Small Cap Value Report (Tue 12 Dec 2017) - DRV, SVCA, BEG, PRES, JOUL, ZYT

Monday, Dec 11 2017 by

Good morning, it's Paul here.

I have to head into London late morning, so this report will be earlier, and a bit briefer than usual. The results/updates that I intend covering are in the article header.

Driver (LON:DRV)

Share price: 63.5p (pre market open)
No. shares: 53.9m
Market cap: £34.2m

Final results

Driver Group PLC (AIM: DRV), the global professional services consultancy to construction and engineering industries, is pleased to announce its results for the financial year ended 30 September 2017.

This looks like a nice turnaround situation, which has been reflected in a recovering share price (up nearly 50% from its 2017 low in the spring). The highlights look good;


That's a decent swing back into profitability.

I also like that net debt has been almost eliminated, mainly from an £8.5m equity raise in Feb 2017.

Underlying EPS for continuing operations was 5.8p (2016: loss of 1.0p). Assuming that they are calculated on the same basis, that looks well ahead of the 4.2p broker consensus shown on the StockRank.

However, an important point to note is that the share count rose considerably about half way through the year, due to the refinancing. The average number of shares in issue is used in calculating EPS. Therefore next year & beyond, earnings will be diluted to a greater extent by a full year's impact of the larger number of shares. This is why forecast EPS is set to fall next year.

One broker comments this morning that its 4.1p EPS forecast for the current financial year 09/2018 might be too cautious, so there's scope for upgrades.

Outlook comments look mostly good;

Positive start to the year and continued strong cash collection in line with management expectations. 
Strong pipeline of opportunities across the Global business.

The first two months of the current financial year have shown a continuation of the positive trading and improvements that we enjoyed in the latter part of last year.

In a professional services business like ours, it is notoriously difficult to predict activity levels but your Board will continue to monitor costs and margins to ensure that the Company deals appropriately with the fluctuations in activity that are a feature of our business.

Nonetheless, your Board is confident that we…

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Driver Group Plc (Driver) is a United Kingdom-based company, which provides consultancy services to the engineering and construction industries. The Company conducts its operations through three operating divisions: Europe & Americas (EuAm); APAC, Middle East & Africa (AMEA), and Initiate. The EuAm and AMEA divisions provide various services, such as quantity surveying, litigation support, contract administration, and commercial advice/management. The Initiate division offers development, project and contracting management services to the infrastructure market in the United Kingdom. DIALES is its witness support service provider. Driver Project Management provides the strategic and leadership disciplines necessary to develop and deliver a project. Driver Project Services provides customer-focused project controls solutions across a project lifecycle. Driver Trett provides multi-disciplinary consultancy services to support delivery of its clients' projects. more »

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Servoca Plc is a holding company. The Company provides specialist outsourcing and recruitment services to customers in the medical, educational and security markets. Its segments include Outsourcing and Recruitment. The Outsourcing segment provides services to the domiciliary care and security sectors. The Recruitment segment provides recruitment services to the healthcare, education and police sectors. It operates in five markets: education recruitment, healthcare recruitment, homecare, criminal justice and security. Its Education Recruitment division supplies school staff ranging from qualified teachers, middle managers, senior leadership and learning support staff. Its Healthcare Recruitment division focuses on the supply of Specialist Nurses, Student Nurses, Healthcare Assistants and associated roles. The Homecare business supplies care at home. Its Criminal Justice operation focuses on supplying people and services in areas associated with the civil and criminal justice markets. more »

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Begbies Traynor Group plc is a business recovery and property services consultancy. The Company's segments include insolvency and restructuring, and property. It provides services from a network of the United Kingdom locations through two operating divisions: Begbies Traynor and Eddisons. Begbies Traynor is an independent business recovery practice that handles corporate appointments, serving the mid-market and smaller companies. It provides insolvency, restructuring and consultancy services to businesses, their professional advisors and financial institutions. Eddisons is a national firm of chartered surveyors, delivering transactional and advisory services to owners and occupiers of commercial property, investors and financial institutions. It provides professional services, such as business rescue options, advisory options, forensic accounting and investigations, corporate and commercial finance, personal insolvency solutions and services to banking, legal and accounting sectors. more »

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  Is LON:DRV fundamentally strong or weak? Find out More »

25 Comments on this Article show/hide all

Carcosa 12th Dec '17 6 of 25

Pressure Technologies (LON:PRES) issued Full Year Results today. Positive management speak re Operational Gearing and general market sentiment. On a Stockopedia P/E of 6.4 and ranked first in its sector for PEG this could be very interesting. Maybe worth a review?

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MrContrarian 12th Dec '17 7 of 25

My morning smallcap tweet:

Local Shopping Reit (LON:LSR), Robert Walters (LON:RWA), Ambrian (LON:AMBR),Carpetright (LON:CPR)

Local Shopping REIT (LSR) FY EPS -1.04. NAV 42p/sh. Recently "sold five properties via private treaty for a gross consideration of £475,000, representing a 2.9% discount to valuation. In addition, four properties were sold in the year's last round of auctions in December for a total of £621,000, a 10% premium to book value, albeit that may not be reflective of values for the remainder of the portfolio." No decent offers for portfolio of 70% of assets so will "continue and seek to further accelerate our current programme of individual asset sales, irrespective of lot size and location, with the aim of selling approximately 75% of the remaining assets by the end of the current financial year. This equates to approximately 125 property sales, totalling £40m by will be challenging and shareholders should be aware that the programme set out above is reliant on market conditions..."
Robert Walters (RWA) FY pretax expected to be materially ahead of current market expectations.
Ambrian (AMBR) Cash crisis. "Whilst the operational performance of the cement operations in Mozambique is improving, the Company is facing urgent short-term liquidity issues owing to difficulties in moving cash resources held within the Group to the Company. As a consequence, the Board is closely monitoring the cash position of Company and anticipates that short-term, external financing will be required...discussions with potential counterparties in relation to securing both short-term financing for the Company and a longer-term strategic partnership and investment...are at an advanced stage."
Carpetright (CPR) "expects underlying profit will be towards bottom end of current range of market expectations"

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lemonjar 12th Dec '17 8 of 25

I'd love to hear thoughts on Synectics (LON:SNX) who released their 6 month trading update today. They are an integrated security systems company that got hit badly by the decline in oil and gas a few years ago but appear to have been diversifying themselves out of that hole, gaining customers in new markets, including large casino contracts in the far east as well as transportation infrastructure in he UK and Europe (think CCTV on trains etc). There's been some recent weakness in the share price, I wondered if its a buying opportunity, though a pretty dastardly 10% spread

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daveinthelakes 12th Dec '17 9 of 25

In reply to post #252268

I also hold OptiBiotix Health (LON:OPTI) and added this morning. Not only are the contracts that will create revenue coming through it is the capital light route which appeals to me. They will not be manufacturing but secure revenue streams through licensing royalties and profit share of their patented diet products.

They now have deals in place with Knighton Foods, wholly owned subsidiary of Premier Foods (LON:PFD) for the UK in addition to todays announcement with Cereal Ingredients for the USA. They are also moving forward with their cholesterol and blood pressure reducing formulas with Tata Chemicals, part of the huge Tata Group of India and Galecium of Spain.

As others have said I see this as like the ARM model that was so successful, invent and licence out.
There are obvious risks but the upside potential is huge and a big hitter from the food industry, Neil Davidson, who got a CBE for services to the industry with history at Northern Foods, Express Dairies and Arla Foods, joins in January as non exec chairman.

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gsbmba99 12th Dec '17 10 of 25

Doesn't warrant a request, but Belvoir Lettings (LON:BLV) announced an update on their recent acquisition of Brook (July). Brook is a Mortgage Advice Bureau (MAB1) affiliate and probably represents around 3% of MAB's advisers. Brook's Oct/Nov net written business was £570k (£3.42m annualised). This was +57% on comparable period last year and +40% on average monthly net written business in the (nearly) seven months this calendar year before it was acquired. Brook now covering 66% of Newton Fallowell's (Belvoir's sales-focused estate agency) 39 locations. Three mortgage advisers in training and further recruitment planned. Roll-out to other sales-focused locations in the network planned for January. About 260 locations not currently covered by the scheme, though many of those locations are more lettings oriented. Seems the roll-out of financial services, intended to cover (exceed?) the shortfalls from potential abolition of charges to renters, is progressing well.

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herbie47 12th Dec '17 11 of 25

In reply to post #252348

OptiBiotix Health (LON:OPTI) does look interesting, strange the share price has dropped this morning.

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sharw 12th Dec '17 12 of 25

In reply to post #252333

Thanks for drawing attention to Synectics (LON:SNX) - it has a good Stockrank so I have begun looking at it. You say that it is a bad spread but it looks like it is one of those many small companies where the actual quotes are within the official spread. Today it is at 200-215 but I have just got a quote to buy 5k @ 208p.

More intriguing is that a deal has gone through this morning for 2,337,618 shares at 210p. The only body owning that number of shares is the mysterious Panama-registered Whitehall Associated SA with 29.9% of the company. Is it reducing and who is buying?

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daveinthelakes 12th Dec '17 13 of 25

In reply to post #252448

I think there have been so many announcements about new deals but all without any numbers which to be fair to OptiBiotix Health (LON:OPTI) I think it is probably difficult to put meaningfull figures on at this early stage,

Thinking about todays deal a little more it could in itself be big. Cereal Ingredients of course make additives for US cereal manufacturers and as we know the big problem is the bad name that sugar has leading to falling sales. If you put in an additive that enables people to lose weight this could be the saviour for cereal producers?

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Paul Scott 12th Dec '17 14 of 25

Re. OptiBiotix Health (LON:OPTI) - my feeling is that almost every jam tomorrow company on AIM over the last 15-20 years has failed to deliver what they originally promised. Many fail completely, whilst others just disappoint on commercialisation of new products - undershooting original forecasts, and needing repeated fundraisings.

For this reason, I have declined to buy any shares in OPTI so far. That said, all the announcements from the company about deals do sound impressive. For me though, I'll wait to see what actually comes through in sales & profits. The story almost sounds too good to be true, so personally I'm sceptical until real trading profits appear. I rarely touch jam tomorrow shares, unless it's something I properly understand.

Regards, Paul.

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AnonymousUser252054 12th Dec '17 15 of 25

I found this comment particularly interesting:

"Personally I'm not really looking to open any new long positions at the moment."

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Paul Scott 13th Dec '17 16 of 25

In reply to post #252743

Yup. That's because I'm not worried about Brexit, I'm worried about Corbyn.

Whatever your politics, and who cares about that, we have a rather precarious political situation at the moment. Govts which depend on a tiny minority party for support rarely last long - remember the Lib-Lab pact.

For that reason, I am generally looking to trim positions, not open new ones.

In the long run it will all be fine. But if valuations are high, and uncertainty also high, then that makes me lean towards easing out of marginal positions.

What do readers think?

Regards, Paul.

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Paul Scott 13th Dec '17 17 of 25

der der de der duh!!! der der, diddle Doo!!!!

well I cant sweep up! Piano half wits, its lovely!!!! Cheeese!!!!!

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Paul Scott 13th Dec '17 18 of 25

tinkle tinkle !!!!!! ahaha!!!!!

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Paul Scott 13th Dec '17 19 of 25

oooh i love that!!!!

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Paul Scott 13th Dec '17 20 of 25

smooth jazz

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Paul Scott 13th Dec '17 21 of 25

alright, alright stop showing off LOL!!!

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Paul Scott 13th Dec '17 22 of 25

it is time to get funcky!!! LOL

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Paul Scott 13th Dec '17 23 of 25


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AnonymousUser252054 13th Dec '17 24 of 25

In reply to post #252768

Thanks for clarifying. Yes, the government is precarious and it may well fail.  But I remember a BBC reporter stood outside Westminster explaining with a standard BBC reporter's absolute confidence that the newly announced coalition government of Tory David Cameron and LibDem Nick Clegg in 2010 would last six months at the very most, that we don't do coalition governments outside wartime in this country. 

As for Jeremy Corbyn, should he become prime minister I expect he will be under intense scrutiny and an onslaught by the press (much like Trump has been), and bullied by the BoE, markets, the treasury civil servants and do the equivalent of wearing a tie, and conform.  The BBC only changed their tune on him as soon as they realised he could upset the Brexit apple-cart, and would be on his case again if the opportunity arose.

Having said that, with the stock market, is money being pulled out, is everyone piling into crypto-currencies (oh and ImmuPharma (LON:IMM),which is effectively the blue-sky British Biotech re-run equivalent)?

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herbie47 13th Dec '17 25 of 25

In reply to post #252768

But if Corbyn gets elected will Brexit ever happen?

I tend to agree about the UK situation but I'm not so optimistic about Brexit, that's why I'm investing more in Europe, have more in cash.

Valuations are high in some indexes, but is FT100 that high, it has hardly gone up in 10 years. There has been a pullback in the last 3 months, maybe profit taking and investors switching to large caps or cash?

Profits warnings are up this year.

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 Are LON:DRV's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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