Small Cap Value Report (Thur 20 Feb 2020) - STAF, ALY, DEV, GAN, MCB, NXR, PHD

20th Feb '20 by Graham Neary

58 comments 9873 reads

Good morning everyone!

Thanks to Paul for manning the fort here so incredibly well, while I've been busy with some other projects.

In terms of my own portfolio, the most interesting development recently was the small acquisition by Volvere (LON:VLE) - which I think looks promising.

On the RNS feed today we have:

Staffline (LON:STAF) - CEO resigns
Laura Ashley Holdings (LON:ALY) - interim results
Dev Clever Holdings (LON:DEV) - traded below expectations in H2
GAN (LON:GAN) - update on growth of internet gambling in the US
McBride (LON:MCB) - half year results
Norcros (LON:NXR) - trading update and impact of coronavirus
Proactis Holdings (LON:PHD) - trading/sales process update

Finished at 2pm.

Staffline (LON:STAF)

Share price: 46.5p (pre-market)
No. of shares: 69 million
Market cap: £32 million

Resignation of CEO

Paul covered Staffline's profit warning on 31 January. The industrial recruitment company's CEO has now tendered his resignation.

It sounds like he is jumping of his own accord, but as ever we don't know what sort of pressure he was under from the Boad.

I note that Staffline's CFO jumped ship in December. A Director who was also Chair of the Audit Committee left in January. And now the CEO.

As a reminder. Staffline has had serious financial and accounting problems.

Last year, PWC resigned from its position as auditor to the company. In giving reasons for its decision to resign, as it is legally obliged to, it merely cited the company's 2018 audit report, without being any more specific than that.

If you ever find yourself with more time on your hands than you can put to good use, check out Staffline's audit report from 2018. It's a classic example of a disastrous audit report - it has everything from a warning about the company's ability to continue as a going concern, to anonymous whistleblower accusations of wrongdoing, goodwill impairment and breach of national minimum wage legislation.

In the midst of this horror show, PWC disclosed that there were "failures by management to fully disclose to us and to account for certain…

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portugull

20th Feb '20

Graham I hold shares in both Gan (LON:GAN) and Burford Capital (LON:BUR) both of whom are seeking a US Listing in the near future.

Can I ask for your views on how this is likely to play out in terms of the SP on the LSE listing. Logically it should be very beneficial but what may I be missing? Thank you.

clouds

It's a little late to get the bargepole out after the share have lost nearly all their value though. March 2019 was after the shares started trading post suspension... i.e. allegations caused the suspension, so it's not like at that point there weren't any concerns about the accounts.

Appreciate it's surprised a lot of people the stream of bad news ... probably even HRnet who bought a significant stake.

Graham Neary

I concluded that it probably wasn't a good business in May 2019, with the shares at 500p (link).

Martin5760

Gan (LON:GAN) - when a company also lists on another exchange where do the shares that are placed in that market come from ?

Snoo

GAN (LON:GAN) valuation seems way overdone to me.

I do think there is some competitive advantage for some of their customers. The land-based casinos who have an integrated back-end will have relatively high switching costs given that it is not their primary product.

The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years. Given that gambling laws are not homogenous across states, this is not so easy at present. So the use of GAN is to provide those operators with a presence. Betfair partner with them for their New Jersey casino.

Similarly, Betfair's FanDuel use GAN for their sports betting. I visited this site and this is interesting as it appears to be a skin of something else (perhaps Unibet). Betfair clearly could offer either its own odds or Paddy Power markets but cannot, because it has no licence.

So GAN are simply a portal, providing the services and taking cuts of revenue. If someone wins £1m on a bet or the casino they don't have the liability for that, neither would they gain £1m if a punter put down £1m on a 1/10 shot and lost.

I would think that the end vision is that gambling will simply be allowed and the big bookies end up getting their licences. What happens to GAN then? For Betfair and its BetDuel site, it may as well implement its own odds rather than let a third-party take the profits.

For betting sites there may be little disruption involved to migrate customers away although it may require work behind the scenes, a change of skin is not a rare thing and customers may not even notice.

So GAN are in a good position at the moment, but I do think it's fanciful that we have a situation where they will be a major player. They can make their site integrations look nice and slick, but they aren't the real drivers of innovation.

I would expect once the US sports market matures that real competitive advantages become important, such as lowest cost (translating into lower bookie edge) and a go-between such as GAN for the big players is not required. I do also think that high taxation may make the US unviable for the smaller players (quite a few pulled out of the UK market for the same reason).

Camtab

rmillaree i have seen a lot of your posts and I know you are a thoughtful investor, so good luck with Norcros. I must admit I have looked at Norcros over the years too. Paul first introduced me to it. I think I can be too nervous of Africa, my parents lived there for years and it has never seemed to me an investors paradise, but much more suited to the Tiny Rowlands charm and mentality. The mish mash of different views is why we are all fascinated by the market, I guess. All the best.

Cisk

Graham, where did you glean that ‘with large swathes of the population (including Millenials and Generation Z, still at university) betting on the stock market’?

I remember that old adage that when a taxi driver starts giving you stock tips, it’s time for another crash... now of course it would be an Uber driver - but your comment strikes me as being a very loud canary in the mine?

Housemartin2

Ah thanks. Response by me without researching. Common trait in places I understand !

ls2g08

If you have never heard of it - https://www.reddit.com/r/walls...

This is probably the source of such reports. WSB has nearly 1m members and reddit‘s user base is 64% 16-29 year olds.

tic_tac_toe

"The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years."
This bit is simply incorrect. WMH are in the US.. Or am I mis-reading your paragraph.

Paul Scott

I've just published this: my audio interview today with Andy Gossage of Up Global Sourcing Holdings (LON:UPGS)

The topic is a general briefing on China supply chains from Andy, and the impact of coronavirus. UPGS are experts in importing consumer goods from China.

Hopefully you'll find this interesting. It's completely independent, I don't charge fees for my interviews these days, and I don't currently hold any position in UPGS shares. I approached the company to do an interview, as I thought it would be useful & interesting for us all, in helping to try to make sense of the developing coronavirus situation.

Regards, Paul.

LeoInvestorUK

UPGS: Just listened to this - a very useful interview, thanks. Is it just intended for Stockopedia subscribers or are you happy for the link to the interview to be shared?

xcity

" "The real growth of the business is in the US-facing sites, but their advantage here is basically first-mover advantage. Ladbrokes or William Hill could not set up tomorrow in the US, and I think I read somewhere the process of licensing would take years."
This bit is simply incorrect. WMH are in the US.. Or am I mis-reading your paragraph."

Indeed. GVC (who own Ladbrokes) have a joint venture with MGM resorts & say:-
"We operate 3 poker sites, 3 casino sites, and 2 sports sites—more online brands than any other gaming operator in the U.S."

21st Feb '20

I hadn't really given it any thought.

Upon reflection, I'm loyal to Stockopedia, so seeing as you guys here pay my (very modest) fees, then you should have first dibs.

wildshot

Thanks for doing and sharing the interview Paul, an interesting and clearly very relevant topic.

Only just earlier today (I'm currently on US time) I was in discussion with a colleague on this. He was asking that on top of the travel restrictions were there other things to consider, such as special requirements on the receiving in of goods from China. One of my employer's divisions has an operation in China which is one of the key suppliers to our other units around the world.

Whilst I've heard that the virus wouldn't survive a long boat journey from China to the West, a lot of our goods can be shipped air freight. So it is an interesting conversation and whilst neither of us have skills in micro biology we've raised the query to our global corporate office for guidance. No doubt customs and governments are thinking about the same potential issue but it just goes to show how varied and complex the supply chain issues "might" be.

peterg

I can understand your disagreement with her view, Paul, and I'm sure it's shared by most here. But I think calling someone as a troll who has posted 4 times in 6 years of membership is being oversensitive.

Susan123

I am not a troll - I pay a SUB! I AM OFFENDED and I AM SERIOUS.

Damian Cannon

You may not be a troll Susan123 but what you're asking for doesn't make sense. This is a small-cap report and it's not going to change into a mid-cap report just because you want it to.

If you're really serious then stop trying to change the SCVR. Instead get onto Ed and ask him to find a mid-cap report author who can post daily updates in Stockopedia. If you do that then you'll stop annoying people who like the SCVR as it is and you'll please everyone else who want to invest in mid-cap shares.

coniston

Only just seen that,thanks laughton.

mojomogoz

Irate of SCVR! Let Susan (who looks strangely like Annie Lennox) ask for mid cap coverage. What harm comes from it....and if she keeps asking for the impossible just marvel at the sanity gap.

Susan! Embrace the red thumbs.

I'm surprised that Susan's vainglorious request for mid cap coverage manages to stir such ire.....come on chaps, is it time for you guys to up the meds?

have a lovely weekend
mojo out

Small Cap Value Report (Thur 20 Feb 2020) - STAF, ALY, DEV, GAN, MCB, NXR, PHD

Staffline (LON:STAF)

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Graham Neary

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