Small Cap Value Report (Thur 19 Dec 2019) - NAR AGM Report, TUNE, WSG, BILB, XLM, TWD

19th Dec '19 by Graham Neary

37 comments 8072 reads

Good morning!

I'm a little bleary-eyed today, as my flight home last night after the Northamber (LON:NAR) AGM was delayed (please note that I no longer have a position in NAR).

Today, I will provisionally cover:

Northamber (LON:NAR)
Focusrite (LON:TUNE)
Westminster (LON:WSG)
Bilby (LON:BILB)
XLMedia (LON:XLM)
Trackwise Designs (LON:TWD)
Goodwin (LON:GDWN)

There was a power outage at my office building, while I was writing up Bilby, and I am now aiming for a 5pm finish.

5.30pm: report finished for today, I got as far as XLM.

Cheers,

Graham

Northamber (LON:NAR)

Share price: 52.6p (-4%)
No. of shares: 27.3 million
Market cap: £14 million

Result of AGM

Potential Acquisition

I've written about this IT distributor recently, both here and elsewhere.

It's a classic "cigar butt" investment, with an old and unprofitable business attached to a very rich asset base consisting of cash, property and working capital. It has been unprofitable for nine years. A classic value investment, in other words.

I bought into it recently, at 51p, which I believe represents a discount to its cash balance. I think the shares would be worth 88p at a minimum, possibly 100p or more, from a simple liquidation and disposal exercise.

But before I go any further, let me echo what Paul said yesterday: "it seems crass to be talking about investments when someone has tragically died".

Northamber is a company in mourning, as its founder, Mr. David Phillips, passed away two weeks ago.

AGM Day

I went along to the AGM to understand the thought processes of the current directors. The Northamber office is in an industrial part of Chessington, only two miles from the famous "World of Adventures" (owned by Merlin). I got there via taxi from Gatwick.

The meeting was well attended, by microcap standards, and was much more crowded than the previous ones I attended. I estimate that there were 7 shareholders present, including the son of Mr Phillips (Mr Phillips had a 63% stake). And there were a few spouses and a crying baby, too! We…

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mammyoko

19th Dec '19

Absolutely love the story about attending the Northamber (LON:NAR) AGM. I particularly like the fact that you have the temperament to see the positive side of what sounds like an incredibly frustrating meeting. So many companies treat their shareholders as an inconvenience that it is almost feels too good to be true when one stumbles across a company (e.g. Tracsis (LON:TRCS) ) that treats them with some respect!

Star8

Congratulations on your excellent performance and report on Northamber.

I am surprised that you let the Director get away with his apparent definition that adult children are excluded from connected family disclosures which is not the implication of the text you quote . I would have challenged him for proof of that.

Years ago I had a run-in with the Directors of Begbies Traynor at the AGM. Only one other shareholder (an elderly lady who did not speak) besides me attended. I had bought them at 105p a share in 2009 - the onset to the recession expecting the company to do well with Company Administrations and Liquidations. Not the case : at the time the shares were around 48p and I had endured years of what it my view was mediocre performance. I was not happy.

I commented to the Board that the value of a company was the value of the Assets plus the value of the management.

The value of a company is also the value of the shares.

In the Begbies Traynor case at the time , share price was about 48p and the value of net assets per share was 65p per share. The implication is that the value of the management was - 17p a share.

I said that we should now go round the Board and each member should say where he (no shes) added value to the company so we could identify who was responsible for the negative management value implied by the above equation.

I said we should start with the highest paid Board member whom I named. He was earning according to my memory about £ 400k on a company turnover of about £50m which IMHO seemed excessive especially given the poor results.

It turned out that this Board Director was not present - at the AGM - the sole occasion when shareholders can meet their Company Directors.

I expressed surprise that the Director was not attending the meeting for the above reason. Ric Traynor who was running the meeting said to me words to the effect that I should not worry since this Director was "working hard on my behalf". I specifically remember those words .

None of the other Directors responded as to where they added value to the company.

My point is that shareholders too frequently let Directors get away with giving no or bland comments. Large institutions in the past could speak privately or more frequently would sell and go on to the next investment.

Investornot1

Thanks Graham. Excellent update on Northamber. Your report sounds like a surreal comedy sketch at times but with good advice too.

FREng

Xlmedia (LON:XLM) is interesting.

On a quick scan, Stuart Simms was already group CEO but only appointed to the Board at the beginning of October when the share price was 56p. He promptly started a strategic review during which XLM's founder, Ory Weihs, an Israeli who lives in Prague and is a NED at XLM, bought nearly 600,000 more shares at prices between 58 and 52p, continuing a sustained buying period that took his ownership from 1.82% after he sold 3,474,006 on March 28 2017 at 110p to 3.67% today. Stuart Simms disclosed no shareholding on appointment to the Board and appears not to have bought shares or to have been awarded options since. The share price today is 42p, well below the prices at which Ory Weihs has been buying for over 2 years. (All data via Stocko).

As founder and NED, it's hard to imagine that Ory Weihs is out of touch with XLM's performance or that he was uninvolved in the appointment of Simms. I'm struggling to make sense of the history here.

jonesj

Thanks Graham. A very amusing and educational piece on the Northamber AGM.

Since ceasing full time employment, I've been seeing more companies at various events, but must also go to more AGMs in 2020.

How do you secure entry to the AGMs ? I've been to 2 AGMs in 2019. One with a letter of representation and one arranged via e-mail from the contacts on the relevant RNS.

This is not a widely discussed topic, so I also welcome input from other investors.

Incidentally, it's 32 years since my first stock purchase and I've retired early as a result of a high savings ratio and investment performance. With much more free time, it's been really useful to go and hear companies present at Sharesoc, Mello and various other events. However, in the era of flexible working time, many people still in full time employment may be able to make evening events. Even when they live 50 miles away.

mmarkkj777

Northamber (LON:NAR) sounds like the mother of all value traps. Thanks for the heads up

rmillaree

FREng
XLMedia (LON:XLM)
Yes - this is certainly an interesting share - some deep value characteristics here - however i have been slightly worried that future profits may not be as easy to come by as was the case previously - this has sorted of panned out over the last 12 months with each update being worse than the previous one. A lot of (if not most) companies that occupy this somewhat dodgy work of affiliate marketing seem to run into issues after a good spell. I am kinda guessing if there is easy money to be made someone will replicate and copy at a cheaper price - or perhaps google and the other big boys have a way of syphoning off the easy income. Having said that they have branched out into financials and they seem to have lots of active websites so it does seem that everything sort of stacks up ok.

With regard to Ory the fact that he has bought big is a positive - however i think what he has bought recently is only a small % of the dosh he has earned by selling at a higher price? if this is the case i wouldn't be as positive as if this was a brand new addition - perhaps he has so much dosh this is play money and perhaps he needs to make his presence felt by buying shares now he is not in day to day control.

If i do invest here it will be a punt - but i am trying to be be more disciplined nowadays and being honest this one is probably only known inside out by the main bods who the run the business.

Marvellous story star8! I admire your directness. Too often at AGMs shareholders behave like employees, cravenly accepting the Directors' patronising responses, rather than behaving like the owners of the company that they, in reality, are.

It's stories from personal experience like this that really help others to understand how Directors mismanage companies with impunity under shareholders' noses.

Graham Neary

Thanks jonesj. And congratulations on achieving financial independence - a huge amount of effort, patience and skill went into that, I'm sure! Brilliant.

The only way to guarantee AGM entry, as far as I know, is to have a letter of representation from your broker, if you have a nominee account. You tell the broker you want to go, and they notify the company's registrar and send you the LOR. After that, it's legally impossible for you to be turned away or unable to vote.

Zipmanpeter

* RNS from Non-standard Finance (LON:NSF) today to confirm Invesco have sold out completely (to Alchemy). Pre- Provident Financial (LON:PFG) bid shareholder base largely overturned now with both Woodford & Invesco, the core original shareholders, now exited. Alchemy with 29.9% now driving the bus.

Interesting to see what they do with Chm and founder John van Kuffeler (who led the disastrous bid for PFG, his former company) and if they split up and sell the business.

There is some interesting commentary about the LTIP at Goodwin (LON:GDWN) on ADVFN.

sharesurfer

Its what I would do too. I think you'll do well. Disclosure: I hold £sdi and am considering buying £kape (as well as Centralnic (LON:CNIC) and more £aug). All moving in the right direction.

You're welcome, Mark. G

Great story, thanks Star8.

Sometimes, if a bad answer is given, there is no point in arguing the toss - just sell and move on, is my attitude.

Camtab

Thanks for your thoughts Graham. XLM by the time you strip out 125m in Intangibles and goodwill, the balance sheet shrinks to total assets of 72m. Cash end 2018 44.6m. If they are going to spend this on acquisitions which seems likely now, frankly I think they are running to stand still. I will look for a time and place to get out I think.

Mike Jones

jonesj... If you trade / invest through the interactive investor platform I can help explain the process for obtaining a letter of representation on-line, as Graham suggested.

tony akram

Hi Graeme

Good report as usual , re asking questions at AGM could not agree more reminds me of the old chinese saying

''The man who asks a question is a fool for a minute , the man who not ask is fool for life ''!!! .

20th Dec '19

Thanks Finance Director. Of my UK brokers, ii and AJ Bell can arrange letters of representation on line.

However, for my most recent AGM I just got added to the guest list after a quick e-mail. This was particularly convenient, so I was wondering if others always go for Letters of Representation. If asking awkward questions, I suppose the legal right to be there is advantageous.

Paul Scott

21st Dec '19

Hi Tony,

I genuinely cannot remember which Chairman of a reasonable-sized UK listed company I was chatting to earlier this year, who said to me that he had a row of analysts lined up in front of him, and they were all nodding sagely whilst he obfuscated. He thought it was hilarious.

Not saying I could predict the figures any better, by the way. Much better to admit that we haven't got a clue, rather than pretending.

Regards, Paul.

Roger Lawson

22nd Dec '19

Highly amusing report on Northamber. I held a few shares in the company around 2003 and went to one of their AGMs. I was the only shareholder who attended and the late Mr Phillips (sole director attending) did not put resolutions but just assumed the resolutions were passed - presumably because he had enough votes to pass them alone! In other words the meeting was a complete joke, and I then sold my shares.

This was clearly a case of ignore the financial numbers and just look at who is running the business - the current board seems to have acquired some very bad habits from the founder.

Small Cap Value Report (Thur 19 Dec 2019) - NAR AGM report, TUNE, WSG, BILB, XLM, TWD

Northamber (LON:NAR)

AGM Day

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Graham Neary

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