Small Cap Value Report (Tue 16 Apr 2019) - JD., CARD, FLO, KNOS, TCM, DSCV

Will be interested to see your thoughts on Telit Communications (LON:TCM) if you can find time today - I don't hold and don't intend to. This is a much touted short, based on the well-publicised doubts over the management's numbers, and we all want to avoid holding such stocks.

In reply to post #469691

Telit Communications (LON:TCM)

"However automotive supply chain business is notoriously low margin, so arguably the remaining tcm business should enjoy a higher PSR multiple than the one paid by TUS for automotive."

That is exactly the wrong way round. Margins in automotive are much more resilient than margins in the consumer space. I was still working on automotive products long after the components we supplied had long been replaced in all but extremely high end consumer products. A vehicle is a hostile place, particularly for electronics. The testing and approvals required mean that manufacturers don't scrabble around trying to find the cheapest nastiest product that they can from China to save a few cents. Not so when you are making tens or hundreds of millions of product for the consumer market.

On Telit Communications (LON:TCM) itself. The rump that is left after automotive has gone has more red flags fluttering than a Soviet military parade. No position, but might look again at it as a short nearer the next set of results.

Thumbs up for this formatting approach, Paul - for me it's much better than yesterday's, with both the early skim and the later detail, so it's a) much easier to see what's changed if refreshing through the day and b) easier to read if one is coming to the whole page at a later date.

In reply to post #469776

In very simple terms, operating leases are treated same as finance leases under IFRS16.
The idea being two companies, one that owns it's assets and one that rents it's assets, capitalising operating leases will make them more comparable.

Impact more depreciation , more interest and more EBITDA. I expect the difference between asset and liability is the effective interest rate.
Depreciation + interest over the life of lease would in theory equal the present value of lease obligations

Hi Paul. Not sure if I missed it or if it's still in the works, but I'd love to catch your write up on £G4M if you get a chance at all. Many thanks.

In reply to post #469836

There was a report for G4M on 2nd April: https://www.stockopedia.com/content/small-cap-value-report-tue-2-apr-2019-igp-bon-hsw-win-sdry-g4m-464437/

If you click on discuss on the sharereport page it will give the discussions on that share.

Echo comments on the format - absolutely fantastic.

Great write up on Card Factory (LON:CARD) - it is a stunning business and while debt at > 2x Op Profit in a tough environment is off putting for an operationally geared business, the cash generation and margins are unbelievable.
In January, Christmas Cards on Sale for a £ are on sale for 25p - very low variable costs that would suggest, not to mention the impulse tat that they sell, often with kids screaming at their parents about some random sticker or toy.
Would be very interested to see how their franchising goes - 100k/year per store EBITDA I expect would attract franchisee interest and be cheaper to grow if they gain international traction.
Very tempting indeed and certainly got a few basket case retailers worthy of replacement!

Very simplistic idea but interesting what this is saying about market sentiment. 10 Jan - share price battered for saying EBITDA between 89-91m (albeit below expectations), 16 April up 7% for reporting EBITDA at 89m.

Paul, the new format is belting. Really easy to follow and gives good snapshot on your professional opinion early on in the day. I’d take comments from detractors with a pinch of salt - clearly there’s a majority here that likes what you’re doing.

Love the new format. A quick skim and then a measured review of the more interesting companies

Bang on.

Hi Paul,

Hope all's well, looking forward to catching up at Mello London.

You mentioned...

"I recently read a very interesting shorting dossier on Premier Technical Services (LON:PTSG) (in which I have a small short position), which gave very interesting examples of how profit can be boosted within acquisitive groups"

Can I ask where you got it or read it, perhaps - Or, even put it into layman's terms?

I ask because, on the face of it, it looks reasonably attractive at these levels. On a quick review (of the high level financials) one could possibly even consider a purchase. Just generally interested as the more "red flags" we can beware of the better equipped we are.

Cheers!

Well done Paul for all your hard work! Beginning to feel glad I became a subscriber))

Nice work Paul. The new format comes across very well - I like the idea of seeing a number of quick comments early on and then knowing that some of them are likely to be analysed in a lot more depth. Very nice.

Damian

Good write up on Card Factory (LON:CARD). Its been a bit unloved in recent times, because whilst it has delivered generally reasonable results (considering) it has had various issues such as minimum wage, buying supplies in dollars, etc all tainted its forward looking statements with a tinge of ex growth mange. That drained away the sentiment for the less patient.

This is one in my ISA holdings, which I try to make income generative through dividend selections, whilst on automatic DRIP arrangements, so when prices drop, there is a small amount of averaging down/up though admittedly mostly down at the moment.

I think the prospect of acting with more of a franchise model is quite exciting, as long as they haven't used up most of the best sites.

PayPoint (LON:PAY) is another one with a great dividend profile, cashflow, fantastic returns on capital etc. Its model has had a wobble in recent times, because of a shift in some of its offerings, but still maintains a healthy sustainable returns policy to its shareholders. Unusually, it is shifting to paying its dividend quarterly in the forseeable. They say this is to balance out the cash requirements of the business, but I suspect they know this may appeal to regular income seekers, and probably hope it will smooth out some of the bumps it experiences after going ex div. I look forward to seeing Paul or Graham's analysis of that when it next reports.

Paul; thanks for your reports whatever the format, i gain a great deal from them. Such that i am better able to analyse a companies financials & the business proposition; that aided me in buying £DJ . some time ago which i sold in Sept but got in again in early Jan thankfully. Also Card Factory (LON:CARD) , which i agree is a rather forgotten boring company....which actually produces the results. Thanks again.

In reply to post #469906

Premier Technical Services (LON:PTSG)

and the dossier

Very intriguing indeed - anything like that must be worth a read if its generally available to the public - damn shame if its not :) i promise not to disclose to the public if i can have a copy cheers :)

i always think the annual report and particularly the related party transactions therein is a good starting point if you are interested in buying.

any related party transactions are to be viewed with suspicion and there is the usual candidates here

property owned and rented from by related parties - property sold to related parties.

Very Interestingly interest free loans of over 500k to 5 key personnel within the business (why?)

one obvious item that sticks out like a sore thumb is that the company had £1.6 mill of consultancy income (i wander how many staff were employed on that job that and what the margin was) during the year from a company that they then bought the following year.

Lots of sub companies that don't need auditing.

I am guessing if they have been acquiring along the way you probably end up with stuff like that as a remnant - but certainly i could see how its easy to create the smoke here - whether there is any fire or not i wouldn't have the foggiest.

Great format Paul,

Love the quick overview followed by the deeper analysis. I see Card Factory (LON:CARD) jumped 10% today! Half-way to your 20% lower end uplift already!

Hi Paul, belatedly to say I really appreciate the new/enhanced approach and the time you and Graham put in. For me, keep it subscriber only as I can honk it is more than worth it compared with much of the free tripe/ hype that is written by others . Many thanks. As a holder of Card, I appreciated your analysis encouraging me to hold
Best

Premier Technical Services (LON:PTSG)
Just noticed this company was co founded by bob Morton - have a look at his history with the takeover panel and that might be enough to make one think that bargepole and this share is probably the safest option.

In reply to post #469841

Apologies, I've got a complete mental block on G4M. I've tried a couple of times to finish off my earlier review on it, but can't seem to get anywhere.

I might just park it for now, and look at it fresh on the next update.

Overall, I think management explained what had gone (slightly) wrong, and what they are doing to fix it. So to me, it looks cheap (I have a small long position currently). Clearly though, the market seems to have turned negative on its prospects for now.

I think the issue could be that it doesn't have much pricing power. Although the increase in own brand (higher margin) stuff is promising.

On balance I think there's a reasonable chance that G4M could have a resurgence of investor interest, at some point. No idea when though.

Regards, Paul.

Hi Paul
Can I add to the chorus of approval re today's format - very appealing. And add my thanks for the education I'm receiving.
Andy