Small Cap Value Report (Thur 21 Feb 2019) - PURP, PTSG, MCB, MACF, IDP, KWS, AVAP

21st Feb '19 by Graham Neary

36 comments 12406 reads

Good morning!

Lots of updates today, including a shocker from Purplebricks (LON:PURP).

Purplebricks (LON:PURP) - trading update
Premier Technical Services (LON:PTSG) - statement re: share price movement
McBride (LON:MCB) - half year report
Macfarlane (LON:MACF) - final results
Innovaderma (LON:IDP) - half year report
Keywords Studios (LON:KWS) - acquisition

Also, please see comment #7 in the thread below by Carcosa, who is something of an expert on Avation (LON:AVAP) and provides us with analysis of its interims. It's not worth my while studying it for you guys when he has already done the work!

Thanks for the comments - and for all your excellent contributions.

Purplebricks (LON:PURP)

Share price: 123p (-25%)
No. of shares: 303 million
Market cap: £373 million

Trading update and management changes

The wheels have been coming off this online estate agent's growth story for a while - see its coverage in the SCVR archives.

My point of view on this stock has been straightforward enough: the company hasn't made enough progress in the UK to justify a large international growth spree. Aside from poor numbers in black and white, there have been a few red flags:

the company's aggressive treatment of negative reviews and the websites which host them
question marks over how it accounts for revenue

Today's update indicates that the company is struggling in several geographies:

UK: revenue still expected up 15-20% this year despite a challenging market. The UK CEO leaves after two years in the job.
Australia: revenues will miss expectations
USA: revenue will miss expectations. The US CEO leaves after two years in the job.
Canada: set to meet expectations.

In December, guidance for the year ending April 2019 was reduced. This guidance is now reduced dramatically again (bolding is mine):

As reported at the interim results, the Company updated its revenue guidance for the 2018/19 financial year to £165-175 million under IAS 18. Given the reasons noted above, the Board believes revenue for the current financial year will now be in the £130-140 million range under IFRS…

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marigold

21st Feb '19

Hi Graham
Your views on RPS would be appreciated.
Thanks

Graham Neary

re: Purplebricks (LON:PURP)

Yes timarr, I agree. I call it obfuscation - talking about the accounting standards as if they are responsible, when the company has previously said that they are no big deal. It can't have it both ways. Great comment.

Hi Gary, yes I will be looking at Innovaderma (LON:IDP). Cheers. G

purpleski

Purplebricks (LON:PURP)

"here are seasonal factors at play (people not moving around Christmas time". FWIW and I know anecdotal/sample of 1, but i sold (completed) my house on December 7th through a traditional EA, who said that because of the bad weather in the Spring they had seen the main buying/selling period pushed back into later in the year. So perhaps Purplebricks (LON:PURP) should not have seen "seasonal factors" effecting listings?

Hi gus / andrea / andy

Tend to agree with the comments on Macfarlane (LON:MACF), all very dull and uninspiring at the moment. The results would almost send you to sleep! It looks a decent business all the same. G

Carcosa

Aislabie, You are correct. For non-aviation geeks I think A320 is good enough as I doubt the nuances are not of value. However, for the record, the VietJet aircraft is specifically a A321-200 and I think it is potentially registered as VN-685 with Manufacturing Serial Number 7427, manufactured 29th November 2019 with CFM56-5B3/3 engines and seating for 230 passengers, which is the highest seat density of an Airbus A321-200. Purchase cost of ~US$ 51,358,000

;-)

Thanks for the great comment on Avation (LON:AVAP) Carcosa, I wil mention it in the body of the report!

Aislabie

I humbly bow to a greater aviation geek!!

Effortless Cool

".... manufactured 29th November 2019 ...."?

jason nightingale

Thank you Carcosa - Very much appreciated your comments from you and time taken. I have been in them since April 14 at 1.06 so I guess a long term holder but was considering reducing if the SP tests close to 3.00.

Thanks again.

JTG

Thank you, too, Carcosa. I too have been in Avation (LON:AVAP) for quite a while and don't want to sell. It's one of my very few real 'growth-rather-than-income' stocks (others are either income stocks or high-risk exploration plays). I think their presentations are very well done, as clear and accountable as any on the market. And I liked this one too: the strategy is still being consistently well executed. Any view on key man risk with Jeff Chatfield?
My only current sadness is that the NAV hasn't risen a bit further. We now seem up with events. Would you sell if it finally got pushed, say, 10% beyond?

Steves cups

Carcosa

As a long term holder I much appreciate you analysis an thoughts on Avation (LON:AVAP). I alway go though them more than once to ensure I have the full picture

Thanks again
Steve

Sorry forgot to add to previous note.

What is the impact on the Airbus cancellation of the A320 project do you think? Longer life and values for the A320/321 series over the long term?

jonesj

They cancelled the A380, not the A320/321.

The A320 range will carry on selling quickly as long as it only has to compete with the 737.

However, 2 prototypes of the Comac C919 are flying. If this goes into service on schedule in 2021, this sector is no longer a 2 horse race.

Phil McFadian

Thanks Graham for your comments on McBride. I am not a current holder but have been twice in the past. They are back on my watchlist.

Sorry, slip of the pen re cancelled A380
Thanks for your note

Andrew niven

22nd Feb '19

If purple bricks is still trading in two years time i will be amazed . Business modelin my opinion doomed to failure over the long term

Purplebricks is not going to derive any significant benefit from a network effect, as all the buyers will search via Rightmove. So any number of small scale competitors could do what Purple Bricks are offering. I have seen adverts for what seems to be a similar service.

So I don't see why Purple Bricks would spend so much on advertising.

The management of critical reviews is an interesting one. Estate agents are not exactly known for honesty. I could easily envisage the worst of them posting fake critical reviews of a low cost competitor. So there could be a need to counter this. However, Purplebricks management of reviews appears to go well beyond this and seems to include genuine customers. I see that as a red flag. Why take the risk ?

I held this a couple of years ago, with a modest profit, but have no plans to purchase again unless there are major changes to their strategy or my interpretation of it.

paraic84

24th Feb '19

Thanks for sharing your calculations. I come in at a similar level although I find it hard to trust Innovaderma (LON:IDP) as they have a history of not meeting expectations.

Incidentally I thought this table from their house broker FinnCap was useful - demonstrates how Roots is growing quickly. FinnCap publish broker notes freely providing you register.

matylda

Trust - Agreed.

Small Cap Value Report (Thur 21 Feb 2019) - PURP, PTSG, MCB, MACF, IDP, KWS, AVAP

Purplebricks (LON:PURP)

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Graham Neary

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