Small Cap Value Report (Tue 15 Oct 2019) - MUR, ACSO, DOTD, WGB, DRV, BRY

15th Oct '19 by Paul Scott

27 comments 6469 reads

Good morning, Paul here.

Estimated time of completion today is 13:00 - I have to escape from London, so need to get this out of the way & then catch a train back to the south coast.

Update at 11:41 - today's report is now finished.

Murgitroyd (LON:MUR)

Share price: 675p (unchanged today, at 08:06)
No. shares: 9.0m
Market cap: £60.8m

Possible offer for the company

It sounds as if news of this possible bid might have leaked out. With the share price zooming up, to the level of the possible bid, at 675p, then there's no premium price at all now.

Discussions with Sovereign are at an advanced stage with due diligence enquiries complete. The Board confirms that, should Sovereign or an entity controlled by Sovereign announce a firm intention to make an offer pursuant to Rule 2.7 of the Code on the above terms, the Board's current intention is to recommend that Murgitroyd shareholders accept the offer.

Shareholders would be entitled to ask why the Directors want to sell the company at the current share price? A bid premium of c.30-40% is more normal.

On 17 Sept 2019 the company announced quite good results for FY 05/2019, with basic EPS up 11.9% to 33.2p. Therefore this deal values the company (patent attorneys) at 20.3 times earnings - that looks a full price to me.

Although the chart does make you wonder if a bit of insider dealer might have been going on, with regards to the bid approach?

accesso Technology (LON:ACSO)

Share price: 675p (down 15% today, at 08:18)
No. shares: 27.6m
Market cap: £186.3m

Update on the formal sale process

accesso Technology Group plc (AIM: ASCO), the premier technology solutions provider to leisure, entertainment, hospitality, attractions and cultural markets, provides the following update on its announced formal sale process (the "Formal Sale Process") under the City Code on Takeovers and Mergers (the "Code").

It's clear that nobody really knows how to value this company. The share price peaked at almost 3000p in Sep 2018, valuing it then at c. £828m. It's since lost almost 78% in price. The announcement of a formal sale process starting, in Jul…

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Mark Tughan

15th Oct '19

Morning Paul,

£WGB Interims look good/iffy this morning depending on whether your glass is half full or half empty - adjusted numbers nicely up, reported numbers well down. Debt down, divi down but FY payout ratio to be maintained. Cost savings in the pipeline...

I'm glass half...full on this! Like you (I think), I see value, maybe a take over, a safe b/s, an ok yield and operational progress.

jwebster

Woodford

There were two RNS last week on Provident Financial (LON:PFG) with Woodford Investment Mgt selling down from 16.83% to 14.92%

Guess they will drip feed supply onto the market over a few weeks/months to prevent a negative price impact, until liquidation

Lincoln Green

Good morning Paul, from a new member this year. An excellent start to the week was your column yesterday. A lot of work went into that. You & Graham's opinions make it a good read for me. a lot of the members knowledge is impressive as well.

I purchased a few shares in Walker Greenbank, yesterday, and if you are covering it today, I am looking forward to your comments. They will probably bring out some sort of profit warning, as a lot of the shares I buy seem to dip to begin with.

Paul Scott

Hi Lincoln Green Imp,

Thank you for your kind message, much appreciated :-)

Yes, I will be covering results from Walker Greenbank (LON:WGB) this morning, it's next on my list actually!

Best wishes, Paul.

Andrew niven

i made enquiries to dotdigital about a year ago re their e mail services. Young pleasant but unimpressive sales guy who could not convince me to use their very expensive service .

Silver Moon

I'm not too sure about DOTD either. Having bought a grand's worth in May 1917 I have made precisely £7.64 in dividends. The share price has wandered but not dropped below my purchase price and exceeded the current price last July. My notes say 'very expensive', noting Falling Star at one point and hoping for a Turnaround which it did. I'll probably be letting go in due course, to seek greener pastures.

timarr

Having bought a grand's worth in May 1917 I have made precisely £7.64 in dividends.

Congratulations on a century of active investing ...

timarr

TamzinPiworld

Eagle Eye Solutions (LON:EYE) FY19 results presentation from a few weeks ago. Given by Tim Mason, CEO and Lucy Sharman-Mundy CFO.

They seem very positive. Tim was behind the Tesco loyalty card, which is viewed as the best out there, I believe. Loblaw's appear very happy with the rollout for them. Waitrose have now signed up as a client, following on from John Lewis. They discuss new geographies and innovation. Still loss making, but due to breakeven next year, thereafter profits, with a very scalable model. Worth a watch, c.45 minutes.

SundayTrader

Interesting commentary re dotDigital (LON:DOTD) mojomogoz. I don't think there is a deterioration in the underlying business. (I have a modest holding.)

As I read it, the shares are a bet on two things going right. First, increasing sales outside the UK - four years ago this was almost entirely a UK business, they are now up to about 30% rest of the world. That bit seems to be going alright.

Secondly, they are trying to cross-platform their software, so that their customers can integrate their email campaigns with other channels such as direct, digital etc. To this end they have spent £9m on Comapi, presumably for its software alone, since they are ditching the existing business. On top of that, they seem to be spending of the order of a £1m a year just altering this software to make it do what they want. All that sounds to my naive ear like a lot of money, and, in the nature of these sort of software projects, likely to cost a lot more money than first thought of. So I agree with you that the risk level attached to these shares has gone up a lot in the last two years. Very hard for the outside investor to assess unless he is working in the sort of corporate marketing environment where their customers reside.

As against these (negative) thoughts, their operational cash flow looks as if it still stands at more than twice capex, and total administrative costs three times capex. So they must have room still for things to go a bit wrong.

Edit: I meant to say, staff-related administrative costs.

cholertonandrew

Hi Paul,

I wondered if you spoke with Intercede management and, if so, what your thoughts were.

Thanks
Andrew

Zipmanpeter

Re £WGB ; I agree solid set of first results under newish CEO - at least she felt no need to kitchen sink further! Her 'new' strategy is also deceptively bold:

- much more selective & regionally focused sales effort (3 regions - UK,US, & N. Eur) Quite a change depending on the defn of N Europe. Certainly not chasing the Asian dream. Biggest move may prove to be appointment of new US distributor in Aug 19 to replace a bankrupt one. Claimed to be no 1 distributor in trade focused home furnishings.

- staying true to B2B vs pushing direct sales; sailing against the wind here a bit but another clear choice

- Cost cutting - real cost savings from simplification (£1Mn in H1 & another in H2).

I've held for a year now and, with a good b/s and a lot of new machinery (following fire & flood), I expect a steady income until the fashion gods turn fancy wallpaper's way again.

mojomogoz

Hello SundayTrader

Thanks for response. Like I said I don't really know company but seemed interesting due to their statement re underlying earnings, cash and potential quality/durability of earnings. So rather than read more about company strategy etc I just looked at the accounts and notes.

Op CF is meaningfully less positive as need to take £5.5m of intangible investment off it (ie mainly capitalised development costs) to get to actual real op cf.

Their net cash position means that problems don't come super fast and catastrophic (if there is a problem that is...pure relatively uninformed conjecture by me).

I still think that a number of other factors remain odd (my points 2,5, 6 and 7). IMO -> At best it means artistry in presentation of results, at worst its not taking the blows this year and/or covering up with a hope that next year blows the doors off.

In particular, I am confused how staff count and costs are going up but underlying revenues significantly down. The 200% increase in admin expense for discontinued (which causes the loss relative to previous years for segment) is odd and unexplained....could this expense relocate to continuing operations next year? Based on staff cost increases, no exceptionals of note and no impairment of intangibles or goodwill I think there's high odds of disappointment in pipe...a short candidate IMO...

However, the discussion in report may allay all these points...I didn't get round to reading as I would need the valuation lower to prompt further work (given the uncertainties I've pointed out).

My view is weak and partly I'm curious re counterpoints as might be high quality company I'm misunderstanding

Grrrrr, age conquers all.

Mark Carter

"Woodford Equity Income Fund to Wind Up",
https://woodfordfunds.com/words/blog/woodford-equity-income-fund-to-wind-up/

Neil Woodford, Woodford Investment Management says:
“This was Link’s decision and one I cannot accept, nor believe is in the long-term interests of LF Woodford Equity Income Fund investors.”

Although not a small cap shares, perhaps it is worthy of some commentary.

Vsihv

What I find most surprising is that the comments are very supportive of the manager (of course this blog is owned by Woodford Investment Management).
Can't comment if winding up is best but would have thought investors in general would be fine with a change of manager at least

Hi Andrew,

I wondered if you spoke with Intercede management and, if so, what your thoughts were.

Yes I did speak with Intercede. Nothing to report really. Confirmed that the big rise in cash balance is just normal trading & cash collection (i.e. no funnies), which I read as positive.

Also that they're pushing hard to bring in good numbers for H2 (as you would expect with all companies!)

The cash gives them options re the convertible loan notes, and they're considering all options.

Customers are major organisations as we know, and very sticky - e.g. once won, contracts often run for 5-10 years, sometimes more. About half revenues are maintenance & support, so recurring.

That was it really.

Regards, Paul.

Beginner

For what it is worth Woodford Asset Management have had recent dealings, and still seem to have notifiable holdings, in the following:

PURP

PFG

PAY

RENE

DDDD

SENS

MERC

KIER

MPH

NSCI

NSF

IPO

HVO

AML

TRX

SNG

XSG

Fundamental Asset Management like dotDigital (LON:DOTD) ...

https://www.fundamentalasset.com/stunning-results-aim-technology-star/

Re Intercede

Thanks Paul, I appreciate that. I was encouraged by the trading update- particularly, that new customers continue to be in the revenue mix and that the higher cash balance relieves some of the pressure/concern around the convertible loan notes.

Best wishes,
Andrew

drvodkaquickstep

16th Oct '19

Hi Paul

Re: Driver (LON:DRV) you have correctly flagged a couple of key points that investors need to be aware of, namely Share Based Payments (SBP) and sector consolidation.

On the first point re: SBPs it’s evident mgt have missed the requisite 2019 PBET targets for the award of shares and will likely miss 2020 targets (£4.5m PBET) too. These SBP were material in 2018 as you have stated and would have been big in 2019 and 2020 too if the targets had been met.

This doesn’t mean the business isn’t still doing well, it just means that mgt will not get any SBP awards in 2019 and hence it will accordingly boost earnings. This is good news.

On the second point of consolidation in this sector, the non-payment of SBPs will also potentially incentivise mgt to take a closer look at M&A as the business is currently undervalued compared to M&A deals in this sector over many years. I think Driver (LON:DRV) is worth 80-100p and I will be very surprised if it doesn’t follow what’s happened to Waterman, WYG, Sweett Group, WYG and Atkins over recent years i.e. be acquired by a larger peer for a chunky premium.

I’ve been fortunate to participate in all of these peer group deals as I’ve been invested in each of them at the time.

Investors can collect a 2% dividend yield whilst waiting too.

Not for everyone but worth a look if you like these situations as I do.

Small Cap Value Report (Tue 15 Oct 2019) - MUR, ACSO, DOTD, WGB, DRV, BRY

Murgitroyd (LON:MUR)

accesso Technology (LON:ACSO)

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Paul Scott

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