Small Cap Value Report (Thur 26 Sep 2019) - VLE, GOCO, NTBR, PTRO, EQLS | Graham Neary

26th Sep '19 by Graham Neary

39 comments 8584 reads

Good morning folks,

I'm feeling slightly better off this morning, after numbers from Volvere (LON:VLE). But there are plenty of other stories to discuss, and I haven't forgotten about stories missed on Tuesday.

Volvere (LON:VLE)
Goco (LON:GOCO)
Northern Bear (LON:NTBR)
Pelatro (LON:PTRO)

Volvere (LON:VLE)

Share price: 1250p (+9%)
No. of shares: 1.8 million
Market cap: £23 million

Half-year Report

(In case anybody was not aware, I have a long position in VLE.)

Volvere has published some decent interims - happy days.

This is an investment company which currently has just a single operating subsidiary, Shire Foods, after all the other subsidiaries were sold for handsome profits.

Shire, in Leamington Spa, seems to be doing nicely. I attended Volvere's AGM this year, and reviewed my notes from it this morning. At the AGM, Volvere management talked about Shire's capacity constraints and its expansion push in terms of production lines and cooking vessels.

The H1 revenue increase at Shire is even better than I would have hoped for, at 39%. This helped to offset margin pressure from raw materials and wage inflation. The overall jump in Shire's adjusted PBT was from a £170k loss to a £240k gain.

Shire supplies frozen food to discount supermarkets, and this is a nice sector to be in right now (e.g. Aldi expansion).

As far as developing its product portfolio is concerned, Shire is focused on the vegan segment - another growth area:

We are actively responding to the increased demand for vegan products and have agreed several new products with retail customers. In addition, we have launched our own brand - Naughty Vegan - into the foodservice market.

Time for a few calculations.

Last year, Shire produced an adjusted PBT result in H2 of about £1 million (based on a £170k loss in H1 and an £850k profit for the full year).

If it matches that this year, it is on course for adjusted PBT of £1.24 million. But given the strength of H1 this year, the end result could (should?) be materially better than this. Maybe £1.5 million is a reasonable guess. Volvere says that additional opportunities…

Unlock with Email

Unlock with Google

Already have an account?
Login here

MrContrarian

26th Sep '19

My morning smallcap tweet:

Hardide (LON:HDD), NWF (LON:NWF), Surface Transforms (LON:SCE), Transense Technologies (LON:TRT), Xpediator (LON:XPD), Volvere (LON:VLE), Northern Bear (LON:NTBR)

Hardide (HDD) guides FY rev £5m up 9%, ahead of expectations but EBITDA in line due to sales mix and continuing investment.
NWF Group (NWF) AGM stmt: Q1 marginally ahead YoY, ahead of mtmt expectations but retains FY in line.
Surface Transforms (SCE) selected as tier one supplier of a carbon ceramic brake disc to a major high performance car co AKA OEM1. £400k sales in this FY, small as it's for on a track car.
Transense Technlgy (TRT) FY rev up 9%, post-tax -£1.47m (-£1.89m), ahead of expectations.
Xpediator (XPD) H1 rev up 30% of which 1/3 was organic. Adj pretax down 23% though. Blames additional investment in personnel and IT and higher than expected losses from EshopWeDrop. Now expects FY adj pretax £5m thanks to mgmt actions & continued positive trading from core businesses. Not clear if that's a cut or a hike. Stockopedia F/C £3.9m but Equity Development note has £6.3m.
Volvere (VLE) H1. NAV 1356p/sh up from 1250 in Dec. SP is at 15% discount to NAV.

rmillaree

Northern Bear (LON:NTBR)
Interesting tender offer for up to 20% of shares by new external investor at 20% premium to the current lowly shareprice, I guess they see value with the current pe under 5 - they have no plans to make an offer.

I have no plans to sell with the lowly pe - will I be able buy under the tender price first thing - dunno?

I am guessing in 3 months this blip will be forgotten and it will be business as usual, I can’t imagine the company has actively pursued this investor but I am guessing they won’t be unhappy.

The one reason for possible optimism is that with an even smaller amount of shares spread elsewhere this could I guess increase chances of the shares finally re-rating somewhat if they can deliver future positive progress with regard to profits.

Fishcake

Tender offer for a number of Northern Bear shares:

https://app.stockopedia.com/share-prices/northern-bear-LON:NTBR/news/cedarvale-holdings-northern-bear-plc-tender-offer-urn:newsml:reuters.com:20190926:nRSZ7033Na

I'm not 100% sure of this, but I'm guessing that they want to acquire a decent slug of shares, yet as it's a fairly illiquid share they don't think they'd be able to do this on the open market without massively affecting the price. Please could someone confirm?

runthejoules

I know it's quite a bit above the cut off point but wondered if anyone had any views on PayPoint (LON:PAY) -

Temporary Leadership Change

PayPoint today announces that its Chief Executive, Patrick Headon, is taking a temporary leave of absence from the Company to receive treatment for a medical condition. Patrick is currently expected to be on leave for approximately three months. The Company’s Chairman, Nick Wiles, has agreed to act as Executive Chairman to support the Executive team during this period.

There are no further disclosures required for the purposes of Listing Rules 9.6.11 and 9.6.13.

It has a dividend of about 8% - trap or opportunity knocking?

threeputt

I'd like a review of £PTRO please of which I'd previously been very bullish but have soured and sold since

As a holder I'd also reiterate the request on £NTBR please

sharw

Another vote for Pelatro (LON:PTRO) please.
"...we remain confident in the outturn for the year and of achieving market expectations" is at odds with the share price down over 20% on fall in eps

finnCap retain their 15.4c full year eps forecast (2018 10.1c) despite the interim 0.5c (4.4c).

I see the £ sign didn't work, is it so long that I've forgotten which sign to use, can't see the instruction for this anywhere on the new site either?

JohnEustace

The £ sign isn't working on the new site. Still.

Northern Bear (LON:NTBR)

Im not 100% sure of this, but I'm guessing that they want to acquire a decent slug of shares, yet as it's a fairly illiquid share they don't think they'd be able to do this on the open market without massively affecting the price. Please could someone confirm?

I would presume exactly the same.

Mark Tughan

HY results this morning from Mello attendee £PTRO. Would you be interested in commenting Graham? After these HY numbers, the current Stockopedia estimates seem unlikely to be achieved. However this is a tiny but ambitious business and team, so you never know. Thankfully it's a small position for me, having been impressed with the team and their presentation (notwithstanding some unorthodox bonus arrangements which rightly raised eyebrows) at Mello.

I thought the way to get the ticker to work was to use £ then the ticker. This used to work for me. Others seem to have no problem - any assistance appreciated!

ACounsell

The car crash at Xaar (LON:XAR) continues. Interim results today see the company closing down its thin film printhead development with a huge write down (£39m) further damaging awful results. Chairman and CFO jumping ship which doesn’t seem to have been steadied by the potential value of the 3D printing business announced earlier this month. I know Graham has commented on Xaar (LON:XAR) previously - any thoughts today?

FREng

If I'm understanding the quote below correctly, you haven't got this quite right:

If the Tender Offer were to be accepted in full, Cedarvale and Cedarvale's beneficial owner (being the "Cedarvale Investors") would hold 29.6% of the issued share capital of Northern Bear (based on the latest publicly available information).

Cedarvale does not intend to make an offer to acquire the entire issued and to be issued ordinary share capital of Northern Bear pursuant to Rule 2.7 of the City Code on Takeovers and Mergers (the "Code").

Rule 2.8 of the Code applies to the foregoing statement. Accordingly, the Cedarvale Investors and any other persons acting in concert with them will, except with the consent of the Panel, be bound by the restrictions under Rule 2.8 of the Code.

Cedarvale reserves the right to acquire Shares of Northern Bear, subject to, and in accordance with, the Code and other applicable regulations. For the purpose of Rule 2.8 of the Code, Cedarvale reserves the right to make or participate in an offer for Northern Bear (and/or take any other actions which would otherwise be restricted under Rule 2.8 of the Code) within the next six months following the date of this announcement: (i) with the agreement or recommendation of the board of directors of Northern Bear; (ii) following the announcement of a firm intention to make an offer for Northern Bear by or on behalf of a third party; (iii) following the announcement by Northern Bear of a "whitewash" proposal (as described in Note 1 of the Notes on Dispensations from Rule 9 of the Code) or a reverse takeover (as defined in the Code); or (iv) where the Panel on Takeovers and Mergers has determined that there has been a material change of circumstances.

I read that to mean "we are not making a takeover bid yet, but we hope to hold 29.6% of NTBR and may do so in the future if the directors agree or in the stated other circumstances".

... which might mean "we don't want to launch a hostile takeover but will be negotiating an acceptable price".

I wonder why it's so hard to get the £ code from the old site working on the new site. Maybe Ed would explain? - it appears to be irritating a lot of subscribers.

Steve L

Hi Graham, please could you carry a review of the interim results for Northbridge Industrial Services (LON:NBI)

mojomogoz

Pelatro (LON:PTRO) remarkable as ever.

Note approx net £1.1m of wages capitalised as development (nets out at £650k impact due to some offsetting amortisation). This sits beside £2.7m revenue in the half year, of which only £1m is actually recognised and billed (so they capitalised more wages than they billed in revenue).

Cost of sales doubled H1 19 on H1 18 and H1 19 is greater than all FY 18. This for a business that provides software services. Why?

Pre IPO Pelatro was a small business in operation for some years before. Since then they've added approx 90 real new people on top of their 40ish IPO squad. That's real cost and real money no doubt needed to pay them. That might have funding implications quite soon.

An expensive acquisition (Danateq - $7m cash and $5m deferred cash) doesn't seem to be working out and zero of $2m contingent payment being made as scheduled as acquired contracts pipeline didn't come through (yet)...and acquisition was July 2018 so that's a long time for this not to work. It seems that the company spent a lot of coin to add a tiny bit of revenue - H1 18 (pre Danateq) $2.4m rev versus H1 19 (Danateq well and truly absorbed) $2.7m.

Receivables and unbilled revenue that they recognise as revenue are significant.

In the past management have paid themselves through expensive payment in kind cars (allegedly for tax reasons in India)....even though the IPO allowed them to bump up salary heavily. Note, in FY18 (or was it FY17 - can't be bothered to check back!) they capitalised so much wage cost that that meant they even capitalised some of the salary paid to directors. Implications of that is that zero spent on sales and general business admin.

The content of above paragraph was what caused me to stop looking at this "interesting" company in any detail. I only look now at results for the sh1ts and giggles.

To hold Pelatro I believe you would need to be an insider to see the value and functionality of operations or be a sort of super expert in their niche area of operating.

FinnCapp have retained heroic expectations despite getting H1 so wrong - credible or jokers?

This might be a great investment if.....

RichardK

Graham
I think you have commented on Equals (LON:EQLS) (ex FairFx) previously. I did not like the interim this morning, with declining cash flow and EPS, and what looks like being a substantial undershoot against forecast in Stocko. I sold first thing.
I also hold Northern Bear (LON:NTBR) My guess is that the offerer of the tender feels he will be getting a good deal at 70p, so I would not be getting a good deal if I accepted. I would be very interested in your views.
Congratulations on Volvere, btw. I did accept the earlier tender offer here at £12.90!

Richard.

Northern Bear response:

"Shareholders should note that if Cedarvale were to acquire all of the Northern Bear Shares it is tendering for or more than 25 per cent. of the Company's share capital it would, thereafter, be able to unilaterally veto any special resolutions proposed by the Board.

The Board was not made aware of the Tender Offer until late on 25 September 2019. The Board takes no position at this time with respect to the Tender Offer and Shareholders who are in any doubt about the Tender Offer or what action to take are recommended to consult a an independent professional adviser duly authorised under the Financial Services and Markets Act 2000 who specialises in advising on the acquisition of shares and other securities before taking any action."

I suspect you need to know the individuals and the inside story to know what is really going on.

jonesj

Pelatro (LON:PTRO)
"FinnCap is contractually engaged and paid by the issuer to produce this material on an ongoing
basis and it is made available at the same time to any person wishing to receive it".

I don't think many of the clients of Finncap pay them to produce pessimistic reports.
Also, the companies who may have ongoing requirements to raise capital have a motivation to ensure the company is viewed positively. Sometimes I have to question if it's research or PR.

I have also probably wasted too much time on Pelatro. I couldn't go long on this and going short is risky.

Hardide (LON:HDD) is another company with Finncap research. This shows a prospective PE of 104 for September 2021. That seems like a very high rating for this, with a lot of upside already priced in. Am not sure what I'm missing here.

Trident

That's not great news for PayPoint (LON:PAY) as Headon only joined in March 2019 following a step down by a long serving CEO.

Obviously ill health can strike young or old out of the blue, and hopefully he will be better once treated. Judging from his picture he looks in his early 60's.

This is a well established business which is facing challenges, but is very profitable and has developed a number of pillars of activity hopefully for which they have strong management.

Its going to create uncertainty, but won't stop the fundamentals from operating. Only time will tell if he is fit for full duties after his treatment.

Small Cap Value Report (Thur 26 Sep 2019) - VLE, GOCO, NTBR, PTRO, EQLS

Volvere (LON:VLE)

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

39 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...