Small Cap Value Report (Tue 11 Feb 2020) - WATR, XPD, WGB, NMC, BIDS, ARE

11th Feb '20 by Paul Scott

46 comments 7460 reads

Good morning, it's Paul here with Tuesday's SCVR.

Please see the header for the running order.

Estimated time of completion - 1pm
Edit at 12:51 - today's report is now finished.
Please note that I ran out of time/energy to look at off topic stuff, namely AA., CNEL & OCDO, so will probably write up something about them this evening, for tomorrow's placeholder, as that seems to work quite well - giving you something to get stuck into first thing tomorrow morning!

BBC licence fee

Before we start today, I just need to get one thing off my chest, about the BBC licence fee. I can’t do that through Twitter any more, since they didn’t appreciate my banter, and their computers mis-classified it as “hate speech”. I mean, honestly! Anyway, it’s probably for the best, so I haven’t appealed.

De-criminalising the BBC licence fee (as is being mooted) does not make payment voluntary, as is being widely mis-reported (fake noooz!). It simply means that any unpaid licence fees would be chased in the same way as any other unpaid bill - e.g. a court summons, CCJ, etc, instead of being punishable (ludicrously) by imprisonment. Therefore, it’s a common-sense reform, that’s long overdue.

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I was delighted to read Ben’s article here, and even more thrilled to see how highly the SCVRs scored in a recent Stockopedia subscriber survey. Look at this:

This is not just people saying they like the SCVRs, they’re saying we’ve boosted their returns! Or at least I think that’s what they mean? “Most impacted your returns” could mean the opposite! :-O

A couple of bits left over from yesterday to start with...

Water Intelligence (LON:WATR)

Share price: 337.5p (up 6% yesterday)
No. shares: 16.9m
Market cap: £57.0m

2019 Full Year Trading Results

Water Intelligence plc (AIM: WATR.L) (the "Company" or "Water Intelligence"), a leading multinational provider of precision, minimally-invasive leak detection and remediation solutions for both potable and non-potable water is pleased to provide an unaudited Trading Update for full year 2019. Audited results for 2019 are expected during mid-May as traditionally released.

There’s quite a lot of detail in today’s update, making it not the easiest to interpret.

Thankfully, WH Ireland have done the work for us, with a useful update note…

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EssexPete

11th Feb '20

Wow - Proteome Sciences, that takes me back. Didn't realise they were still going.

Clissoldkid

So as you're not intending to pay your licence fee are you saying you'd be prepared to accept a CCJ? Have you any idea how difficult that would make your financial life?

wildshot

I'm often flabbergasted at people's resentment at paying the BBC licence, what is it £150/£160 a year for multiple channels and radio which is often of a high quality, desired by broadcasters abroad and often ad free.

Yet these people who resent it can often be found paying up to £100 a month for satellite/cable TV which is often full of American junk and reality tv (sorry not trying to judge but reality tv is really not my thing). What is that ~£1k a year for ad filled foreign programmes and some sport which you could probably watch down the pub.

Don't get me wrong, I subscribe to Sky too but I don't resent the BBC licence fee and think it is excellent value for money.

RDHOWARTH

re post as posted to Friday SCV in error.

Volvere (LON:VLE) transaction announced on Friday.

They have bought Indulgence Patisserie for £1.25m plus taking on £1m of debt. The business has property of £3.2m and annualised revenue for 2020 of £5m. Back in 2017 it had revenue of £7m and made 0.5m. Being in receivership has clearly held it back. VLE have a strong track record so Im happy to back their judgement.

For 2019 Shire Foods, their existing food business could well do £21m and £1.3m profit if a strong H1 translates to a good H2. I have upside to £22m and £1.5m. Skipping 2021 and thinking of a full year 2022 including Indulgence, you could well have £30m revenue and an operating profit north of £2m. This makes Volvere look cheap even if it wasn't trading at a discount to book value, the majority of which is cash. As more deals follow there should be upside to these numbers.

fanmail

I don't watch terrestial TV. I am not committing a crime by not paying the TV licence. The same reasoning will apply if non-payment is dealt with in a civil court.

Whether you are a fan of the BBC or not I believe there should be choice in the matter. Why should those who do not watch TV be forced to pay for others enjoyment? It strikes me that many people of the same view have nevertheless ponied up each year merely because of the threat of a criminal record.

slopsjon

I know a number of people who don't have a TV license who have to constantly put up with home invasion (warrants of entry) and the threat of jail for something they have no interest in. I get more out of my Amazon Prime for £75 a year than I do from the BBC at twice the price. It's appalling that people can be threaten with jail in order to pay celebrities and footballers wages.

cmpeckham

I think a prison sentence is probably appropriate for anyone caught watching reality tv.

Trident

Reality TV, was there ever a more ironic use of the term Reality, compared to the construct. Virtual Reality TV may be more appropriate.

Lord Gnome

Paul,

Thanks for the analysis on AREna and the heads up on the Cenkos report (I had missed that). I am happy to stick with them on the basis that I think they are a fundamentally sound company, good at what they do. They have a decent moat in that it would be high risk for new market entrants to invest in equipment in the hope of winning contracts and they are well-regarded by their sticky customers - having said that, whilst I have been aware of Arena for some years, I am not that aware of their competition.

They certainly have a bit of a debt pile - they have overstretched themselves both operationally and financially and I think this has been the root of their problems - growing pains. I'll stick with them and add on weakness if progress is maintained.

Thanks again.

xcity

One of the issues seemingly lost in the discussion about the BBC/television licence is that it was never intended as a commercial transaction.

It is a tax to pay for a specific set of government services, but never appears in calculations about the tax take. The BBC independence is designed to avoid direct control by politicians in government. Maybe the BBC has used its independence poorly with low value broadcasting of no benefit to the nation or taxpayers, and maybe it has allowed too many opinionated programs and presenters. But the government won't want to lose the BBC as an available service. It may want to change the way it works, it may be shrunk, it may be funded differently, but it will continue and it will be funded. If making licence non-payment a civil matter reduces the income too much, the funding arrangements will be rethought.

Sailorboy

Your comments on Water Intelligence are interesting and I wondered whether you have ever reviewed a company called Modern Water. It has had its problems but has a product which could become important in the world.

Gromley

Modern Water ( Modern Water (LON:MWG) ) I can certainly see the attraction.

Pedestrian so far, but growth in FY 2020 is going to see them net profits of nearly £5 trillion (American) on revenues of £6.5 million.

Truly impressive.

Must be a lot of adjustments though as EPS will still be negative,

yamaha865

I think that underestimates the position with regards to both Indulgence Patisserie and Shire.

Indulgence had FH property of £1.35m held at cost, looking back in the accounts this was purchased before 2013 and so should be worth significantly more. Also £1.4m of FH 'adaptations' which should enhance the FH value, and £0.5m of plant and equipment. According to the RNS the property assets will be held in a separate entity which i think bodes well for Volvere Volvere (LON:VLE) rationalising these assets and realising value if their is excess capacity.

Indulgences revenues have declined quite a bit over the last few years from £8m in 2016 to currently circa £5m. This would indicate that it has quite a bit of manufacturing spare capacity, and so possibly surplus manufacturing property assets. However, there could also be great sales synergies with customers of Shire which is a much bigger business, and so this could help utilise Indulgence's manufacturing capacity.

For Shire, based on its H1 turnaround and assuming a similar rate of revenue/profit growth as per H1, I think it could get close to £2m pbt.

So a year or two down the line, based on Indulgence's historic profitability and Shire's growth, we could be seeing combined £3m- £3.5m pbt. That's with £20m or so cash and a market cap of £22m.

All very speculative of course, but that is essentially the reason Volvere (LON:VLE) comprises about 30% of my portfolio!

DYOR

rmillaree

Why should those who do not watch TV be forced to pay for others enjoyment?

Is that not the whole point though that if you don't watch tv then you don't need to pay - roughly speaking.To have a tv and be able to watch it then there is a licence similar to many other pleasures in life. You make your choice and pay or not pay based on the rules which from memory are reasonably fair. Whats the problem?

Mark L.

The BBC licence fee model is looking pretty well defunct now that we have a multi-channel, internet based TV world. Amazon Prime, Netflix , Sky etc.

Let's face it, the reason the BBC pays hugely for stars like the excellent Graham Norton or Gary Lineker, is they feel the need to give all licence fee payers something they'd like. But there's no public service aspect to that sort of programming. It's just a circular thing to justify the licence fee.

I recon they could do all the bona fide public service stuff (radio3, kids TV, regional) for under £50 p.a. max. Why not have the BBC separate off the public service element and then have an optional subscription for anything else? It's been suggested that the licence fee could be replaced by say a mandatory levy on each electricty meter. Easy to collect, though arguably a back door poll tax.

Hopefully just setting a low bar - the food business is notoriously difficult with such customer concentration and margins tend to be tight. The H1 revenue growth was very high so am happy to see how H2 turns out but if growth is maintained at the high level then some investment in cost will be required. The fact the earnings story is building is positive and moving on from the NAV +/-. Obviously EV valuation is extremely cheap but doesn't mean much when the company retains high cash balances.

ddinksdadd

12th Feb '20

Hi Paul,

i wouldnt worry too much about twitter. i think all media outlets are massively biased and actively engage in manipulation of news to suit their own agenda. A few days ago I found myself seemingly banned from the Guardian CiF merely for pointing out that Greta Thunbergs father has an active business in a Carbon credits scheme. Obviously legislative changes that may spin out from a wider apprieciation of the whole issue of climate change are likely to provide a financial boost for said scheme. I may have compounded the sin by further pointing out that her mother who is by profession an actress, may have been coaching young Greta in the techniques of acting out 'emotional outbursts' on demand.

My coments on their public forum were , as stated, enough to get me an unconditional 'for life ' ban from CiF. No warnings , no challenges. It does make you wonder sometimes about this whole 'fake news' thing!!

hayashi22

I can't stand Gary Lineker and don't know anyone who does so can't follow your logic. worth around £50k pa. tops.

peterg

It is a tax to pay for a specific set of government services, but never appears in calculations about the tax take.....

Quite, and the latest moves look like being a smoke screen to hide what is effectively what the Mail likes to call a stealth tax. The govt has cut funding to the BBC to cover free licences for the elderly, and effectively said the BBC has to collect the funds instead from their licence fee payers - so the BBC can take the flak and the govt can duck it.

bryans1311

And rightly so. The BBC have moved so far to the left, with their woke pro Labour/Liberal agenda, why should a Conservative government continue to help fund it?

Small Cap Value Report (Tue 11 Feb 2020) - WATR, XPD, WGB, NMC, BIDS, ARE

BBC licence fee

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Paul Scott

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