Small Cap Value Report (Tue 11 June 2019) - BPM, MOTR, TED, TRI, IGR, CAR, QUIZ | Graham Neary

11th Jun '19 by Graham Neary

36 comments 10900 reads

Good morning!

There is no shortage of news today. Due to time constraints, we are covering:

B.P. Marsh & Partners (LON:BPM) - final results
Motorpoint (LON:MOTR) - final results
Ted Baker (LON:TED) - trading update
Trifast (LON:TRI) - preliminary results
IG Design (LON:IGR) - full year results
Carclo (LON:CAR) - strategy update
QUIZ (LON:QUIZ) - preliminary results

B.P. Marsh & Partners (LON:BPM)

Share price: 308p (pre-market)
No. of shares: 37.4 million
Market cap: £115 million

Final Results

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

This is a private equity vehicle specialising in the insurance industry. It has a great track record and my positive impression of management led me to make it a smallish position in my portfolio last year.

Indeed, I've added to my position this morning, using some of the proceeds from my disposal yesterday.

Key points

NAV per share has increased by 3% to 350p. It should have done better than that, but it was held back by a large placing at 252p last June. The dividend is also a headwind to NAV growth.

The June placing brought in an Australian insurance group called PSC (ASX:PSI) as a strategic investor. The relationship with PSC is said to be progressing well.

As for its investments, the underlying portfolio seems to have worked hard for BPM during the year. Pre-tax operating profit is £12.2 million, boosted by £14.1 million in unrealised gains on its portfolio.

That's a 16% improvement in unrealised gains compared to last year, if we strip out the effect of a change in valuation methodology which artificially increased 2018's results.

The method

Most of BPM's assets are valued using a multiple-of-earnings method. So when the investees become more profitable, this translates to higher valuations on BPM's balance sheet and unrealised gains on its income statement.

This is a source of significant uncertainty: the NAV is a matter of opinion, basically. Investees have to be separately valued based on BPM's view of what the appropriate earnings multiple for each…

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MrContrarian

11th Jun '19

My morning smallcap tweet: Quiz shows it has no answers yet.

QUIZ (LON:QUIZ), Carclo (LON:CAR), Spectra Systems (LON:SPSY), Venn Life Sciences Holdings (LON:VENN)

Quiz (QUIZ) FY as guided. Passes div Trading still challenging. Debenhams' closures: "QUIZ is present in ten of the affected stores. The annual turnover from these concessions is less than £2m PA. We note that these stores are likely to be open for most if not all of FY 2020." I hold.
Carclo (CAR) operating losses at Wipac, the main operating business in the Group's LED Technologies Division, have increased, with the business continuing to incur additional costs to meet growing customer demand. Looking at reversing the clearly disastrous move into higher volume segments. This would significantly reduce the Group's cash requirements for working capital and capital expenditure. Still in refinancing talks. "An interim Chief Restructuring Officer has been appointed to assist with these discussions." Is that some consultant with a big shovel to dig them out of the mire?
Spectra Systems (SPSY) wins contract worth $3.2m over 5 years commencing April 2020
Venn Life Sciences (VENN) FY. Current trading still poor: "continuation of prior year trends with low utilisation resulting in revenue and EBITDA being behind management forecasts for the year to date. Based on the current proposals book the Directors expect there should be an increase in revenues in the coming months."

InvestorJohn

Trifast (LON:TRI) please Graham

They say at the top of their results "THE GROWTH STORY SET TO CONTINUE...." but then EPS is down 18% so not so convincing at the minute...

EDIT:underlying diluted EPS, up 5.4% to 14.53p (FY2018: 13.78p).

ROCE looks decent and another increase in dividend so not all bad...

Interesting that 70% of Trifast's revenue comes from outside of the UK which should be some comfort in the current environment!

I have a holding here since the end of 2017

jonno

Morning Graham
As you say lots of news. Steady progress by B.P. Marsh & Partners (LON:BPM) with continuing increase in NAV. Also a canny acquisition by Avingtrans (LON:AVG). I look forward to your thoughts on the former. I hold both.

Brookeda

B.P. Marsh & Partners (LON:BPM) results were steady for this 10% a year company. Underneath the top line though there was some sizeable adjustments in the valuations on certain companies within their portfolio with some being written off completely from a year ago to some being valued at 100% more in the year which I presume is based mainly on their profits for the year.
Nexus is clearly the big investment here with rumours continuing that this will go through IPO sooner rather than later but I do also see a bull case in the number of investments currently valued at zero which could come good at some point in the future.

I've been an holder for a couple of years now and seen a 30% increase in value during the time. This is classified in my boring, safe a reliable category.

Tortoise investor

You have to read some way down but QUIZ (LON:QUIZ) current trading is now flat year-on-year and even when you exclude the third party contracts it has terminated it is only 4% up. Not a disaster but surely only a matter of months until revenue starts falling. I note that despite saying they will better align the business to the customer base they are still using TOWIE stars in marketing which I think is part of the problem as TOWIE seems dated to me. Goodness knows why it has taken them this long to realise they should not be having more Debenhams concessions. I don't hold but did in the past, and won't consider buying again until I see some turnaround in its marketing. Don't forget it is heavily exposed to Debenhams so revenue will be further affected by store closures there.

Mark Tughan

Couple of absolute howlers this morning from serial disappointer Mporium (LON:MPM). Accounts already super late (red flag) and now they seem to have run out of money and need to re-structure (quite severely I'm assuming, there's not much detail). Coming right on the heels of some recent super bullish TA's claiming Ebitda profitability would be achieved and trumpeting game changing billed revenues form the recently formed Allay deal, it's possible, that this is turning out to be less than game changing. If not, why the panic fund-raise? If it was for real, a little debt facility should have been easy to arrange.

Some sort of litigation is launched against Taptica International (LON:TAP). It is claimed (by TAP) that it is without merit but this is US litigation will potentially be costly and long-running.

Bad luck to holders of these.

mojomogoz

(Copying and paste from old thread to this fresh one where all the chat will be)

We’ll see re Taptica. Could just be Uber trying to use its muscle to beat down competitors. For example, Curb is one of the few taxi apps to compete well and it used Taptica International (LON:TAP) heavily for location and event based marketing. So, may be more positive proof than spooky counter proof.

Price has taken a dive as flux is high, investors are nervous and RhythmOne is being digested. Profit expectations are hard to fathom but being conservative they are probably a bit high as some tidying up at messy RhythmOne required (expect exceptional write down and costs of integration) but even then valuation looks very low implying something very bad is going to happen imminently....it might but unlikely this drive by Uber shooting is that.

Obviously, litigation is undesirable as expensive and stressful. I suspect that many of the companies targeted will not have the financial depth or corporate depth to defend easily. So even if not a substantive case (and could be, don't know yet) Uber may succeed in pushing competitors away from it. Colour me skeptical that Uber is the tip of the data abuse iceberg waiting to envelop Taptica (one of the fears for bears)

Graham Neary

Hi Jonno,

I've started off with BPM today, where I've been buying more shares in it. I won't get around to Avingtrans (LON:AVG) due to the small size of the deal but thanks for mentioning it anyway. Cheers!

G

davidjhill

re Taptica International (LON:TAP) : seems like utter nonsense to me and not out of character with historic Uber behaviour from what we've seen. However, we shall see. Just because Taptica International (LON:TAP) says it is without merit doesn't mean it is either. However, they appear to have alleged this against over 100 companies of which Taptica International (LON:TAP) is one.

As a general point, In my view this type of bullying behaviour by large incumbents should be banned. There should be an independent review panel that looks at these type of complaints before they get to the lawyers and court. That way a smaller player doesn't have to spend a bunch of money defending what may well be a frivolous law suit, or worse still, fold because they can't afford to defend it. If the review panel rules against the complaint the large player may still take the case to court but they must incur the lions share of the costs until case is proven, and must pay significant business disruption compensation if it subsequently loses etc. That would level the playing field a bit and prevent anti competition bullying.
Anyway rant over. This type of thing really irritates me - lol

So there's a note from broker finnCap with some more details linking it to Ad-Fraud case Uber brought against old ad agency partner Fetch in 2017 seeking $40m. Fetch denied and counter sued Uber for $20m of unpaid invoices in early 2018. Uber then voluntarily dismissed case.

finnCap speculate that Uber have moved their focus to the adtech universe that Fetch would have used to place ads.

The story doesn't read well from an Uber perspective as they seemed to have done the dirty on Fetch.

So, its going to cost Taptica some time and money. Will come down to whether they have been scrupulous in avoiding fraud (eg app placement fraud). This fear has hurt the price already. Its a systemic industry prob and finnCap say costs placers c.$3.5bn a year. If Taptica have been knowingly doing this to make their business then they will be toast...if they have been victim of it themselves then they'll perhaps end up paying Uber some money.

it seems to be around Uber alleging Ad Tech companies claimed for acquired users who did not click through on an advert but downloaded the Uber App organically. I find that claim pretty laughable given their entire business strategy was built around rapid mobile advertising.

Anyway Fetch claimed they were an "unscrupulous business partner" and Uber dropped the case. Now they are trying it with others, who equally state the claim is without merit. I wonder if these others will form a group to defend themselves and counter sue Uber. I'd like to see that.

MPAC (LON:MPAC) a seemingly minor, but important announcement this morning, that pension deficit has reduced by circa 50% by Actuaries and that the payments made to cover this will now be eliminated in just 5 years.

Post acquisition of Lambert they should have 70p of cash (45% of current market cap) and next year EPS is expected to reach 26p. Strip out cash and this is now on a Fwd PE of 3.5. The business had been held back significantly on pension worries, something I had previously felt was much over-played. Todays announcement pretty much draws a line under that. In my view it now looks very cheap. I am long already but I think I may add here, so if anyone thinks I am missing anything now is a good time to tell me if I'm wrong please!!
There is also a hidden land value that has failed planning approval a couple of times but I believe could be worth 100p+ if ultimately granted. Nothing you would buy the shares for given that uncertainty but a potential nice bonus.

cmpeckham

What does the B.P. Marsh & Partners (LON:BPM) portfolio have to justify a PE of 13.3 when you can buy a range of high quality insurance companies on a PE of 9? Why pay 50% more for BPM?

It seems to me you're paying a higher price, to take on higher risk, with less information on what's happening at an operating level. I'm happy to be told I've got it all wrong.

SundayTrader

Trifast (LON:TRI) features a rise in adjusted profit, and a fall in reported profit. This is attributed to spending on an internal project to rebuild the group IT. They have chosen to split the costs about 1:3 between capex and expensing it, obviously at the cost of reported profits. Better practice than some companies I have seen which chose to capex all such investment. On the other hand a big IT project has to be a risk factor.

Zipmanpeter

Paraic84 – mostly agree with your comments on QUIZ (LON:QUIZ). Its latest new season product is IMHO better (for its target market) than the previous 6months but still not very good or sharp enough. Sam Faiers from TOWIE 2014 show is Quiz’s current summer 2019 capsule queen; she is yesterday’s news for the young fast fashion target audience. Quiz also celebrates its ever-increasing lack of focus - now with entry into Petite & Swimwear diluting its already weak brand.

Ultimately then, its Product & Marketing is not good enough and that is why +83% increased marketing spend to a very respectable £4.6Mn pa did not deliver better results than 12% growth to £130.9Mn - despite opening, net, 24 more concessions and 3 more stores (although online was up 34% overall and 54% on their own website and is now 31% of turnover).

They do recognize channel shifting is happening fast and their 73 stores have only 26months ave store lease left so can be closed/rent reduced quickly. However, the mood music still seems to expect old-school, store-led omni-channel not the digital first approach its customer base now expects. This is despite Agency costs increasing +52% to £3.9Mn and Marketing focus on Social Media.

I also don’t fully trust or understand its accounts. There are a couple of typos that don’t suggest much attention to detail but whatfor example caused the £6.3Mn jump in “Other” costs to £19.4Mn in Operating Expenses? Distribution, employment, lease payments are Depn&Amort are shown separately.

The balance sheet is still very strong, gross margin is >60% is excellent (why so much better than the other fast fashion brands?) and 576K active (online) customers is a great basis to grow on. It won’t go bust. However, I bought at 23p as a speculative buy hoping that they would/could radically and quickly improve their execution and recover momentum. It looks as if current leadership cannot achieve that.

The business is still controlled by the pre-IPO family/mgt team. To me, it looks as if they have the skills to opportunistically make money (look how much they trousered at IPO!!) but not to build a modern, publically owned branded business. They should buy it back and go private again.

I gave the business 12months to turn around and 6 months is gone. Not optimistic about the balance.

Any thoughts on £CML? Current year trading could be worse than last year, given that the market downturn came in the second half, and the overall semiconductor industry is still looking depressed. However, operating cash flow looks robust enough to cope, and could be a lot higher a year to two years down the line, as customers re-stock and the new products kick in. There was a significant increase in the pension liability. I hold, thinking of adding.

Small Cap Value Report (Tue 11 June 2019) - BPM, MOTR, TED, TRI, IGR, CAR, QUIZ

B.P. Marsh & Partners (LON:BPM)

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Graham Neary

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