Small Cap Value Report (Tue 17 May 2022) - ACSO, MER, TRMR, NANO

17th May '22 by Paul Scott

58 comments 7709 reads

Good morning! Paul & Jack here.

Agenda -

Paul's Section:

accesso Technology (LON:ACSO) - a fact & figures-free commentary for its AGM today. Although as waffle goes, at least this is positive-sounding waffle!

Nanoco (LON:NANO) - a positive-sounding update on the all-important patent infringement case against Samsung. We don't have enough information to value this share at the moment.

Jack's section:

Mears (LON:MER) - trading ahead of expectations thanks to improving margins and a strong cash performance. The valuation is modest and the yield is good, but this is an historically low-margin business and the share price has struggled to move over the years, which limits my interest.

Tremor International (LON:TRMR) - revenue and EBITDA at record levels in a seasonally quiet Q1, although revenue comes in slightly below forecasts. The valuation is attractive here though, given previous and anticipated rates of growth. Tremor has its fair share of amber flags to investigate - it remains a divisive stock - but a relatively cheap one with some interesting growth prospects. Certainly not without risk though and the share price has been volatile, so I would expect more of the same in future.

Explanatory notes -

A quick reminder that we don’t recommend any stocks. We aim to review trading updates & results of the day and offer our opinions on them as possible candidates for further research if they interest you. Our opinions will sometimes turn out to be right, and sometimes wrong, because it's anybody's guess what direction market sentiment will take & nobody can predict the future with certainty. We are analysing the company fundamentals, not trying to predict market sentiment.

We stick to companies that have issued news on the day, with market caps up to about £700m. We avoid the smallest, and most speculative companies, and also avoid a few specialist sectors (e.g. natural resources, pharma/biotech).

A key assumption is that readers DYOR (do your own research), and make your own investment decisions. Reader comments are welcomed - please be civil, rational, and include the company name/ticker, otherwise people won't necessarily know what company you are referring to.

Paul’s Section:

accesso Technology (LON:ACSO)

750p (pre market open)

Market cap £310m

Trading Statement (AGM)

accesso Technology Group plc (AIM: ACSO), the premier technology solutions provider to leisure, entertainment and…

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topvest

17th May '22

I agree. The business is founder led and good, but they IPOd at the optimal time to the benefit of the founder. This has now all unravelled. There is such a headwind in this sector. Cost of living crisis and holidays again will likely take precedence over upgrading bathrooms (which everyone did in the last 2 years). I can see another warning. I am also a tad wary on the enormous marketing spend required for such web-sites. Truly eye-watering.

drvodkaquickstep

Freehold and long leasehold property (without plant and equipment) also worth £3.5m+ by my estimates based on similar size properties (80,000 sqft) in very similar location.

abtan

Victorian Plumbing (LON:VIC)

Hi Mark

I don't hold, but I am keeping a close eye on it as I like a lot of what I see:

Run by its founder, who already owns a lot of the company and who has bought a material number of shares recently;
Cash flow positive;
Expanding product range (into bathroom tiles and lighting);
Expanding Trade offering;
Metrics (eg own brand sales) seem to be going in the right direction.

We're 2 months into H2 and the company is forecasting modest H2 growth albeit vs a weak comp from last year. If they do miss consensus FY22 revenue forecasts I can't imagine that it will be by much.

Their gross margins are down - like everyone else's - and we're yet to have a full year without IPO costs, which in my opinion are masking the underlying positive fundamentals of the business.

By my estimates the company generated £6.7m of free cash in H1 and should hopefully generate c£15m for the full year. The current EV is c£130m. That doesn't seem too demanding.

Of course, the hope is that there is future growth. Whether that happens is anyone's guess! But with a lot of cash on its balance sheet the risk of insolvency seems low.

If there was one main concern from today, it was that there seems to be a material increase in the CAC. Whether this turns out to be a positive - by driving out weaker competition - remains to be seen.

As I mentioned, I don't have a position at the moment, but it doesn't look too expensive and I am keen to buy in at some point.

carmensfella

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MichaelFBS

Tremor International (LON:TRMR) I hold 7.9% of portfolio. 3rd largest holding

BritishExpat70

"It is egregious and insulting to shareholders in my view."

I agree entirely but then most executive comp is egregious nowadays (Buffett and Munger are good on this towards the end of the 2009 ASM recording).

My relationship with this company goes back to December 2017 and for all of the negatives I do believe that eventually the value here will win out in some form. I have done a quite a lot of research on the three main red flags:

- Debtor/creditor levels. These are normal in this type of business

- Director sales. These are programmed and generally to cover tax charges. That of course doesn't mean the awards that are taxed are not completely unjustified in their size

- Depreciation/Amortisation - much of which is write down of goodwill which can be ignored.

That said they are agressive in some of their adjustments and so one has to work the correct figures oneself. This is my take on the 2021 figures:

Whether it be a market re-rating (because the wake up to the value) plus growth in profits or a take over. But extreme patience is going to be required.

The buy backs are real and the cash one has to assume (unless the company is a complete fraud which I am convinced it is not) is real.

Hope that this is of interest.

regards

Michael

Tremor International (LON:TRMR) I hold

Thank you for your take on Tremor. Very interesting. As a holder I agree!!

ridavies

Hello tony axon. Thank yo for the reference especially to K3 Capital (LON:K3C) though do you happen to remember when Jack did his bit, or probably how best top find it?

PS for you and Dieselhead2, it is really helpful if you can put the £ sign before the prefix eg Begbies Traynor (LON:BEG), Frp Advisory (LON:FRP) though it only works if you dont put a full stop after it!

PS to both of you. Why do you think K3 Capital (LON:K3C) has fallen away so badly in the last 12 months compared with the other 2? It used to be one of my more profitable holdings, but a 43% fall from 52 week high is really bad. Reasons why it is much worse than Begbies Traynor (LON:BEG) and Frp Advisory (LON:FRP) of course has gone from strength to strength, especially recently.

JimMcLad

do you happen to remember when Jack did his bit, or probably how best top find it?

Bring up the stock report and click on Discussions near the top. Jack’s piece is the top of the list presented.

Bouden54

From my understanding of K3 Capital (LON:K3C) insolvency forms only part of their business, and is more focused on corporate sales, which I would imagine would take a hit in a recessionary environment. In contrast, the others you mention are predominantly insolvency focused, so offer purer plays on this theme.

joshwood976

Tremor International (LON:TRMR)

Problem is Michael the share based compensation means the share count is going up even with the buyback

Scuddy69

Paul are we expecting a trading update anytime soon from Revolution Bars Group. My wife was in Revolución de Cuba in Manchester on Saturday and said that it was overflowing. Conscious that no recent trading updates means that the share price has slid along with many other small caps, yet the business appears to be regaining a great deal of traction.

Thanks as always Jim - and re your report on Angle (LON:AGL) yesterday, I meant no criticism on your putting a media report from January 22 on here at this time.

However, I was wondering whether the changes in the market place since then (Russian invasion of Ukraine and almost everyone else's support for Ukraine, militarily and morally, sanctions and the economic impacts from all that; Chinese lock-downs; to name but a few) would have a restraining effect on M&A activity for some time for the Abbot's of this world.

Thanks. Good point.

I doubt any of the factors you mention would cause Abbott ($40bn available to spend) or any other large pharma a moment of hesitation if they felt they could buy Angle . The size of the cancer related market both in detection, analysis , treatment and drug trial monitoring is colossal. When FDA approval is given a bidding war could start. AN wants Angle to stay independent and work with others – I’d like to see that – but cynical financial reality may prove too much for some shareholders. More than anything, I’m naive enough to want the system out there saving lives asap whoever owns whoever’s shares.

Boon

18th May '22

Just the fact that pretty much all adtech is still dependent on cookies atm?

mojomogoz

Specifically not true for Tremor International (LON:TRMR) ...the demise of cookies is an opportunity

Paul Scott

Hi John,

Thanks for pointing out my typo, what a clanger, sorry!

I've corrected it now.

Best wishes, Paul.

You may be right on Tremor, as I was talking about adtech companies generally, and haven't done any research on Tremor.

But (solely) from your pic you posted in another comment, I don't believe your statement. And I work in digital marketing and have overseen hundreds of millions of ad spending through programmatic display and video. But maybe Tremor has cracked it.

19th May '22

Well, I can't argue with you then ;)

The schematic says nothing about data. Tell me why it means they don't escape cookies?

Small Cap Value Report (Tue 17 May 2022) - ACSO, MER, TRMR, NANO

Paul’s Section:

accesso Technology (LON:ACSO)

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Paul Scott

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