Small Cap Value Report (Thur 30 May 2019) - VLE, DISH, SONG, BUR, BRY, WOSG

30th May '19 by Graham Neary

35 comments 9781 reads

Morning all,

The main news on my plate has been the announcement by Volvere (LON:VLE) of a large tender offer.

Other things which have happened today:

BigDish (LON:DISH) has made another rollout RNS.
Hipgnosis Songs Fund (LON:SONG) has acquired another impressive music catalogue
Burford Capital (LON:BUR) announces the successful conclusion of a large case
Brady (LON:BRY) updates in line with expectations at its AGM
Watches of Switzerland (LON:WOSG) (new ticker) - Watches of Switzerland achieves a market cap of almost £650 million at IPO.

Volvere (LON:VLE)

Share price: 1253.5p (+2%)
No. of shares: 3.1 million
Market cap: £39 million

Tender Offer

(Please note that I have a long position in VLE.)

This is by far my largest single holding, and it feels like this has been true for a while. It has been in my portfolio for three years.

Yesterday's announcement was released just after 3pm - perhaps a little unusual, but there you go.

Volvere has been discussed in this report twice very recently: on May 22 by Paul and on May 24 by myself.

On May 22, I said:

I would support another share buyback at the current share price... My reasoning is that the cash balance is just a bit too large for it to be used within any foreseeable timeframe, so it makes sense to return a bit more of it to shareholders.

I don't know if management read this report, but they evidently agree with my thought process. The latest buyback announcement is for up to 41% of shares outstanding, with a return of £16.6 million.

Reason for the Offer

Please check the archives for a complete description of the background story. As the tender offer announcement states:

The Group currently has approximately £36.2 million of cash but believes that the appropriate level of cash available for investment on an ongoing basis should be around £20 million and accordingly, the Group has funds surplus to its current operational requirements.

That is perfectly clear and simple.

And I'm glad that the company has settled on a figure on £20…

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Velse

30th May '19

I think it's also pretty dynamic - if it starts getting busier at odd times, the discounts can be reduced or removed. It's not a promise for 50% off at 4pm on Tuesdays forever! I really like the concept, seems win-win to me. Bought just after IPO so am sitting on a really small profit on a tiny position (I need to stop doing this really)!

doublelutz

I mentioned OCI previously in connection with its holding in Time Out and having held now for 2 or 3 years from a much lower price it is now one of my larger and most profitable holdings. They seem to keep realising investments at above book value as they have reported today. There is a great list of director buys, the chart is good, it pays a dividend and there have been very few shorts which are four points I often look for.

JohnEustace

Re BigDish (LON:DISH), in principle I like the idea but isn't it in the nature of trying to sell restauarant seats at quiet times that there aren't going to be many customers for the service?

Mike Rawson

Hi Paul,

The BigDish (LON:DISH) app looks good, and it's an appealing idea, but it only works in a few south & southwest towns at the moment. Any idea when it's hitting that there London?

Mike

jonesj

Reading the Align research report, they imply BigDish (LON:DISH) were targeting 2 million downloads of the app within 12 months of floating.
Currently almost 9 months after float, google shows >10,000 downloads. As far as I can tell, this means between 10,000 and 50,000 downloads (presumably any corporation that pays google has access to more precise data ?).
I would imagine this means they are a long way behind target.

Obviously, if they do scale this business over the long term, the upside is immense. Whether they have the strategy, operational excellence and funds to rise above the competition is a big question.

bestace

Burford Capital (LON:BUR) have had plenty of results go against them, as can be seen from the detailed investment data they released after their last finals:

https://www.burfordcapital.com/investors/investor-information/burford-capital-investment-data/

These losses (as well as the gains) must be happening all the time, we just don't get to hear about the vast majority of them. However I don't think the losses should be viewed as disappointing, rather they are just a cost of doing business. Whilst you would of course always prefer investments to end in a win, there are always going to be a minority of cases which result in a loss, that is just the nature of the beast and should not be viewed as a negative in my view.

Given the skewed asymmetry of the payoff, and as any professional poker player or gambler will tell you, you should bet when the odds and the expected return are in your favour. So it still makes sense for Burford to invest on the basis and expectation that 20%-30% of their investments will end up losing.

But that only holds true as long as they operate at a scale big enough that losses do not present an existential risk or harm the ability of the business to keep reinvesting in other cases, and of course scale and diversity of the investment portfolio is an advantage Burford has in spades over their competitors.

jonthetourist

I used to work in Cyprus, where many similar restaurants have "persuaders" outside. I always thought they would be better off giving a free or discounted meal to one or two couples and sitting them up front. It reassures potential customers far more.

But getting traction for the app means marketing cost, as Paul has identified, and usually takes longer / costs more than anticipated.

Interesting, but too risky for me.

riosurfer

Good you're covering this type of share Paul and I fully agree with your analysis.I bought a small amount at 3.7p, but am watching closely. The concept is interesting so execution will be key. How do they draw in new users and drive usage - and at what cost? I understand Laughton's comments but BigDish gives the restaurant control. The CEO also said that he would concentrate on the independents rather than the chains because people want variety/ choice. You mention the quality of the app, but I liked how the CEO is focusing on the whole user experience , and going to medium sized towns before attacking the big cities. Seems well thought through from an executional point of view. This leaves me thinking they have the know-how to drive awareness. Speculative but I like what I see so far.

abtan

Re Burford Capital (LON:BUR)

Indeed 20-30% of their cases have lost so far.

What I think is just as important is how much the winners make? There's no point having 70% of cases winning, if they only return 1% each.

I've actually crunched the numbers for any interested. To save me repeating the same information on 2 threads, here is the link to my previous post:

https://www.stockopedia.com/content/burford-capital-ndashan-exception-to-the-stock-rank-rules-202527/?comment=300#300

Howard Adams

Hi

I know Focusrite (LON:TUNE) holds interests for some.

Half year results (period ending 28/02/19 so includes Xmas), seem quite good. But, not so much on revenues, but on fall-through metrics which are encouraging. Although comparison previous period was 'that of the record revenue last year' (according to RNS).

Extract from RNS ......

Financial highlights

· Group revenue up by 4.1% to £40.4 million (0.5% at constant currency1) (HY18: £38.8 million)

· EBITDA2 up by 11.4% to £8.9 million (HY18: £8.0 million)

· Operating profit up by 16.4% to £7.3 million (HY18: £6.2 million)

· Profit before tax up by 22.6% to £7.2 million (HY18: £5.8 million)

· Basic earnings per share up 23.3% to 11.1p (HY18: 9.0p)

· Diluted earnings per share up by 23.6% to 11.0p (HY18: 8.9p)

· Net cash of £26.2 million (FY18: £22.8 million, HY18: £19.7 million)

· Interim dividend of 1.2 pence, up 20.0% from 1.0 pence in HY18

RNS here ... https://www.investegate.co.uk/focusrite-plc--tune-/rns/half-year-results/201904300700094709X/

I used to hold.

Pondering about re-buying, but price is still bouncy and expensive, although testing its 5y CAGR % this is 31%, which is high in contrast to many UK stocks.

Regards
Howard

hayashi22

If I was in Lewes there is only one sort of beer I would be drinking and it wouldn't be craft beer.

Paul Scott

Hi mercury61,

Re 600 (LON:SIXH) - I had a quick look at the figures this morning, deciding;

- announcement today seems to confirm what was already known, so not a lot new in it

- company looks cheap on a low PER & good divi yield

- however, even after pension money received, it will still have high levels of debt, so adjust that out, and the PER isn't quite to cheap after all

- it seems to own some decent businesses, and who knows, might re-rate a little now the pension problem is gone?

- extremely illiquid share, so not one for me - too difficult to get in & out of

Best wishes, Paul.

Laughton

Ah well hayashi22 - in that case there's no shortage of establishments more than happy to meet your needs.

He does do an excellent breakfast though - and I don't think there are any Harveys pubs locally where you can have a pint with your full English (actually that's called a "Full Patch" here).

I'd add a link - but that would be blatant advertising.

I think I see what you did there Laughton..
https://www.thepatchbeercafe.com/

AnonymousUser192020

Interesting interview with Merck Mercuriadis, founder of Hipgnosis Songs Fund (LON:SONG) https://www.thetimes.co.uk/article/interview-merck-mercuriadis-the-man-mining-gold-from-old-hits-zfcmqmpd9?shareToken=229ce56c6c080e810e1b3629e983392c (subscription site, but allows 2 articles per week free if you register).

I've held since late last year but it isn't the easiest stock to trade - two of my online brokers don't recognise it. Frustratingly I can no long find the IPO prospectus which described the business model, and risks, in more detail. Understandably they're reticent about how much they pay to acquire each song in a catalogue but we should be able to impute something from the initial results. I'm hoping for a gradually rising income as legal streaming becomes ever more mainstream. As far as I know, these are worldwide royalties with the UK representing just a part. They seem to be able to raise sizeable additional capital for their war chest quite easily. Surprisingly, one their larger holders is CCLA which manages funds for some seemingly very staid and risk-averse organisations!

Hipgnosis Songs Fund (LON:SONG) - as someone recently "in the music business" I really should have supported at IPO but have just picked up a small holding and will add as and when other dividends arrive.

As a point of interest, and maybe not generally known, PRS royalties for live performances in this country have very recently increased by 40%. That's for popular music in concert halls/theatres not pubs, small clubs, or classical music. Royalty rate for festivals actually went down slightly - but ticket prices are only going one way.

Royalties are a percentage of ticket prices/sales which have been increasing far more than general inflation so definitely an element of inflation proofing and not really correlated to business generally. There's a truism that entertainment does even better in a recession.

I have a small holding in Hipgnosis Songs Fund (LON:SONG) for the non correlated quirky reasons. I remember Merck saying he wants to get to £1bn invested which will give them 20% of the total market at which point he thinks they will have the weight to drive extra returns. So I think it's best viewed as a long term investment in that light. From memory they are at about £300m so far raised.
The KIID rates it as 6 out of 7 on the risk scale and says that "Investors in the Company are expected to be institutional investors, professional investors,
professionally advised investors and highly knowledgeable investors who understand, or who have been advised of, the potential risks from investing in the Company"

For that reason I think ability to purchase may not be routine - I seem to remember I had to qualify in some way as someone who had previously bought high risk investments to be able to buy it through HL.
https://www.jarvisim.co.uk/assets/ipo/170802%20Hipgnosis%20Songs%20Fund%20Ltd%20-%20Marketing%20Flyer%20-%20Intermediaries%20Offer.pdf

https://doc.morningstar.com/document/709168e096f40ca5e564e6200f769f79.msdoc/?clientid=invescoperpetual&key=986ddb4ddb528acc

I wish you well with venture,,anyway it's only my taste. Just happen to be a big fan of Harveys.

mercury61

31st May '19

Thanks as ever Paul

john652

Re BigDish (LON:DISH) I’d have thought a big risk here is that some gorilla like just eat, with all the relationships with restaurants, brings out its own app. I would be surprised if that’s not in their roadmap, equally if not they might just snap up big dish.

Small Cap Value Report (Thur 30 May 2019) - VLE, DISH, SONG, BUR, BRY, WOSG

Volvere (LON:VLE)

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Graham Neary

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