsourcing and construction markets. It operates through three segments: Support Services, Construction and Equipment Services. The Support Services segment focuses on the management and delivery of operational services to both public and private-sector clients in the United Kingdom and internationally. The Construction segment offers design, development, consultancy and construction services for building and infrastructure projects. The Equipment Services segment operates globally, designing, hiring and selling formwork and falsework solutions for use in infrastructure and building projects. It provides outsourced services in sectors, such as hospitality, leisure, education, defense, retail, and oil and gas across the Middle East region. more »

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accesso Technology Group plc is a United Kingdom-based company engaged in the development and application of ticketing, mobile and e-commerce technologies, and virtual queuing solutions for the attractions and leisure industry. The Company's solutions include accesso LoQueue, accesso Passport, accesso Siriusware and accesso ShoWare. accesso LoQueue is a queuing solution that includes Qsmart, Qbot and Qband. The accesso Passport ticketing suite is built where its customers shop. accesso Siriusware provides clients with ticketing and admission solutions, and includes various modules, such as OnSite Ticketing, OnLine eCommerce, Point-of-Sale and Guest Management. accesso ShoWare offers a range of ticketing software solutions for theaters, fairs, arenas and tours. The Company's products and services support attractions in the world, including a range of paid admission operations ranging from theme parks, water parks and zoos to cultural attractions and sporting events. more »

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

39 Comments on this Article show/hide all

gbjbaanb 7th Feb 20 of 39

So really what auditors do is to look at the accounts and say "yeah, s'pose they might be right". And then walk off with a fat bulge in their trouser pockets.

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JohnEustace 7th Feb 21 of 39

In reply to post #445018

Given that statement by the Grant Thornton chief you would have to ask what the point is of the audit and why on earth there should be any requirement for companies to have one.
Better to impose an equivalent levy on business and spend the money on actually prosecuting and punishing white collar crime.

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purpleski 7th Feb 23 of 39

My pennyworth on accesso Technology (LON:ACSO). I held and had a nice paper profit at 60% at it’s high before selling for a 30% loss but thank god I did.

In case other readers have missed (like I did)

The is a very deeply researched short case on accesso Technology (LON:ACSO) by Tom Winnifreth at:

Whether if I read it back in October I would have sold is moot but it would have certainly made me think. It would have been the perfect time to do so but in any event I think it is an article than needs to be read.

I am not sure I will reinvest. I am becoming more and more annoyed at management who use what I would call weasel words or PR speak in their RNS’s to the owners of the company:

“the Board has recently initiated a review of the Group's investment priorities in the context of the significant future opportunities available to it and the current areas of business momentum.

The Board expects to provide an update on this review and the Group's outlook as part of the full year results announcement on 27 March 2019, which will also set out a number of new enhanced disclosures relating to the Group's operational and financial performance.”


“expected to be broadly in line with market expectations for FY18.”

Broadly could mean almost anything and I have no idea what the markets expectations are/were. Why can they not be more specific/straight talking.

It is a shame because I think that this should be a good business.

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brucepackard 7th Feb 24 of 39

In reply to post #444988

We are talking about DP Poland (LON:DPP) @herbie47 - big difference. This Domino's franchise sells pizzas in Poland, the clue is in the name :-)

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Trident 7th Feb 25 of 39

In reply to post #445028

It does indeed pose a question. Auditors do in fact sometimes raise issues over accounting practices, or outstanding debtors days etc with the auditor committee report, and with the FD,

However, basically the baseline seems to be, given the accounts presented to us, do we believe in our professional opinion that they represent a true and fair view?

We either need to move the baseline, or there ought to be level(s) of more forensic review as part of the auditor package. This could be parcelled into levels of review that represent a more thorough review of Company practices. The outcomes of that might come out as recommendations in the report and accounts.

Let's face it the auditors won' want to be on the hook for missing something, when its the management who are fraudulent, not them. The audit committee could be accountable in some way, to show they have interacted with the auditors.

Quite often you will find the Audit Committee chairman will sit in the same meeting with the rest of the board as the audit committee business is performed. So they have to be a little bit bloody minded to wake the auditors up (and the board) as basically this will tend to happen when the accounts are already virtually signed by the FD, and ready to be approved for release by the board. So, putting your oar in too much at a late stage could be seen as disruptive.

Of course the additional costs and relevance may be questioned by boards and shareholders, especially on AIM which is meant to be lightly regulated.

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Lgarvey 7th Feb 26 of 39

In reply to post #444888

B.P. Marsh & Partners (LON:BPM) I think the markets didn't like the following statement tapped on the end of the update

"The Group notes the reduction in the number of new enquiries received and
attributes this to uncertainties in recent months surrounding Brexit and other
geo-political pressures. The Board does not view this as a lasting cause for
concern, however, and anticipates deal volumes to pick up once there is more
clarity on the domestic political situation."

(I hold)


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Steves cups 7th Feb 27 of 39

In reply to post #445033

Whatever happened to "True and fair view". Surely If a fraud on a massive scale has occurred then the accounts are not true or fair. Surely one does transactional testing to detect irregularities in systems, procedures.

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herbie47 7th Feb 28 of 39

In reply to post #445123

Yes sorry must have clicked on the uk link.

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jonesj 7th Feb 29 of 39

Thanks Paul. Excellent analysis & fine humour with it !

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Bezhe 7th Feb 30 of 39

Another top-quality article today.

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Roger Lawson 7th Feb 31 of 39

Good analysis of Accesso (Acso) Paul. Very difficult to value without more info.

Website: Roliscon
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Julianh 7th Feb 32 of 39

In reply to post #445028

It’s an interesting question. What sorts of occurrences are likely to make a set of accounts misleading? Careless bookkeeping? Maybe but not often and unlikely to cause major problems. A failure to apply commonly agreed accounting standards? The previous auditors at Utilitywise (LON:UTW) didn’t seem to be too bothered by that. Or fraud!
If the auditors were appointed by an audit committee that reported directly to shareholders now maybe they would have an incentive to look for things that might harm shareholders’ interests. But as it is the audit committee is effectively a proxy for the board of directors. And, as they say, the customer (in this case the board of directors) is always right.
So what point an audit?

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jules2k6 7th Feb 33 of 39

In reply to post #445018

Checkout this if you have the time. There is a repudiation of then view that auditors should not be detecting fraudulent activity.

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Edward John Canham 7th Feb 34 of 39

When I was an auditor, and I must admit it was a few decades ago, the view was that we were not responsible for detecting fraudulent activity BUT we were expected to find material fraud.

This always seemed logical to me at the time - we were expected to state the accounts gave a true and fair view - this is not the same as finding fraud - however if the the fraud was material the accounts would not give a true and fair view.

On this basis I disagree with the public announcement made by the auditor concerned.

However, in the case of management fraud, basically, in all honesty, if they are good, the auditor will not find it until it blows up and that's a risk the auditor takes (and has insurance to cover) and the financial community have to understand.


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john652 8th Feb 35 of 39

Auditors, where something is clearly wrong, because whatever arguments they come up with, massive long term fraud, needs a better response than ‘not our fault’. So rather than saying, ‘yes something is clearly wrong here, we need to look at it’, the absence of that approach is usually from a body with vested interests, outdated thinking, and plain old arrogance. Just like most old institutions in the uk seem to respond before someone in government eventually takes aim. What really needs to happen, and is just obvious, is the consequences to those committing the fraud must be much much worse than it currently is.

I took a loss on pat val, so quite annoyed, but probably not as annoyed as for Luke, who must be apoplectic!

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hayashi22 8th Feb 36 of 39

You are assuming he is not involved and an innocent party then?

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peterg 8th Feb 37 of 39

In reply to post #445343

The big difference between you and Luke is that he had a responsibility to protect you from fraud, which he failed miserably on. If he has lost a little of his cash (and I'm not at all clear that's true overall) then that's frankly a small compensation for those shareholders without an influential seat on the board (and who get paid to lecture people on how to spot fraud!)

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Paul Scott 9th Feb 38 of 39

In reply to post #444948

Hi brucepackard,

Re what a crap company DP Poland (LON:DPP) is, you said;

Thank you stocko stock ranks!

Errrrr, hello!!! It's actually been ME who has told everyone what a rubbish share DPP has been for millions of years - acres of negative articles, for years, here.

I thank you! Credit where credit is due.

I'm not having those johnny come lately algorithms trying to claim all the glory!!!


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bobsandy12 22nd Feb 39 of 39

Belatedly, another really useful article Paul. Your balanced review of Accesso is much appreciated. I am a big fan of TB and suspect he will not let go until he has this one back on track..........let's see.

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 Are LON:FDEV'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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