Small Cap Value Report (Tue 18 June 2019) - FDEV, TM17, CTP, KBT, ACC

Tuesday, Jun 18 2019 by

Good morning, it's Paul here!

Comments published before 8 am

A couple of video games companies update us today. I don't tend to invest in, or comment much on this sector, as you really need sector-specific knowledge about the quality & longevity of the various games franchises, which I don't have.

Team17 (TM17)

I'm flagging this, as the company seems to be performing well;

The Company has continued to experience strong customer traction from both new and established games since the start of the year and now expects both adjusted EBITDA and revenue to be ahead of market expectations for the current year...

It's not a share I've looked into before, but will check out & report on its next set of numbers, due out in Sept 2019.

Frontier Developments (LON:FDEV)

Record financial performance announced, but no indication of how performance has been against market expectations.

Frontier expects to report record annual revenue of approximately £89 million for FY19, which is more than two and a half times the previous financial year (FY18: £34.2 million)...

Frontier expects to report an operating profit margin of approximately 21% for FY19 (FY18: 8%) when full financial results are announced in early September 2019.

Both Liberum & Finncap cover this share, so there should be updates available on Research Tree later today, I imagine.

A recent Liberum note forecast £84.4m revenues, which the company looks to have beaten comfortably today. The broker forecast a 22% EBIT margin (same as operating profit margin), which the company looks to be below, at 21% actual. 

Afternoon comments

Had a bit of writer's block today, so there's only one solution when that happens - a full English at my local Turkish LOL! On we go. Let's get this show back on the road;

Castleton Technology (LON:CTP)

Share price: 106.5p (unchanged today, at 14:13)
No. shares: 81.6m
Market cap: £86.9m

Final results

Castleton Technology plc (AIM: CTP), the software and managed services provider to the public and not-for-profit sectors, announces its unaudited preliminary results for the year ended 31 March 2019.

This company used to be called Redstone.

Reading through the results statement today, it seems to specialise in software for social housing organisations. I like the…

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Frontier Developments plc is engaged in developing non-game applications and video games for the entertainment sector. The Company's segments include self-published and external publishers. The self-published segment is engaged in sales of the game and digital in-game. The Company has completed work for external publishers, including Screamride and Tales from Deep Space. Its games are developed using its COBRA cross-platform technology, allowing code and resources developed on personal computer (PC) to be compiled and run on XBox360, PS3, iPhone operating system (iOS) and Nintendo WiiU. The Company offers Elite Dangerous game on PC, Mac and Xbox One. The Company is engaged in developing games of the strategy/simulation genre, including RollerCoaster Tycoon 3 for PC and Zoo Tycoon for Xbox. The Company also offers Planet Coaster, its self-published franchise. more »

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Team 17 Group PLC, formerly Team 17 Group Limited, is a United Kingdom-based company that develops video games. The Company supports both owned first-party intellectual property (IP) and third-party IP in the development and publishing of games. The Company’s portfolio includes over 100 games, including the Worms franchise, as well as Overcooked and The Escapists. more »

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Castleton Technology plc, formerly Redstone PLC, is an investment holding company. The Company is engaged in providing software and managed services to the public and not-for-profit sectors, mainly the social housing sector. Its segments include Managed Services, which consists of Castleton Managed Services Limited and Keylogic Limited, and Software Solutions, which consists of the results of Castleton Software Solutions Limited, Kypera Limited and Kypera Pty. It offers KYPERA FINANCIALS, a finance solution, which uses a single ledger format; EDRM, which is an electronic document and records management system that allows organization to manage its documents and supporting information; P2P, which manages repairs and non-repairs processes and integrates finance and repairs system; AGILE, OPUS SERVICE CHARGES and MANAGED SERVICES. Its subsidiaries include Castleton Technology Intermediate Holding Company Limited, Castleton Group Holdings Limited and Castleton Information Group Limited. more »

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

21 Comments on this Article show/hide all

MrContrarian 18th Jun 2 of 21

My morning smallcap tweet: Westminster chimes hopefully.

Pelatro (LON:PTRO), Westminster (LON:WSG), £TM17, Local Shopping REIT (LON:LSR)

Pelatro (PTRO) wins contract from Asian telco. Also continues to contract for significant Change Requests. Together worth $1.5m.
Westminster Group (WSG) AGM: rabbit embryo pulled preaturely from hat - Letter of Intent for container screening services in Ghana. Still negotiating rates though. Hyperbolic outlook: "We have an opportunity to achieve unprecedented growth from the prospects we are pursuing".
Team17 (TM17) guides FY adj EBITDA and revenue ahead of market expectations.
Local Shopping REIT (LSR) Thalassa gives up harassing LSR and will support return of capital via tender offer at NAV. Thalassa will not participate in the tender so it may end up in control of LSR.

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tomps3 18th Jun 3 of 21

Castleton Technology (LON:CTP) FY19 results overview by Dean Dickinson, CEO & Heywood Chapman, CFO

Revenue and EBITDA in line with expectations. Cash generation strong.

A full c.1 hr results presentation will follow at a later stage.

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FREng 18th Jun 4 of 21

Good audited finals from Marlowe (LON:MRL) today. They seem to be on a roll.

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Graham Ford 18th Jun 5 of 21

Mortgage Advice Bureau are buying 80% of First Mortgage.  Looks like a nice bolt on.  One of the owners of First Mortgage is staying on.  As early fast organic growth of MAB has now slowed and the housing/mortgage market is somewhat in the doldrums it seems like a sound strategy to grow by suitable acquisitions.  Dividend will be cut to pay for the acquisition, but I’m ok with that.

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MBFP 18th Jun 6 of 21

Morning Paul,

FDEV: TU showing revenue of 89m (34.2m FY18). Last TU expectations between 79m and 89m so at upper end.

Future strategy also has some exciting developments which I think are being under-estimated by the market, after which I added to my holding.
New game - Planet Zoo - release recently announced 5th November (I think the market is under-estimating the potential of this game). I think they may look to market Planet Zoo in China through Tencent (major shareholder). They do like Pandas!
Just announced their first partnership publishing agreement with another publisher. This is part of their new strategy of not only producing a game of their every year themselves (up from one every other year) but also publishing games from other developers. More agreements are in the pipeline.
You can find this info in recent RNS's.
Needles to say I think the future is bright for FDEV and it is one of my larger holdings.


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rmillaree 18th Jun 7 of 21

Frontier Developments (LON:FDEV)

I remain firmly on the sidelines at present - they are going great guns at present but the price is top whack.
pe based on the year just started based on expected EPs of 24p - is 50 - is pretty toppy.

I would say looking at current year in isolation may be unfair as they had big name licence delayed (bond?) and i think that would have been released this year. So the current plans i think are a backup - can they get back on track and get some more big name franchises ? they need to prove themselves still in that regard i would say.

Note another concern is release dates over 12 months apart - June 2018 - then November 2019 - follow the same timeline for the next one and that would be close to the end of the next year - any timeframe more than annual means they will eventually have a year with no big release. I would like them asap to announce that they will on average release one big title every year and then we know they are where they need to be to churn out consistent decent earnings. As ever with videogames you are only as good as your next big release until the ongoing back catalogue provides enough of a backstop. There is the plus though that each new release will provide extra remnant profits going forward for future years so i do sort of understand why people are happy to pay the top dollar here as one would presume in two or 3 years that ongoing income stream will be much larger and hopefully providing more profits than is the case now.

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MBFP 18th Jun 8 of 21

In reply to post #484485

Hi Millaree:
FDEV: They are highly rated because they are an excellent company. I have attended their presentations and follow them closely. I am not aware of a 'big game licence delay'. The confusion may be because they have been releasing a game every 2 years and are now increasing to every year. This is their clear strategy. This is a financial year not a calendar year. They are entirely 'on-track' They will release Planet Zoo on 5th November. The next release after that will be in the following calendar year.
This is an excellent company that does what it says and is executing its defined strategy.

FDEV also recently announced a new strategy. They will also assist other developers to publish their games too. This will add to their revenue. They have just announced their first partnership publishing agreement and more are in the pipeline (see recent RNS)

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Aislabie 18th Jun 9 of 21

In reply to post #484453

An interesting point with the numbers from Marlowe (LON:MRL) today is that the receivables are running at 100 days, this company is in a similar space to Premier Technical Services (LON:PTSG) where the 90+ day receivables have been one of the sources of concern.
The results from Marlowe (LON:MRL) therefore seem to endorse the credibility of PTSG numbers (some governance issues remain). It would be good to know from any insiders here whether the contracting trade is generally bad in its payments (or weak in its collection)

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RichardK 18th Jun 10 of 21

Beeks Financial Cloud (LON:BKS) is down over 20% this morning with an absence of any public news. Volume (presumably largely selling) over 3 times the daily average.. Anyone any idea why? I hold.


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JohnEustace 18th Jun 11 of 21

In reply to post #484536

Could be related to this?

This is the blog where leoleo73 now posts

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fwyburd 18th Jun 12 of 21

In reply to post #484536

Hi Richard
An investor posted some analysis this morning which resulted in the sharp fall. I think it's a little premature to write off their end of year results (all about the H2 weighting and the fabled Tier 1 customer they expected to get) but it just shows how jittery the market is. Long term investors should relax IMO. 

Hope that helps



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RichardK 18th Jun 13 of 21

Thank you, John and Francis. The price has picked up a bit now, but I am not inclined to panic sell at this price.


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Brookeda 18th Jun 14 of 21

In reply to post #484551

Its the normal conundrum now on Beeks Financial Cloud (LON:BKS). Do we double down knowing a couple of tier one signings and things will pick up. Another few months of silence and 80 could become 50.....hmmmm
Going to sit on my hands for a couple of days and see which way this goes.

I am currently long but it's not a major holding of mine

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andyi 18th Jun 15 of 21

I think Paul is invested in Beeks Financial Cloud (LON:BKS) he may care to comment

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andrea34l 18th Jun 16 of 21

In reply to post #484561

I am a bit puzzled by some of the comments on this page to do with Beeks Financial Cloud (LON:BKS) (which I do not hold).

Can a fall of 14% really be linked to an investor (of a stature unknown to me) putting a post up on a blog? Considering the high volume, I am very sceptical of such a statement.

And do we actually "know... things will pick up"? In the interims, the company quite plainly states that although there is a material increase in the sales pipeline "FY2019 revenues (are) expected to be broadly in line with expectations" (which sounds quite lacklustre to me) and that there is a "reduced underlying PBT FY2019 forecast" due to quite a number of things. 

They forecast "underlying PBT growth of approximately 25%" which in my mind makes the current rating of 40 a bit rich.

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davidjhill 18th Jun 17 of 21

In reply to post #484546

Beeks Financial Cloud (LON:BKS) Thanks for posting this. All very interesting analysis, but nothing really new from what I can work out. Had another look at the H1 results and outlook. Nowhere did they talk about signing another Tier 1 in H2; rather they talked about the extended sales cycle for these customers, something I can certainly attest to from personal experience. However, these customers are very sticky once signed so I understand the strategic objective.

Given the lack of trading update I can only assume the strong H2 organic growth expected has indeed happened as expected and therefore results should reflect that. Looking at ARR at end H1 the revenue of £7.5m shouldn't be a high bar and thus adj eps of 2.6p.

The key will be the forward outlook where we are expecting an eps of 4.3p+ for next year based on revenue of £10.75m. If results are as expected then ARR should be circa £8.5m. That requires 25% revenue growth for the year, which appears reasonable to me excluding any Tier 1 sign ups. Last year saw 40% and was around £2m, so they only need to do broadly the same in absolute £ terms to hit expectations. Shouldn't be any incremental capex investment required to support that either.

At 85p then 20* next years earnings feels reasonable to me for a recurring revenue model. Tier 1 jam on top, growth of 20%+ and new products such as back up Saas gaining momentum.

Todays fall was on £250k worth of stock so definitely a liquidity issue rather than anything else but let's see what the results bring. My sense is that management were surpsirs

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davidjhill 18th Jun 18 of 21

In reply to post #484586

Beeks Financial Cloud (LON:BKS)

"Considering the high volume, I am very sceptical of such a statement.'

Andrea341 - bear in mind the fall was on £250k worth of stock trading hands. Another £80k of principally buys pushed it back from 77p - 85p!! don't need many followers of a blog post to achieve that kind of minuscule volume and then as the blog post gets shared as the price is dropping a few weak nervous holders also capitulate. Happens all the time. Usually only the market makers win !!

Whilst this might be higher than average volume for a given day it is actually tiny compared to the market cap. To put into context 0.6% of the companies shares changed hands leading to a 25% fall in the companies market cap. That's a big liquidity gap to be wary of.

Given the elapsed time since the last trading statement and imminent full year update it would be highly surprising for them to be anything other than within 5% either way of market expectations for the full year. Otherwise they should certainly put a trading statement out. If they haven't then that would be a problem and would serve as a red flag to me, but having met them I'd be surprised.

99% of revenues are recurring and these types of businesses are generally rated on a much higher earnings multiple due to visibility. They are on 20* next years forecast earnings - not particularly rich for a business growing at 25% p/a. Personally, I think around 100p is about right.

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LeoInvestorUK 18th Jun 19 of 21

In reply to post #484606

Yes, I was surprised (and somewhat unnerved) by the reaction. I think davidjhill has it exactly right in this respect. If anyone has any questions (or questioning comments) about my post feel free to ask them there.

Blog: LeoInvestorUK
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fwyburd 18th Jun 20 of 21

In reply to post #484606

HI David,

Re: Beeks Financial Cloud (LON:BKS)

I made the comment about the Tier 1 provider as I thought (possibly incorrectly) that they talked about this in their H1 results briefing to PI World. It's worth a listen again in light of Leo's post and the share-price movement today.

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davidjhill 18th Jun 21 of 21

In reply to post #484636

Hi Francis,

They did sign a Tier 1 provider and that revenue should be starting to accrue as they also delivered the connection. I think Leo was concerned that no new Tier 1's have been announced and was assuming that leads to an earnings miss risk. I was just making the point that management didn't allude to any being signed when they released H1 results and I wasn't expecting any. What they said was that a number of Tier 1's were now in the pipeline and the procurement/sales cycle was longer than the rest of their business. I don't think this year or next years EPS is predicated on signing new Tier 1s based on what I can extrapolate from the numbers, but it is a big forward growth area for them going forward.

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 Are LON:FDEV'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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